More than four in every 100 debt-laden companies worldwide will default on their repayment obligations in a year’s time, according to a report released yesterday by Moody’s Investors Service, the credit rating agency.

Moody’s predicted that its global default rate, which is at a 26-year low, would surge more than fourfold over the next 12 months as conditions in the credit markets deteriorate rapidly and the American economy threatens to go into recession.

If the world’s biggest economy does hit the buffers, Moody’s estimated yesterday that default rates could rocket to almost 10 per cent.

Kenneth Emery, director of corporate default research at the Moody’s in New York, said: “Low default rates reflect the easy credit conditions of the past couple of years, which allowed most issuers to refinance on favourable terms.”

He said that a strong economic back-drop made it relatively easy to keep up with interest repayments. The agency was forecasting a slowdown but no recession in the US.

But Mr Emery added: “If a recession were to materialise, default rates could increase to near double-digit levels.”

Moody’s internal models forecast that just 1.2 per cent of companies worldwide will have defaulted by the end of this year, but predicts that this will rise over the next year to 4.2 per cent. By November 2009, the global default rate will reach 4.7 per cent, according to its calculations.

The funding shortfall threatened the triple-A ratings of some of the world’s top bond insurers, including MBIA, Ambac and Financial Guaranty Insurance, Moody’s said.

Their reduced ability to guarantee interest payments on huge portfolios of sub-prime mortgages could dramatically increase the losses suffered by Wall Street banks to as much as $110 billion (£54.2 billion), according to estimates, because the value of the bonds held by the financial firms would tumble.

MBIA, the world’s largest bond insurer, said yesterday that it was looking at ways to shore up its capital base.

In Europe, Moody’s is predicting that by this time next year some 3 per cent of companies will fail to have sufficient funds to meet interest repayments. Companies will either default or ask creditors for special terms, Moody’s said.

Four years of cheap borrowing and easy refinancing terms have pushed corporate default rates to record lows not seen since the end of 1981.

According to Moody’s, just one of the companies it rates missed an interest payment date last month. The agency said that American Color Graphics, a Tennessee-based printer and publisher, successfully asked creditors if it could defer an interest payment on its $280 million of secured debt. American Color is being charged an interest rate of 10 per cent on its borrowings, payable twice a year.

For the year to date, 17 Moody’s-rated borrowers have defaulted on their obligations - a little over half of the 29 of the previous year, Moody’s said. Andrea Zazzarelli, associate director of corporate default research at Moody’s in London, said that the glut of lending to European companies and their moves to strengthen their balance sheets in recent years meant they “should generally have enough room for manoeuvre to absorb the near-term challenges”.

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