Fitch: Leveraged loan defaults would push activity to five-year high

By Caroline Salls

Pittsburgh, Nov. 21 – Fitch Ratings reported Tuesday that the likelihood of seven November institutional leveraged loan defaults would make this the most active month since January 2012.

According to a Fitch news release, forthcoming defaults from Walter Investment Management Corp. and J.G. Wentworth Co. would send the trailing-12-month (TTM) default rate to 2.2%, a level last recorded in August 2016.

Fitch said it expects the 2017 rate to end at 2.5%, with more defaults primarily from the broadcasting/media, retail and energy sectors. Similarly, the 2018 rate is also forecast to be 2.5%.

“Retail defaults remain elevated, as the sector has been under a great deal of stress this year,” Fitch’s Eric Rosenthal said in the release. “We expect that trend to continue into next year.”

The agency said retail year-to-date default volume reached $5.6 billion, following 99 Cents Only Stores Inc.’s distressed-debt exchange earlier this month. The November TTM sector rate is expected to surpass 8%, up from 7.5% last month. Fitch forecasts a 10% rate for both this year and 2018.

Despite the oil price recovery, Fitch said the energy sector has been weighed by a few large defaults, notably Ocean Rig UDW Inc. There has been $6 billion of default volume so far this year following Pacific Drilling SA’s bankruptcy.

The report said the energy default rate is just under 15%. Fitch expects the 2017 sector rate to finish at 17% and remain in the double digits in 2018.

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