159 Global Defaulted Companies Last Year "Due to Prolonged High Interest Rates"

As high interest rates persist globally for an extended period, corporate defaults have surged sharply.

According to credit rating agency Moody's on the 17th (local time), 20 companies under its credit rating coverage defaulted last month, a fivefold increase from 4 companies the previous month. The total number of defaulted companies last year reached 159. The default rate of companies over the past 12 months stood at 4.8% as of last month, the highest since May 2021 when the impact of the COVID-19 pandemic was felt.

Among the companies that defaulted last month, more than half were American firms. European companies accounted for 8 defaults, which, excluding those related to the Ukraine war and sanctions against Russia, is the highest since the global financial crisis 15 years ago. Companies with low credit ratings and high debt are struggling to raise capital.

The industries with the most defaults last year were business services and healthcare, with 15 and 13 companies respectively. In the healthcare sector, many companies had previously raised funds at low interest rates, making them highly sensitive to rate increases, and they are struggling due to rising wages and interest expenses. There are also expectations that defaults will surge in the high-tech industry sector this year.

Given the slow pace of inflation easing and the still-strong labor market, there is a considerable outlook that the U.S. may start cutting its benchmark interest rate later than the market expects.

Moody's fundamentally expects the default rate to peak at 4.9% in the first quarter of this year and then decline to around 3.7% by the end of the year. This trend is slower compared to the 2008-2009 global financial crisis or the 2020 COVID-19 pandemic period. However, Moody's warned that if a severely pessimistic economic scenario unfolds, the default rate could rise to as high as 11.5%.

Another credit rating agency, Standard & Poor's (S&P) Global Ratings, also reported that the number of global defaults last year increased by 80% from the previous year (85 companies) to 153 companies, and predicted a similar situation could occur this year.