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US Leveraged Loan Default Rate Slides to 17-Month Low

Market pros see leveraged loan default rate holding at low levels

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As specter of rate cuts grows, investors retreat from leveraged loan asset class

Retail investors flock to US high yield bond funds with $1.8B inflow


US Leveraged Loan Default Rate Slides to 17-Month Low

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The default rate on U.S. leveraged loans slid to 1.42% in January, marking a 17-month low for the asset class, according to LCD.

The rate is down from 1.63% in December and has fallen steadily from the three-year high of 2.42% at the end of 2018’s first quarter. It remains well below the 2.96% historical average.

The dip in the default rate comes despite sustained concern from the broader financial markets that the aging credit cycle, which began after the financial crisis of 2007-08, is approaching an end (though there is no consensus as to when that will be exactly, of course). One thing that all agree on: The widespread acceptance of covenant-lite loan issuance over the past few years – some 80% of leveraged loan debt now outstanding are cov-lite – has enabled or could allow loan issuers that might face problems with mounting debt to skirt potential default issues, for a time, anyway.

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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.