New York, April 09, 2005 -- The global speculative-grade default rate ended the first quarter by falling to 2.2% from 2.3% in the fourth quarter 2004, Moody's Investors Service reported today. As a percentage of dollar volume outstanding, the global speculative-grade default rate fell to 2.1% in the first quarter from 2.5% in the fourth quarter 2004.

Moody's forecasting model for the issuer-based global speculative-grade default rate predicts that the default rate will rise from its current 2.2% level to 2.8% by the end of 2005, reaching 3.2% by March 2006.

"Several signs in the corporate credit markets lend support to expectations of a higher default rate by year's end," said David T. Hamilton, Moody's director of default research. "Yield spreads have been extremely tight and can only widen going forward. Recently, high-yield deals have been cancelled or re-priced at less favorable terms."

Corporate default counts were unchanged from the prior quarter, while total default volume fell sharply. In the first quarter 2005, ten corporate issuers defaulted on a total of $2.2 billion of bonds. In the fourth quarter 2004, ten issuers defaulted on a total of $8.1 billion of bonds, while in the 2004 first quarter, there were 12 bond defaults totaling $4.3 billion. R.J. Tower Corporation was the largest default in the first quarter with bonds totaling $453 million. Of the ten first quarter defaulters, seven were U.S.-domiciled. Two were based in Sweden and one in Brazil.

Corporate defaults in the last year have primarily been driven by U.S. credit quality. Thirty-three of the 38 defaults in the past 12 month have been by U.S.-based issuers concentrated in the lowest tiers of speculative grade ratings. The U.S. speculative-grade default rate fell to 2.6% in the first quarter from 2.8% in the fourth quarter 2004.

Moody's U.S. dollar-weighted default rate edged down to 2.3% in the first quarter 2005 from 2.5% in the fourth quarter 2004.

Moody's European speculative-grade default rate finished the first quarter 2005 at 1.8%, up from the 1.3% registered in the fourth quarter 2004 but lower than the 2.2% of the first quarter 2004.

Moody's noted that defaults in Europe may also be at a turning point: two Moody's-rated European issuers defaulted in the first quarter, already equaling the total number of defaults in Europe in all of 2004. Both European defaults were by issuers based in Sweden, Concordia Bus, AB ($207 million) and Concordia Bus Nordic AB ($169 million). As a percentage of dollar volume outstanding, the European speculative-grade default rate fell to 1.3% in the first quarter from 2.3% in the fourth quarter 2004.

Default activity in the leveraged loan market was quiet in the first quarter 2005 as well. R.J. Tower was the sole Moody's-rated loan default in the first quarter, sending Moody's issuer-weighted speculative-grade loan default rate down to 1.4% from 1.6% in the fourth quarter 2004 and from 2.7% in first quarter 2004.

-Ends-

New York
David Hamilton
VP - Senior Credit Officer
Ratings Research & Analysis
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Sharon Ou
Analyst
Ratings Research & Analysis
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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