Moody's Investors Service reported Friday that it has downgraded almost half of all bonds that were in the lower half of its junk- bond rating system at the end of last year.
The percentage of bonds rated "B3" or below that has been downgraded is the highest ever, Moody's said, surpassing the 40.9% rate set in the 12 months ended March 1991. Now, as then, the default rate for the bonds is soaring.
Junk, or high-yield, bonds are so named because they carry higher credit risks. Moody's has 11 junk grades; "B3" is its sixth-highest.
Contributing to the weakness was the implosion of many cash-needy telecommunications companies that racked up big losses and never found enough customers .
More than 20 of these, including PSINet Inc. (ticker symbol: PSIX), 360networks Inc. (TSIXQ), Teligent Inc. (TGNTQ) and Winstar Communications Inc. (WCIIQ), have defaulted on debt or sought bankruptcy protection, as banks shut off the lending spigot and bond investors ran for cover.