U.S. leveraged loan defaults at six-year high as coronavirus hits businesses

(Reuters) – The monthly tally of defaults in the U.S. leveraged loan market has hit a six-year high, data from Fitch Ratings showed, as companies are either missing payments or filing for bankruptcy because of the fallout from the coronavirus pandemic.

Data from credit rating agency Fitch Ratings, based on their U.S. Leveraged Loan Default Index, showed the total amount of defaults in this high-risk, high-yielding area of the debt markets at $12.6 billion in May so far, the highest since April 2014.

The leveraged loan default total for the year to date is $33.3 billion, Fitch said.

(Graphic: U.S. leveraged loan monthly defaults – here)

At the end of April, the trailing 12-month default rate jumped to 2.8{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f}, compared to just 1.8{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} at the end of last year. Fitch forecast that U.S. leveraged loan defaults would reach $80 billion in 2020, surpassing the previous high of $78 billion in 2009.

(Graphic: Trailing 12-month Default rate – here)

Based on Fitch’s data, U.S. retailers accounted for the bulk of defaults over the past two months, as they were forced to temporarily close stores in response to the COVID-19 pandemic.

(Graphic: U.S. loan defaults by sector – here)

Fashion retailers Neiman Marcus Group, J.Crew Group Inc and J.C. Penney Co Inc (JCP.N) have filed for Chapter 11 bankruptcy protection this month in the United States.

Chesapeake Energy Corp (CHK.N) said this month it was unable to access financing and was considering a bankruptcy court restructuring of its over $9 billion debt if oil prices did not recover from the sharp fall caused by the COVID-19 pandemic.