Despite defaults from teen fashion retailer Rue21 and oilfield services provider AFGlobal, the default rate of the S&P/LSTA Leveraged Loan Index fell to a 16-month low of 1.29% by principal amount in May.
The rate was 1.43% at the end of April, and since then Fairway Group, Atlas Iron, Dex Media, and Seventy Seven Energy all rolled off the 12-month calculation.
Despite hitting a 16-month low, loan portfolio managers generally expect defaults to rise, albeit gradually, with the consensus forecast currently pointing to a U.S. loan default rate of 2.54% by the end of 2018, according to LCD’s latest quarterly buyside survey.
In another indicator of what might lie ahead, LCD’s Shadow Default rate, at 1.78%, is now at its highest level in more than three years. The Shadow rate tracks loan issuers showing particular signs of financial distress, including missing a bond or loan payment, entering a forebearance agreement, or receiving a going-concern warning. – Rachelle Kakouris
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This story is taken from analysis which first appeared on www.lcdcomps.com, 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.