Fitch: September Loan Default Reprieve Likely
"Outside of commodity price-challenged sectors, the institutional leveraged loan market remains healthy, with a default rate of just 0.9%," said Eric Rosenthal, Senior Director of Leveraged Finance.
The trailing 12-month (TTM) institutional leveraged loan default rate rose to 2.2% in August, as three energy and metals/mining defaults from Templar Energy, Stallion Oilfield Holdings and Foresight Energy took their toll. As a result, the TTM default rates for energy and metals/mining stand at 17.6% and 23.4%, respectively.
The E&P subsector has been particularly challenged over the past 18 months, with 11 loan defaults since March 2015. The TTM E&P default rate, a subsector of energy, surged to 31.2% in August. Loans to the E&P subsector total $12 billion, which is significantly less than the $87 billion of E&P bonds.
Fitch expects the default rate for the overall leveraged loan market will end 2016 slightly below its 2.5% forecast.
In addition, the 30-day post default prices on C&J Energy Services and Transtar Holding were both in the low 70's, well above the 39% for TTM first-lien loans. The long-term historical average has been 62%.
The top five largest exposures from Fitch's Loans of Concern list only comprise 0.6% of Fitch's CLO portfolio.
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