content

US Leveraged Loan Default Rate Holds at Low 1.97%

After a blemish-free July, the default rate for U.S. leveraged loans continues stubbornly low, holding at 1.97%, according to LCD.

The rate has been inside the historical norm of 3.1% since early in 2015, when the behemoth TXU/Energy Future default, which entailed more than $20 billion of outstanding loan debt, was part of the calculation (that issue dropped off the 12-month roll in April 2015).

U.S. leveraged loan defaults have remained scarce as the current issuer-friendly credit cycle heads into its tenth year.

One reason for the lack of defaults: corporate earnings continue robust, enabling borrowers to service debt they incur (unless they refinance it, of course).

Speaking of refinancing: Easy access to leveraged loans is another reason defaults have been rare.

With interest rates rising, institutional and retail investors have been throwing cash into this floating-rate asset class, allowing issuers to quickly refinance existing debt or – more alarming to some – structure the credits with few restrictions. In theory, these covenant-lite loans could allow borrowers to gloss over poor financial performance, with little warning for investors, until the company defaults. – Staff reports

This story was abstracted from analysis by LCD’s Rachelle Kakouris

Try LCD for Free! News, analysis, data

Follow LCD on Twitter.

LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

content

US Leveraged Loan Default Rate Dips to 2.12%

US leveraged loan default rate

Despite a fresh default from energy services company Proserv Group, the default rate of the S&P/LSTA Leveraged Loan Index slipped for a second consecutive month, closing out May at 2.12%.

The rate by principal amount is down from 2.37% at the end of April, reflecting the fact that three issuers dropped off the 12-month rolling calculation. Without Proserv, the default rate would be 2.09%.

The default rate has eased from a three-year high of 2.42% in April, but remains significantly higher than the 18-month low of 1.36% at the end of July 2017. – Rachelle Kakouris

Try LCD for Free! News, analysis, data

Follow LCD on Twitter.

LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

content

US Leveraged Loan Default Rate Dips to 2.37%

leveraged loan default rate

Despite a bankruptcy filing from U.S. footwear/apparel company Nine West, the default rate of the S&P/LSTA Leveraged Loan Index eased to 2.37% in April from a three-year high of 2.42% at the end of March. The slight decline reflects the fact that Payless ShoeSource rolled off the 12-month calculation.

The current rate, though still close to the three-year high, remains well inside the 3.1% historical average. By number of issuers, the rate now stands at a 16-month high of 1.95%, versus 1.93% in March. – Rachelle Kakouris

Try LCD for Free! News, analysis, data

Follow LCD on Twitter.

LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

content

S&P Global Points to 2.5% Default Rate for European Financials/Corporate by Year-End

S&P Global Ratings said last week that the 12-month default rate for speculative-grade European financial and non-financial corporate issuers could rise to 2.5% through 2018 (see “The European Speculative-Grade Default Rate Could Rise To 2.5% Through 2018”). This forecast remains below the average default rate of 3.2% from 2002 to 2017.

The report adds that certain aggregate measures of credit performance have recently been stable or improving. For example, the negative ratings bias for speculative-grade European corporates declined to 13.1% at the end of February 2018, from 17.4% a year earlier.

“However, the proportion of speculative-grade issuers that we rate ‘B–’ or lower remains high by recent standards, reading 16.6% at the end of February 2018, up from 13.5% at the end of 2015,” the report stated.

Eurozone GDP growth reached a 10-year high of 2.5% in 2017 and will likely continue at above 2% in 2018, according to the agency. Although the European Central Bank (ECB) has begun to ramp down its asset purchase program, monetary policy remains accommodative, with recent euro strength helping to keep inflation below the ECB’s target level. And debt issuance from speculative-grade European corporates has been increasing as lending standards continue to loosen and debt funding costs remain low, the reports noted.

S&P Global comments that some credit factors are more negative. The agency expects a more moderate trajectory for economic growth in the U.K., as Brexit uncertainties dampen investment and higher inflation due to currency weakness curbs household spending. In addition, S&P’s ratings-based indicators of European credit performance present a mixed picture. On the one hand, the negative ratings bias among speculative-grade corporates has been declining in recent months, S&P comments. However, the ratings distribution is becoming more concentrated on lower rating levels, suggesting rising aggregate credit risk, partly due to rising corporate leverage, S&P adds.

In the agency’s view, this combination of economic and credit performance indicators remains relatively benign in the short term, and S&P expects the aggregate speculative-grade default rate to remain low by historical standards over the next 12 months. However, the risk of a capital markets–led tightening in credit conditions may be building and the default rate has been edging higher, S&P comments. — Luke Millar

Try LCD for Free! News, analysis, data

Follow LCD on Twitter.

LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.