Fitch: U.S. Leveraged Loan Default Rate Could Approach 2% in 2015
August 2015 saw five defaults, the most since March 2014, totaling $1.4 billion. These included distressed debt exchanges from American Seafoods Group LLC, Wilton Holdings Inc., and NYDJ Apparel LLC, and filings from Univita Health Inc. and Alpha Natural Resources.
'While energy and metals/mining are contributing to the leveraged loan default rate rise, other sectors are also part of the default equation, unlike recently in the high yield bond space,' said Eric Rosenthal, Senior Director of Leveraged Finance.
Millennium Laboratories, a healthcare company, is currently working with lenders to restructure $1.8 billion of outstanding leveraged loans, which could lead to a future filing. Other potential candidates include Arch Coal Inc. and Peabody Energy Inc.
Samson Resources' bankruptcy, which affected $1 billion of term loans, propels the September TTM default rate to nearly 1.5%. If Millennium, Arch and Peabody file this year, the rate would climb to 1.9%.
Fitch believes the energy and metals/mining sectors will continue to struggle. As of Thursday, September 24, 39% of energy companies' first and second lien loans are bid below 80 cents versus 31% one month ago. That discrepancy was larger among metals/mining companies, with 42% bidding below 80 cents, up from 27% a month earlier.
The full report, 'U.S. Leveraged Loan Default Insight: Default Rate Rise Commences with Samson,' is available at www.fitchratings.com.
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