A record $177 billion of bonds worldwide went into default in 2002, Standard & Poor's said yesterday, as slow economies and accounting worries caused companies' debt-paying abilities to sink.
"Last year presented us with a huge surprise - corporate governance and accounting issues," said Mr Gary Palmer, joint head of high-yield sales, trading and research at Wachovia Securities in the US.
S&P said corporate credit-worthiness should fall more slowly in 2003 as the global economy improves. Last year S&P downgraded four times as many companies as it upgraded.
The default volume rose 53 per cent from 2001, S&P said, when 211 issuers defaulted on a record $115.4 billion (€1,095 billion) of debt.
The credit rating agency said 194 issuers, including cable TV operator Adelphia Communications, fibre-optic network provider Global Crossing and phone company WorldCom, defaulted on $177.1 billion of debt last year.
WorldCom led the way, S&P said, defaulting on $30 billion after the company said it misstated $3.9 billion of expenses.
US issuers were responsible for 106 of last year's defaults, totaling $142.8 billion, or more than 80 per cent of the total volume. European Union issuers posted 22 defaults totaling $14.6 billion.
S&P said the 12-month global "junk bond" default rate ended 2002 at 9.2 per cent, down from 10.74 per cent in September but up from 8.94 per cent a year ago. The US rate fell to 7.32 per cent from 9.72 per cent in the last year, while the European Union rate jumped to 13.48 per cent from 6.92 per cent, it said.
Last week another rating agency, Moody's Investors Service, said it expected its junk bond default rate, now 8.1 per cent, to fall to 7 per cent by the end of 2003. Last year, S&P downgraded 1,123 companies and upgraded 266. The 4.2-to-1 downgrade-to-upgrade ratio was better than the 5.1-to-1 ratio in 2001, but fell to 5.9-to-1 in the fourth quarter, when S&P recorded 315 downgrades and just 53 upgrades.
The credit rating agency also created 84 "fallen angels," or companies that fall to junk status from investment grade.
Among these were WorldCom, Qwest Communications International and a slew of energy companies and utilities such as El Paso Corp., with $20.9 billion of debt.
S&P rates companies on a 22-notch scale from "AAA" to "D", and a downgrade often boosts borrowing costs. A rating of "BBB-minus" or higher is considered "investment grade"
S&P said the risk of war with Iraq clouded the credit quality outlook, especially if oil prices rose and business and consumer confidence fell.
