defaulting on their bonds at the highest rate in seven years, according to Moody's Investors Service.

More than 93 issuers with credit ratings of Ba1 or lower have delayed or failed to make payments on their junk bonds so far this year, pushing the rate of default to 5.79% on Nov. 1, up from 3.4% in January.

Last year at the same time only 53 junk borrowers were in default.

"This is the highest rate we've seen since November 1992," said Sean Keenan, a Moody's vice president and senior analyst.

Causes of the high default rate can be traced back to 1995. Economic factors such as declining interest rates whetted investors' appetite for new issuance, and by the first half of 1997 borrowers were flooding the market.

Many of these companies and countries were first-time issuers with lower credit quality, the agency said. In April 1998 that low-quality trend peaked, with 33 out of 35 issuers rated B1 or lower.

"This reminds you of the risks of investing in highly-leveraged companies," said Margaret Patel, vice president of Boston-based Pioneer Investment Management, Inc., which manages high-yield mutual funds.

The combined market effects of the Asian crisis, Russia's default on its domestic debt last year, and the near collapse of the hedge fund Long Term Capital Management pulled the rug out from under many issuers. Along with problems among borrowers from the Asia-sensitive shipping and steel sectors, many newer issuers were faced with tougher credit standards and a lower tolerance for risk among banks and investors.

As it became more difficult for these issuers to secure bank loans to tide them over, weaker companies began to default.

Now investors and bankers are also beginning to feel the pain. This year, issuers of more than $30.1 billion in speculative-grade bonds are in default. Including both the bonds Moody's rates and the liquid instruments it watches but does not rate, defaults totaled $11.7 billion last year.

"In retrospect, you see that there were some really poor candidates (in the market)," and some still owe payments on bonds, Ms. Patel said.

With the high-yield market in recovery from last year, a slower growth rate in new issues has further aggravated the default rate.

In the last 12 months Moody's has rated 1,837 issues, compared with 1,843 from Oct. 1997 to Oct. 1998. Mr. Keenan said that even though junk bond issuance has been growing quickly over the last five years, "that growth really slowed over the summer."

Until issuance starts to pick up, Moody's does not expect any real change in the default rate, he said.

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