The volume of defaults on leveraged loans in the United States has tripled this year


This year, the default rate has increased for both high yield and leveraged loans. It’s not as high as it was in 2020 or certainly not what it was in 2009. The fact that default is increasing is important though, as we are now in a very high inflationary environment on the scale world. Rising central bank rates make refinancing costly and difficult for businesses. Banks that lend to indebted companies will need to be careful to measure the increase in risk weightings and capital associated with these assets. Investors in loans and bonds of leveraged companies or funds containing these assets could also suffer losses due to deterioration in the credit quality of these assets and volatility in asset prices caused by nervousness. markets in the face of rising payment defaults.

According to Fitch US Leveraged Loan Default Insight, the volume of leveraged loan defaults in 2022 so far this year totals $22.2 billion, three times the volume of $6.3 billion. dollars at this time in 2021. Cineworld, Diamond Sports, Envision, Endo, Lumileds, and Revlon
account for 72% of 2022 default volume. In the second half of 2022, there were ten defaults totaling $11.6 billion. If this trend continues, we should all be worried about the drying up of credit for hundreds of highly indebted companies. In addition, failing companies will inflate the unemployment rate, which so far is fortunately low.

The consequences of the pandemic and the rise in inflation have particularly affected the media and telecommunications sectors. Yet risk managers cannot blame everything on the pandemic. Alternative distribution models, changes in how consumers are embracing emerging technologies have challenged media companies. Companies that were already in debt or had other strategic issues were also impacted by obsolescence.

According to Eric Rosenthal, Senior Director – Leveraged Finance, “Fitch believes that Broadcasting/Media and Telecom, combined, could produce approximately 30% of default volume in 2023, resulting in industry default rates of 10% and 7 %, respectively. Diamond Sports Group LLC, which completed a major distressed debt swap (DDE) in March, shows a high likelihood of default again in 2023. Entercom Media Corp., National CineMedia LLC and Checkout Holdings Corp., which filed in December 2018, are the top broadcast/media issuers on Fitch Rating’s list of Most Concerned Market Loans. On this list, Avaya
Inc. and Mitel Networks Corp. are major telecommunications companies of great concern in the market.

Additionally, other sectors such as Technology, Hobby/Entertainment, Healthcare/Pharma, and Building Materials are also worth watching as they could generate significant defaults in 2023. Liftoff Mobile Inc., per example, ranks as a significant issuer in Fitch Ratings. List of Tier 2 Market Concerns. Leisure/Entertainment default rate and volume depends on AMC Entertainment
The fate of Inc.


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