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Fitch Predicts 10% Default Rate On Euro Junk Bonds

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NU Online News Service, Oct. 1, 5:25 p.m. – Fitch Inc., New York, says defaults by low-rated European corporate borrowers could exceed $4 billion in 2002, or about 10% of the amount that will be borrowed through the sale of low-rated, high-yield Eurobonds.

European defaults amounted to just 6.3% of European “junk bond” borrowing volume for the first half, less than the U.S. high-yield default rate of 8.8%, Fitch says.

Telecommunications companies accounted for most of the European defaults, the credit rating firm adds.

So far, Eurobond holders have recovered an average of only 6 cents on the dollar, compared with an average of 36 cents on the dollar for U.S. holders, and Fitch expects the default rate to continue to rise in the near term.

But Fitch predicts the supply of low-rated European bonds will continue to grow, because new European financial regulations will make it more difficult for European banks to lend to risky borrowers using conventional bank loans.