Junk Bond Defaults Total $54.1 Billion

Moody’s Investors Service said Tuesday that 136 issuers worldwide defaulted on a record $54.1 billion of junk bonds in the year’s first half, but the rating agency forecast an end to the steep increase in defaults by early next year.

A slowing global economy has reduced corporate profits and sales and often raised borrowing costs. That led many companies, especially in the telecommunications sector, to miss interest payments or seek bankruptcy protection.

Moody’s said the worldwide 12-month junk bond default rate rose to 7.7% in June from 7.5% in May and 6.2% in January. The U.S. default rate rose to 8.2% in June from 7% at the start of the year.

In all of 2000, a total of 167 issuers defaulted on $49.1 billion of debt, Moody’s said.

Moody’s said the global default rate probably will top out near 10.1% in February or March of 2002, before falling to 9.4% by June. The U.S. default rate, meanwhile, will top out between 10% and 11% during the winter, Moody’s said.

“There’s a good news, bad news aspect to this report,” said David Hamilton, an analyst in Moody’s ratings research and analysis group. “The bad news is the default rate will continue to go up, but the good news is there seems to be a real peak.”

Among the defaulting companies were California utilities Pacific Gas & Electric Co. and Southern California Edison, banana producer Chiquita Brands International Inc., lender Finova Capital Corp. and home appliance maker Sunbeam Corp.

Defaults have helped hold total returns for junk bonds to just 3.8% this year, according to Merrill Lynch & Co. Most major U.S. taxable fixed-income classes--super-safe U.S. Treasury bonds being an exception--have returned more.