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Corporate Bond Default Rate Hits Record Pace in 1st Quarter

April 24, 2001|From Reuters

Companies worldwide defaulted on $37 billion of bond debt from January to March, the fastest annualized default rate ever, Standard & Poor's Corp. said Monday.

Amid the economy's sharp slowdown, 48 companies, including 41 U.S. firms, couldn't or wouldn't make their bond payments in the first quarter.

Included on that list were California's two giant utilities, PG&E Corp. and Edison International's Southern California Edison unit, as well as Asia Pulp & Paper, Finova Group, Globalstar and Loews Cineplex Entertainment.

In dollar terms, corporate defaults already are approaching full-year records set in 2000, in just one-fourth the time. Last year, 117 companies worldwide defaulted on $42.3 billion of debt.

Bonds of most of the defaulting companies carried junk grades before they defaulted, S&P noted--which means investors should at least have known of the high risk involved in owning the securities.

Many of the defaulting companies sold bonds from 1997 to 1999, when credit was much easier to obtain, and are defaulting now because they either need more cash to grow and can't get it, or are unable to refinance their existing debt on easier terms.

S&P expects the global junk-bond default rate to reach 8.3% of bonds outstanding by year-end, the worst since the 10.9% all-time high set in 1991.

"The only way to minimize risk is to invest in more highly rated companies," said Leo Brand, S&P's director of risk solutions.

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