Significantly fewer corporate bond defaults occurred this year than last, according to early figures released yesterday by Moody's Investors Service.
The default rate for speculative-grade issuers in 1992 will likely finish at 3.9%, far below the 9.7% rate in 1991, Moody's said in a release.
The 3.9% rate is also a lot lower than the 4.65% average speculative default rate for the 1970-1991 period, Moody's said.
"I think, in part, we have to thank the economy; it's been behaving a little better this year," Jerome S. Fons, an economist and senior analyst at Moody's. said yesterday.
Fons also cited a lower interest-rate environment spurred partly by the Federal Reserve's discount-rate cut in December 1991 and investor appetite for smaller companies' equity.
Issuing that equity allowed those companies to strengthen their balance sheets, he said.
Moody's plans to release a full report on defaults in mid-January, Fons said.
Through yesterday, 41 issuers defaulted on public debt totaling $7.08 billion this year, Moody's said. Last year, 94 issuers defaulted on $20.3 billion.
R.H. Macy & Co. had the year's largest default. a Chapter 11 filing in January that affected $1.21 billion of public debt. El Paso Electric Co. was next. defaulting on $1.02 billion of debt, Moody's said.
Despite those two large defaults, the dominant trend was toward smaller defaults, the rating agency said. The average amount affected per defaulted issuer dropped to $173 million in 1992 from $216 million in 1991. Moody's said.
"The pattern of smaller company defaults, which is more in line with historic experience, suggests credit continues to be especially tight for small, weak firms with more limited access to a variety of capital sources," Moody's release says.
As of yesterday, the year's total gross issuance of straight speculative-grade debt totaled $34.77 billion, just under the 1987 record of $34.81 billion, Moody's said.
This year witnessed stabilization in the credit quality of speculative-grade bonds after two years of downgraded, the release says. The 97 companies upgraded within or out of speculative-grade range almost balanced the 105 companies downgraded. In 1991, Moody's upgraded 82 speculative-grade companies and downgraded 216.
The rating agency forecasts little change in corporate bond default rates in 1993. Stabilizing credit risk and a gradual overall economic improvement should translate to a default rate at or below 1992 levels.
C. Richard Lehmann, editor of High Yield Securities Journal and president of Bond Investors Association, said his figures, though different, also show a sharp decline in defaults this year over last. He said his figures are higher because they encompass all defaults, not just rated issues.
For 1992, Lehmann's final figures show 41 defaults totaling close to $7.95 billion, compared with 107 defaults totaling $23.34 billion in 1991. In 1990, Lehmann showed 111 defaults totaling $28.5 billion.
Lehmann said the 1992 number figure only looks good because of the huge default rates posted in 1990 and 1991. He attributed the high number of defaults in those years to a bumper crop of poor quality new issues sold from 1985 to 1988.
Lehmann expects 1993 defaults to be closer to the $5 billion range. Lehmann counts defaults as failure to make any principal or interest payments. His default figures do not include technical defaults for corporate bonds.
Ironwood Capital Partners Ltd. yesterday said it had privately placed a $50 million equipment lease securitization deal for Copelco Credit Corp. on Dec. 17.
Sources at Ironwood said the transaction involved the sale of pooled small-ticket equipment leases, mostly for copiers, sold by Copelco Credit Corp. to a special purpose corporation, Copelco Credit Funding Corp. VI. Copelco Credit Funding then issued the notes in a private placement through Ironwood to eight institutional investors, the sources said.
The notes were backed by 15% credit enhancement, which included a letter of credit from the New York branch of Bayerische Vereinsbank AG (Union Bank of Bavaria). The trustee on the transaction is Manufacturers and Traders Trust Company of Buffalo, N.Y. Duff & Phelps Credit Rating Co. assigned the deal an AAA rating.
The transaction incorporates a non-amortization period by which interest only is paid on the notes for the first 12 months. Principal that would otherwise have to be repaid during the non-amortization period is reinvested in additional leases for the series pool. The feature has the effect of lengthening the notes' average life to 2.2 years from 1.6 years.
The pool consists of about 7,500 equipment leases, with an average size of approximately $6,600 of about 10 types of office equipment.
Copelco Credit Corp. is a wholly owned subsidiary of New Jersey-based Copelco Financial Services Group Inc. Ironwood is a Connecticut-based investment banking firm specializing in the structuring and private placement of corporate debt securities.
Elsewhere yesterday, Loews Corp. said it will redeem all $200 million principal amount of its outstanding 10% subordinated notes due 1996 at par, according to a company release.
Loews will redeem the notes Feb. 1, and the interest payment due on that date will be made as usual, it said.
In secondary activity yesterday, the high-grade corporate bond remained dead.
"It is very quiet and it's a holiday atmosphere," said one high-grade trader, adding it was slower than he's ever seen in his "many years" as a trader."
The light activity could also have resulted from bad weather in the New York metropolitan area, he said.
A trader further south on the East Coast also said "nothing" happened yesterday and also blamed the weather.
"It rained, it got icy, no one came to work," he said.
High-yield bonds also finished unchanged.
