Already high bankruptcy and default rates in mining & metals and oil & gas will only accelerate this year and the prolonged downturn in commodities will increasingly spill over into other sectors.
So says Moody’s Investors Service in a new report which forecasts global speculative-grade (sometimes called junk) default rates will continue to rise this year, to reach 5% in November due to continued stress in the commodity sectors. Thereafter, it will stabilize in the range of 4.5%-5.0% through April 2017 says the ratings agency.
“We expect the oil price slump to continue to place upward pressure on corporate defaults,” said Sharon Ou, a Moody’s Vice President and Senior Credit Officer. “Nonetheless, high-yield spreads have tightened noticeably in the past two months, signalling that the default rate could taper off next year.”
In the US the rate of bankruptcies, distressed exchanges, missed payments and chapter 11s will reach 6.2%. The default rate among speculative-grade Moody’s-rated metals and mining companies is forecast to climb to 11.5%, and for oil and gas companies to increase to 10.3%. Earlier this year Moody’s predicted an overall default rate among speculative and investment grade issuers of more than 7%.
In January, Moody’s embarked on a sector-wide review of the 87 global mining majors that it covers including entities such as Chile’s Codelco, Kazakhstan’s Kazatomprom, Russia’s Alrosa and China’s Minmetals which enjoy the financial backing of the state.
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