Fitch U.S. leveraged loan default rate 2% in March; outlook provided

By Caroline Salls

Pittsburgh, April 25 – Fitch Ratings’ trailing-12-month U.S. institutional leveraged loan default rate hit 2% at the end of March, and, if no other defaults occur by the end of April, the rate will drop slightly to 1.9%, according to a report released Tuesday.

Fitch forecasts the rate will finish at just over 2% by year-end.

Fitch said there have been three defaults this month on $1.3 billion in debt.

“While [Payless ShoeSource, Inc.’s] filing kicks off a period of elevated concerns for retail bankruptcies with institutional term loans, the overall rate remains benign,” Fitch’s Eric Rosenthal said in the release.

With bankruptcies by rue21 Inc. and Gymboree Corp. bankruptcies both speculated by the market in the near term, Fitch said the retail leveraged loan default rate would advance to 3% from 1%.

The ratings agency said it forecasts a 9% retail default rate by the end of the year, although the fate of Sears Holdings Corp. and J. Crew Operating Corp. could significantly alter those projections.

In addition, Fitch said it views a bankruptcy filing by iHeartCommunications, Inc. as probable, an event that would add 0.6% to the default rate and push it above 2% for the first time since October 2016. An in-court restructuring is possible if investor support for that company’s current distressed debt exchange fails to materialize, the ratings agency said.

According to the release, the energy default rate jumped in March to 20.6% from 13.6% because of Ocean Rig UDW Inc.’s Chapter 15 filing and EXCO Resources, Inc.’s distressed exchange.

Fitch said that number could climb further with defaults from Seadrill Ltd. and Pacific Drilling SA looming.

“Nevertheless, the bulk of energy defaults occurred over the past 15 months, and Fitch believes the sector is at the end of its default cycle,” the release said.

© 2015 Prospect News.
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