Moody’s: Default rate rises to 3.5% in March

The amount of unpaid and written off outstanding borrowings increased in March as the pandemic-induced financial turmoil continues to weigh on the economy, Moody’s Investor Service noted in a recent report.

The debt watcher noted that global speculative-grade default rate registered at 3.5 percent last month, higher from 3.2 percent in February and 2.1 percent a year ago for the same period.

Among the 13 Moody’s-rated corporate issuers defaulted in March, the credit rating firm noted that most came from petroleum and mining sectors.

Moody’s recorded 28 defaults in the first quarter, five of which were in Asia. Bulk or 20 were based in North America, while the remaining came from Europe and Latin America.

Most of the defaults year-to-date were from the retail industry, the debt watcher added.

Following this, Moody’s set its baseline forecast of global default rate to reach 10.6 percent by yearend and increase further to 11.3 percent to March next year as recessions in large economies loom amid the pandemic.

“The coronavirus emerged as a pandemic, spreading more widely and rapidly than previously expected, posing a substantial threat to the global economy,” the credit rating agency said.

Apart from this, Moody’s also considered the plummeting oil prices and falling asset prices in equity and fixed income markets on the default rate forecast.

With lockdowns imposed across the globe, Moody’s said that the slowdown in consumption and business disruptions would cut profits and prompt layoff, which could then lead to “sharp rise” in defaults.

The pandemic has “caused a faster-than-usual increase in the unemployment rate and has created severe and extensive credit shocks across many sectors and regions,” it added.

Its baseline forecast assumes that the second quarter will post weakest economic activities, but a recovery is seen after as the pandemic eases.

“The easing of social distancing restrictions and the considerable stimulus provided by global central banks and governments will alleviate some of the economic shock in the first half and support a recovery once the virus is contained,” Moody’s said.

In the next 12 months, the debt watcher is expecting that highest default rates will be coming from hotel, gaming and leisure segment given its high exposure to economic slump due to pandemic. Tyrone Jasper C. Piad