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US leveraged loan default rate remains stubbornly low in May

The U.S. leveraged loan default rate was unchanged in May, holding at a slim 1% and remaining slightly off a seven-year low of 0.93%, seen at the end of March, according to the S&P/LSTA Loan Index.

As it has been for some time, the rate is well below the historical average of 2.93%.

Default Rate Chart

Empire Generating Co. was the sole loan default last month. Its impact was largely offset by Proserv Group rolling off the trailing 12-month default calculation.

Citing increasing natural gas prices, power producer Empire Generating filed for Chapter 11 protection in New York bankruptcy court on May 20 after it tripped a technical default caused by a covenant breach.

The restructuring will see asset managers Black Diamond Capital Management and MJX Asset Management leverage their 55% stake in the company’s secured debt into forcing an asset sale via a credit bid, a move opposed by the holders of the minority share of the debt led by Ares Capital Management. Ares has already made a rival bid for the assets, and has signaled in bankruptcy court filings that it intends to litigate the credit bidding of the assets. — Rachelle Kakouris

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