Canadian corporate defaults hit a two-decade high in 2009, driven by troubles in the forestry sector, but will likely fall back over the next year, a report from Moody's said on Thursday. A total of 16 defaults occurred in 2009 affecting C$17.0 billion ($16.8 billion) of debt, up from 12 defaults in 2008, affecting C$5.5 billion of debt, the "Default and Recovery Rates of Canadian Corporate Issuers, 1989-2009" study said.
Default rates among Moody's-rated Canadian issuers were 5.1 percent in 2009 and 5.6 percent in 2008, well above the historical average of 1.8 percent. "In contrast to the 2001 recession, which was dominated by telecom failures, Canadian defaults in the current cycle were driven in large part by the forest products sector, one of the country's traditional industries," Sharon Ou, author of the report, said in a release.
In terms of default volume, however, the C$17 billion in defaults in 2009 was less than the C$18.4 billion in 2000. Speculative-grade issuers saw a big jump in defaults in the latest period of financial turmoil, at 10.3 percent in 2009 and 11 percent in 2008, after just 1.3 percent in 2007.
Moody's said it sees the Canadian speculative-grade default rate falling sharply over the next year. It expects a default rate of 4.8 percent in 2010, in line with the historical average of 4.7 percent. In the past decade, 101 rated and unrated Canadian issuers defaulted on a total of C$67.1 billion in debt, the report said. Moody's had rated 53 of those issuers with a total of C$59.5 billion in debt outstanding.
About a third of the defaults were by issuers from basic industries like forestry and mining. Measured by default volume, however, 41 percent of the defaulted debt was contributed by telecom issuers, which defaulted on C$5.5 billion of debt in September 2002.