Companies in these sectors already had high leverage and were further impacted by obsolescence owing to rapidly changing technology.įitch Ratings’ Market Concern total for US institutional leveraged loans rose to USD228.0bn in October 2022 from USD201.3bn in September 2022, the largest one-month increase since the start of the pandemic. The technology and healthcare sectors are also likely to account for a significant share of default volume. Sectors impacted: Media and telecommunications are likely to account for c.30% of default volume in 2023, resulting in default rates of 10% and 7%, respectively, primarily due to rising inflation, alternative distribution patterns, changes in the nascent technologies used by consumers and a slower recovery than expected from the effects of the pandemic. The agency expects about 60 defaults next year, nearly double the 36 defaults averaged over 2016-19 and a sharp acceleration from the 21 defaults year to date in 2022. The rate for 2023 equates to roughly USD45bn in terms of volume, the third largest since Fitch began tracking in 2007, well below volumes in 20. S&P Global Ratings also expects the trailing-12-month speculative grade corporate default rates in the U.S. What does this significant change mean for the leveraged-finance market going into 2023? Default rate and default volume:įitch Ratings has forecast that the US institutional leverage loan default rate will increase to 2-3% in 2023 (in line with the 15-year average of 2.5%), versus previous forecasts of 1.5-2%, reflecting growing macroeconomic headwinds, including expectations of a US recession. ![]() Default rates are already rising and are expected to rise further in 2023. Banks with exposure to leveraged companies would have to monitor new and existing credits more diligently due to the potential deterioration in asset quality and the volatility in asset prices caused by market fears about rising defaults. Now, however, with inflation at its highest in 40 years (at above 8%), these central banks have had to shift their focus back towards maintaining price stability, ending the era of extreme monetary stimulus.Ĭentral banks have been raising interest rates and may have to continue doing so to cool inflation, the unintended consequence of which could be a global recession. Amid every crisis, support from developed nations’ central banks prevented the financial markets from collapsing under the pressure they exerted. This was followed by the European debt crisis and when things appeared to have turned positive, the COVID-19 pandemic. First, there was the bursting of the dot-com bubble and the largest financial crisis in more than 70 years. The world and financial markets had a tumultuous start to the 21 st century. ![]() ![]() Published on Januby Gunjan Lahoty and Daanish Sharma
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