Fitch: Institutional Loan Market Defaults Surpass $1 Billion for Sixth Straight Month
OREANDA-NEWS. Three loan defaults pushed the trailing 12-month (TTM) institutional leveraged loan default rate to 1.8% in April, up from 1.6% at end-March, according to Fitch Ratings. Peabody Energy's bankruptcy filing along with Vertellus Specialty's missed payment and Stallion Oilfield's small distressed debt exchange added $1.7 billion to the default tally so far in April.
The metals/mining sector rate rose to 29%, up from 25% at end-March, while the coal subsector rate rose to 57% with the addition of Peabody's $1.2 billion term loan. The loan default rates for energy and the E&P subsector will likely close April at 11% and 20%, respectively. Together, energy and metals/mining account for 65% of TTM volumes.
"With six consecutive months of defaults totaling $1 billion or more now under its belt, the institutional leveraged loan universe is experiencing the highest consecutive monthly default volumes since 2009-2010," said Eric Rosenthal, Senior Director of Leveraged Finance.
April is also the 12th consecutive month the institutional leveraged loan universe recorded a default from the energy or metals/mining sectors -- a trend that should continue as Seventy Seven Energy's restructuring support agreement, finalized on April 19th, paves the way for a bankruptcy filing before May 26.
Fitch expects the institutional leveraged loan default rate will end 2016 at 2.5%, with energy and metals/mining contributing the most, in terms of both defaulted issuers and volume.
Despite the heightened defaults, CLO portfolio exposure to defaulted obligors remains largely manageable. Peabody Energy, April's largest default, was held by 29 of the 233 Fitch-rated CLOs, averaging 0.6% exposure.
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