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Fitch flags record private credit default rate in second quarter

Fitch said the 12-month US private credit default rate rose to 6.0%, and maturity extensions under stress became the top driver of delinquencies.

Reported · Written up by our desk · Corporate Bonds

Fitch Ratings reported that the default rate across 1,300 US private debt borrowers it tracks rose to a record high in the second quarter. The trailing 12-month private credit default rate increased to 6.0% as of quarter end, up from a prior peak of 5.7% reached in the prior three-month period.

Fitch recorded 32 private credit default events from 20 new unique defaulters during the quarter, bringing total defaulters to 84. The firm said maturity extensions under stress overtook payment-in-kind and interest-rate deferrals as the leading driver of quarterly delinquencies, with more than half of the default events involving some form of maturity extension.

By sector, the highest default rates were in industrials and manufacturing at 10.4%, up from 5.9% in the first quarter. Healthcare default rates also rose to 9.4% from 6.9%, while software posted the lowest default rate among the top sectors at 1.2%, down from 2.3%.

Fitch’s head of private credit for North America, Lyle Margolis, said the firm expected defaults to moderate due to an anticipated decline in interest rates and a pickup in M&A, but said markets are pricing in rate hikes and M&A remains subdued. Fitch also maintained a neutral global outlook, noting the Iran conflict and related inflation shock reduced the prospect of near-term rate relief for leveraged issuers, according to the report.

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