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Leveraged Loan Experts Hike US Default Rate Expectations

default rate forecasts

Portfolio managers in the U.S. leveraged loan market have raised their forecasts for near-term default rates by almost 20 bps since the last quarterly survey, though few expect the historical average of 3.1% to be surpassed before the end of next year.

According to LCD’s Default Survey, conducted at the end of each quarter, the consensus now calls for a one-year forward default rate of 2.43%, from a one-year forward rate prediction of 2.24% at the December reading.

More than 50% of loan managers surveyed raised their one-year-out default prediction, by an average of 0.42%. In fact, LCD’s quarterly survey last revealed an increase of this magnitude back in 2016—when borrowers in the oil-and-gas and metals/mining sectors were increasingly inflating the default stats.

Meanwhile, predictions for the 12-month trailing U.S. default rate by principal amount for year-end 2019 came in at 2.81%, an increase from December’s read of 2.64%.

LCD’s U.S. Leveraged Loan Default Rate Survey is conducted by Rachelle Kakouris, who covers the distressed debt market for LCD.

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LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.