An expected record number of corporate term-loan defaults in April will produce the highest monthly default rate in five years when full results are in next month, according to Fitch Ratings.
With 14 defaults totaling more than $7 billion through April 22, the speculative-grade corporate debt market is destined to top the record 15 monthly defaults recorded in 2009. Fitch anticipates default volume exceeding $10 billion with defaults looming for Neiman Marcus Group and Akorn Inc.
Rising default levels have produced strain on many collateralized loan obligations, many of which are now approaching breaches of covenant tests on minimum weighted-average ratings factors and maximum holdings of triple-C rated loan assets.
"Fitch anticipates the default rate will exceed 3% in May, which would be the highest since March 2015," said Eric Rosenthal, senior director of leveraged finance, in a statement. "The $7 billion of April default volume propelled the TTM default rate to 2.6% from 2.2% at March end.”
The rise is expected defaults coincides with an uptick in the agency’s “top loans of concern” list that now sits at a total of $258.5 billion, exceeding 18% of the agency’s leveraged loan index – and an increase from $233.6 billion in March and the $102.1 billion in February.
Retail, energy, healthcare/pharmaceutical, and telecommunications sector loans account for 60% of the outstanding concerning loans.
