US leveraged loan defaults headed for record high in 2024 – Deutsche Bank

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Nov 21 (Reuters) – Default rates on U.S. leveraged loans will hit a near record high of 11.3% in 2024, while defaults on euro loans will hit 7.1%, Deutsche Bank said in a note on Monday.

By contrast, the absence of short-term maturities – compounded by the absence of conditions limiting what companies can do, known as covenants, and the presence of large capital buffers – will keep 2023 defaults in check. . The bank expects a default rate of 5.6% in the US and 3.7% in the euro market respectively.

However, a squeeze in profit margins will eventually expose high levels of leverage, leading to troubled exchanges and missed interest payments, triggering higher default rates in 2024, the bank said in the note.

On a more positive note for European issuers, leverage, while high, has not increased as much as in US credit markets, while the Euro high yield bond market has ratings of lending higher than its US counterpart, Deutsche Bank said. The bank hinted that European credits should weather the next recession better than their US counterparts.

High yield bond markets should look more resilient on both sides of the Atlantic, with Deutsche Bank forecasting default rates of 2.2% in 2023 and 4.3% in 2024 for the euro market, and 4.5% and 9% respectively for the American market. .

Reporting by Chiara Elisei; edited by Yoruk Bahceli

Our standards: The Thomson Reuters Trust Principles.

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