London CNN  — 

More companies around the world defaulted on their debts in the first three months of this year than in any quarter since late 2020, when businesses were still hamstrung by restrictions to stop the spread of Covid.

In a report Tuesday, credit rating agency Moody’s said 33 of the corporations it rates defaulted on their debts in the first quarter, the highest level since the last quarter of 2020 when 47 companies defaulted. Almost half, or 15 companies, defaulted last month — the highest monthly count since December 2020.

Defaulting firms included Silicon Valley Bank, which collapsed in March, its holding company SVB Financial Group and Signature Bank.

The failure of the two lenders last month sparked panic among investors and customers at US regional banks and knocked confidence in the global banking sector more broadly.

“While financial sector defaults were noteworthy, most defaults continued to reside in non-financial sectors last month,” Moody’s said, noting that US sports broadcasting company Diamond Sports Group posted the biggest default by dollar amount.

Businesses under strain

Many firms have been hit hard over the past year by a mix of rising interest rates, high energy prices and a dimming outlook for global economic growth.

In the United Kingdom, the number of companies falling into insolvency last month far exceeded levels seen during the pandemic, when government support helped keep businesses afloat.

The number of corporate insolvencies rose 16% in March, compared with the same month last year, data from the UK Insolvency Service showed Tuesday.

In a sign of a tougher global environment for corporate borrowers, investors went sour on corporate bonds last year. For example, an exchange-traded fund from iShares that tracks bonds from investment-grade companies, or those with strong credit ratings, sank 20% in 2022. It has risen by a modest 3% since then.

More defaults on the way?

Moody’s expects that a combination of higher borrowing costs and slowing global growth will push up defaults on speculative-grade corporate debt to 4.6% by the end of this year, up from 2.9% in March.

Speculative-grade debt refers to a riskier type of corporate bonds — also known as “junk bonds” — where there is a reasonable-to-high probability that the borrower will default.

By the end of the first quarter next year, the global default rate on this type of debt will likely rise to 4.9%, Moody’s said. That’s much higher than the long-term average of 4.1%.

Similarly, S&P Global, another credit rating agency, said last month that it expected 4% of US speculative-grade corporate debt to be in default by the end of 2023, up from 1.7% at the end of 2022, “as growth slows, revenues lag, cost pressures persist, and tight financial conditions restrict access to capital.”

One of most vulnerable sectors is commercial real estate. A sharp downturn in the value of US office buildings last year, as offices were left empty or underused by the persistence of remote work, could cause developers to default on their loans, leading to losses for banks.

— Julia Horowitz contributed reporting.