Moody’s Investors Service expects the U.S. corporate debt default rate to accelerate to nearly 6 per cent by year-end from 2 per cent in 2022, it said in a report on Tuesday.
The actual rate of default could prove much higher – 17.7 per cent in the worst-case scenario – depending on the “severity of fallout from rising interest rates, the Russia-Ukraine military conflict, China’s economic slowdown and pandemic concerns,” the report’s authors noted.
The number of non-financial corporate defaulters doubled to 10 in the last quarter of 2022 from just five in the third quarter, it said. A total 32 corporate families defaulted on their debt in 2022, compared to 21 in 2021, it added.
Most defaults – nearly 70 per cent – occurred on distressed exchanges, wherein ailing companies replaced their existing debt with a less burdensome debtload.
At the same time, the number of credits rated B3 negative or lower hit 218 by year-end, its highest count since September 2021 and a sign of more defaults to come.
Sectors expected to feel the worst pinch this year include chemicals, metals and mining, paper and forest products, and shipping, according to Moody’s.
Meanwhile travel-related industries are expected to recover in 2023 with improving profit margins.
“Our bleaker macroeconomic forecast for declining economic activity in 2023 will remain sluggish through 2024,” the analysts wrote, “which means the profitability and cash generation of issuers that operate in more cyclical sectors will be especially hurt.” (Reporting by Matt Tracy)