Fallen angels defaults

Due to a combination of aggressive underwriting in the late 1990s, a meltdown in the telecommunication sector, a record number of fallen angel defaults, and a recession in manufacturing, defaults in the United States also soared in 2001 and 2002. The US default rate ended 2001 at 12.9% and the third quarter of 2002 at 14.3%, both unprecedented levels. The average annual default rate in the United States for the period 1980 through 2000 was just 3.4%, with a peak of 8.7% recorded in 1990. 

The average time to default in Europe was a very brief 2.1 and 2.5 years in 2001 and 2002, respectively. This statistic was substantially lower than the US average of approximately 3.4 and 4.9 years in 2001 and 2002, excluding fallen angel defaults. Europe s accelerated time to default was a result of the aggressive 1999 and 2000 new issuance rating mix. 

Excludes fallen angel defaults. Based on bond prices one month following default. Prices provided by High-Yield Advantage. 

Not annualized, through Septemher. The 2001 default rate excluding fallen angels was 9.7%. The Septemher 2002 year to date default rate excluding fallen angels was 11%. 

In Europe, the number of issuer defaults increased approximately 40% from 18 for full-year 2001 to 25 through the third quarter of 2002, but default volume exploded, quadrupling from 4.2 billion to 16 billion (see Exhibit 28.7). Although the fallen angel phenomenon did have a material influence on the volume tallies, the more significant variable... 

EXHIBIT 28.9 Vintage Distribution of Defaulted High-Yield Bonds Excluding Fallen Angel United States 2001... 

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