U.S. Term Loan Defaults Set for Lowest Monthly Tally Since August

Fitch Ratings-New York-20 November 2020: U.S. institutional term loan defaults are on pace for the lowest monthly total since this summer, according to Fitch Ratings in a new report.

After jumping to $6.3 billion of defaults in October, November stands at $0.2 billion thus far and could best August ($2.2 billion) for the lowest monthly total this year. "Both the TTM and YTD default rates are at 4.3% and should end the year around 4.7%. This is in line with our initial coronavirus pandemic-revised 5%-6% forecast provided in March and tightened to 5% in early October," said Senior Director Eric Rosenthal of Leveraged Finance.

Energy remains a problematic sector with the fourth-quarter default rate hitting 19.4% following Seadrill's distressed debt exchange, this after 15.2% at the end of the third quarter. "The 2021 energy rate is likely to land at 9% with few large issuers expected to default compared with this year," said Rosenthal.

Another area of concern headed into next year is leisure/entertainment, which is likely to pace future defaults. "Leisure/entertainment might see nearly 40% of its current $47 billion universe default by the end of 2021, with movie theatres and gyms leading the way," said Rosenthal.

Both the energy and leisure/entertainment sectors are small at 3% each of the overall market, well below technology (14%), healthcare/pharmaceutical (11%) and services/miscellaneous (11%).

Fitch forecasts the overall default rate to reach a three-year cumulative rate of roughly 17% by YE 2022, which would eclipse the 15% rate following the 2008-2010 Great Recession.

Fitch's Top and Tier 2 Loans of Concern combined total dropped to $233.6 billion from $244.5 billion last month reflecting some refinancings along with a few defaults.

Index outstandings grew at the largest pace since June 2018, propelling the universe to $1.43 trillion, led by LBO and dividend financing deals. Growth occurred across most sectors, with the technology sector reaching $200 billion, or 14% of the index.

Fitch's latest 'U.S. Leveraged Loan Default Insight: Default Activity Slows in November; Loans of Concern Total Declines' is available at www.fitchratings.com.

Contact:

Eric Rosenthal
Senior Director
Leveraged Finance
1-212-908-0286
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004

Brendan Hoelmer
Associate Director
+1-646-582-4781

Michael Paladino
Managing Director
+1-212-908-9113

Lyuba Petrova
Senior Director
Leveraged Finance
+1-646-582-4885