Three Bermuda telecom companies defaulted on a total of $14.7 billion of rated debt in the second quarter of 2002, contributing to the continued record setting pace of global defaults.

Global Crossing defaulted on $4.8 billion of debt, Flag Telecom defaulted on $0.6 billion of debt and and NTL, a European telecom defaulted $9.3 billion of debt.

All three companies were incorporated in Bermuda but maintained headquarters in the US or in Hampshire, England in the case of NTL.

The Bermuda registered companies were three of 60 defaulting on a record $52.6 billion of rated debt in the second quarter of 2002, according to preliminary analysis of data by Standard & Poors.

This compares to the first quarter of 2002, when a record 95 companies defaulted on $38.4 billion of rated debt, the previous largest dollar amount defaulting. Argentine defaults dropped dramatically to four in the second quarter from 38 in the first quarter.

At least 50 companies have defaulted each quarter for the past year-and-a-half, according to Brooks Brady, associate director for corporate default research at Standard & Poor's Risk Solutions. "This quarter's high volume of defaults means that 10.7 percent of speculative-grade issuers have defaulted in the past 12 months, which is the highest percentage of defaults since the second quarter of 1992, when the default rate reached 12.5 percent," Brady said.

"Although the annual default rate for 2002 will most likely exceed the default rate for 2001, quarterly default rates should begin to decrease by the end of this year," he predicted.

"Standard & Poor's expects default rates to decrease somewhat in the United States during the third and fourth quarters of this year, while European default rates may reach a peak in the third quarter," said Diane Vazza, managing director of Standard & Poor's Global Fixed Income Research.

"Assuming the US economy continues to improve and the markets continue to require high credit quality from issuers, we expect default rates to decrease over the next two to three years. We expect continued weakness in the telecom, media, and entertainment sectors over the next several months," she said.

The quarterly default rate for speculatively rated issuers for the second quarter reached 2.7 percent, which is less than the record high of 4.1 percent reached in the first quarter of 2002. This puts 2002 on pace to exceed 2001's annual default rate of 8.8 percent. When Argentina is removed from these figures, the year-to-date global speculative-grade default rate is 4.7 percent, which is greater than the 4.3 percent recorded last year at this time.

The second quarter defaults with the largest dollar value of rated debt were Adelphia Communications Corp. (with $14.3 billion), Bermuda-based NTL Inc. ($9.3 billion), Williams Communications Group Inc. ($3.5 billion), and Teleglobe Inc. ($2.5 billion).

Teleglobe Inc. was the only investment-grade company that defaulted during the second quarter. Of all issuers globally, both investment- and speculative-grade, 2.4 percent have defaulted since the beginning of the year. During the second quarter, 34 companies defaulted in the US, followed by four each in Argentina and Germany, three each in Bermuda, Canada, Mexico, and the Netherlands, two in the UK, and one each in Brazil, Italy, Russia, and Switzerland.

Investment-grade issues are those rated at triple-'B'-minus and above; speculative-grade issues are rated below triple-'B'-minus.