Defaults Surged to ‘Massive’ Half-Trillion Dollars (Update1)

May 13 (Bloomberg) -- A “massive” $541.2 billion of rated debt defaulted in the first three months of this year, the biggest quarterly amount ever, according to Standard & Poor’s.

Sixty-two companies defaulted worldwide, the largest number since the first quarter of 2002, S&P said in a report today. Of the total, 40 were in the U.S., the New York-based ratings company said. The global speculative-grade default rate reached 2.2 percent in the first quarter, compared with 0.47 percent in the period a year earlier.

“After hitting record lows in 2007, the pace of defaults has picked up markedly since the second half of 2008,” said Diane Vazza, head of S&P’s global fixed income research group. “If the pace set in the first quarter is maintained through the remainder of the year, defaults would total 248 in 2009, the largest number on record.”

Corporate finances are deteriorating as the recession causes revenue to wither at the same that banks’ $1.4 trillion of credit losses and writedowns forces them to crimp lending.

The U.S. speculative-grade default rate will reach 14.3 percent by March next year, the highest since S&P started tracking the data 28 years ago, S&P said. The previous peak was 12.52 percent in July 1991. A total of 210 issuers must default in the next 12 months to meet the prediction, S&P said.

Speculative-grade, or high-yield, debt is graded below BBB- by S&P.

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net