European Leveraged Loan Default Rate Looks to Remain Low Until 2020

european leveraged loan default rate

Investors in the leveraged finance market believe defaults will remain below 2% over the next 12 months, and will not rise back to the historical average until at least 2020, according to an LCD survey of European buyside investors.

But they were also in agreement that low default rates are not necessarily a comfort, as the real risks at the moment are in weaker documentation. “Default rates are becoming less relevant because documentation is so weak,” said one respondent. “Companies won’t default as quickly, so the default rate will be lower, but recoveries will also be lower.”

Default rates for loans in the S&P European Leveraged Loan Index (ELLI) by principal amount hit a record low of 1.16% in November, the lowest point since LCD began tracking this data in 2008. This was down from 1.41% in October, and from 2.43% a year ago in November 2016. – Taron Wade

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