CNN — More companies globally defaulted in the first three months of the year than in any quarter since late 2020. In late 2020, businesses were still held back by restrictions to stem the spread of Covid.
In a report on Tuesday, credit rating agency Moody’s said 33 of the companies it assessed defaulted in the first quarter. This is the highest level since the fourth quarter of 2020, when 47 companies defaulted. Nearly half, or 15, defaulted last month. This is the highest monthly number since December 2020.
Companies that defaulted included Silicon Valley Bank, which collapsed in March, and its holding companies SVB Financial Group and Signature Bank.
Two lender failures last month sparked panic among investors and customers of local US banks, and a wider loss of confidence in the global banking sector.
Moody’s said “Most defaults continued to exist in the non-financial sector last month, although the defaults in the financial sector were notable,” citing US sports broadcaster Diamond Sports Group as recording the largest default in dollars. mentioned.
business under stress
Many businesses have been hit hard this past year by rising interest rates, high energy prices and slowing global economic growth prospects.
The number of companies that went bankrupt in the UK last month far surpassed pandemic levels, and government support helped keep them afloat.
Data from the UK Bankruptcy Authority showed that the number of business insolvencies increased by 16% in March compared to the same month last year.
Investors were wary of corporate bonds last year, a sign of a tougher global environment for corporate borrowers. For example, the iShares exchange-traded fund, which tracks bonds of investment-grade companies or companies with good credit ratings, fell 20% in 2022. Since then, it has risen by just 3%.
More defaults on the way?
Moody’s expects the default rate on speculative-grade corporate debt to rise from 2.9% in March to 4.6% by the end of the year, combined with rising borrowing costs and a slowdown in the global economy.
Speculative-grade debt refers to high-risk corporate bonds, also known as “junk bonds,” and is used when the likelihood of default by the borrower is reasonable or high.
By the end of the first quarter of next year, the global default rate for such debt is likely to rise to 4.9%, according to Moody’s. This is well above his long-term average of 4.1%.
Similarly, another credit rating agency, S&P Global, said last month it expects 4% of U.S. speculative-grade corporate debt to default by the end of 2023, up from 1.7% at the end of 2022. rice field. Earnings lagging, cost pressures persist and tight fiscal conditions limit access to capital. “
One of the most vulnerable sectors is commercial real estate. US office building prices plummeted last year, leaving developers empty or underutilized due to continued remote work, potentially leading to losses for banks as developers can’t repay loans. There is a nature.
— Julia Horowitz contributed to the report.
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