Magazine article The Journal of Lending & Credit Risk Management

Defaults Continue to Soar in 1999. S&P Says

Magazine article The Journal of Lending & Credit Risk Management

Defaults Continue to Soar in 1999. S&P Says

Article excerpt

The number of corporate defaults is soaring this year, leaving little doubt that 1999 will register the largest number of rated defaults ever, according to Standard & Poor's. (Because the universe of rated companies has expanded dramatically, the percentage of rated defaults is unlikely to exceed that of previous years.)

Already, more rated companies worldwide have defaulted this year than in all of 1998, according to a Standard & Poor's special report entitled "Defaults Soar in First Half of 1999." In the first six months of 1999, 55 rated or formerly rated companies defaulted on a total of $20.5 billion of debt, while in 1998, 51 companies defaulted on a total of $10.9 billion of debt.

"The 1999 numbers stand out because 1998 saw a record number of defaults--more rated companies defaulted in 1998 than in any year since 1991," said Nicholas Riccio, managing director in Standard & Poor's Corporate Ratings Department. "We are already past that this year, in some degree due to the market's increased appetite for risk, as well as the fallout from the Asian and Russian economic crises.

In 1991, 65 companies defaulted on a total of $19.8 billion of debt, Standard & Poor's said. The lowest rate of default after 1991 occurred in 1993, when seven companies defaulted on $1.425 billion of debt.

As has been found in previous Standard & Poor's default studies, there is a well-defined correlation between credit quality and default remoteness: in other words, the higher the rating from Standard & Poor's, the lower the probability of default, and vice versa.

A copy of the report is available on Standard & Poor's web site--www.standardandpoors.com/ratings. Follow the links for "CreditWeek" and "Cover Story."

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