Syndicated loan default volume expected to exceed high yield by largest-ever margin
NEW YORK–(BUSINESS WIRE)–#KBRA–KBRA DLD, a division of KBRA Analytics, is forecasting a 2024 broadly syndicated loan (BSL) default rate of 4% and a 3% rate for high yield (HY), based on volume. The HY forecast is down from 3.4% in 2023, while the BSL forecast is up from 3.5%.
BSL default volume in 2024 is expected to exceed HY by a record wide margin, partly due to credit quality. BSL borrowers rated B or lower total 72% versus 52% for HY.
KBRA DLD projects 2024 annual default volume of nearly $60 billion for BSL versus $39 billion for HY. For BSL, that marks an increase from 2023’s $52 billion, while HY would decline from $44 billion in the same period. The anticipated 2024 BSL total equates to roughly 76 defaults, similar to the 75 in 2023. For HY, the forecast amount corresponds to roughly 34 defaults, down slightly year-over-year from 36 in 2023.
Defaults by Count
KBRA DLD expects the BSL issuer default rate to land at 5.75% in 2024, in line with the 5.8% level set in 2023. The HY issuer default rate should end at 3.75% in 2024, down slightly from the 4% rate in 2023. Our previous forecast in July 2023 saw issuer rates to finish 2023 at 5.5% and 4% for BSL and HY, respectively.
For 2024, the health care, software, and consumer sectors are expected to push both the BSL issuer and dollar default rates for roughly 60% of the totals. In regard to HY, telecom, health care, and consumer are projected to produce roughly 65% of dollar volume and 50% by count.
Meanwhile, the 2024 direct lending issuer default rate is forecast at 2.75%, rising from 2.1% in 2023. The rates are based on number of issuers in KBRA DLD’s Direct Lending Index, which totals roughly 2,400 borrowers, split between more than 1,300 sponsored (private equity-backed) and more than 1,000 non-sponsored companies. We anticipate roughly 67 defaults compared with the 51 registered in 2023.
In 2023, health care accounted for 22% of the overall direct lending defaults, followed by software (16%) and consumer (14%). For 2024, we expect the same three sectors to drive defaults, for just over half of the total.
KBRA DLD Default Radar
Our Default Radar Red List, which identifies the most troublesome credits for potential defaults, is significantly more skewed toward BSL issuers. There are 45 BSL borrowers with $51 billion in outstandings versus 18 HY companies with $33 billion in outstandings. Further, there are more than two times as many BSL borrowers on our Orange List than HY. The Orange List tracks credits beginning to show signs of weakness that have yet to deteriorate to Red status. HY caveat: A couple of sizable HY Orange List issuers could undertake distressed debt exchanges (DDEs) later this year.
Restructurings and DDEs served as a prominent default source for BSL in 2023, comprising 48% of the count and 37% of the volume. Over the second half of 2023, 51% of default volume pertained to restructurings/DDEs. This trend continues in 2024 with DDEs already completed for Travelport and Resolute Investment Managers. From 2019-2023, restructurings/DDEs accounted for 32% of the default volume versus just 8% from the 2007-2018 period.
About KBRA DLD
KBRA DLD was founded in 2019 and acquired by KBRA Analytics in 2022. The group focuses exclusively on the direct lending market, providing the private equity, lender, financial, and legal advisor communities with real-time news and a searchable database alongside proprietary data and analysis for the U.S. and European markets. KBRA DLD targets sponsored borrowers and specializes in cash flow-based structures including unitranche facilities across the lower middle market, traditional middle market and larger scale financings over $1 billion. In 2023, the group introduced the KBRA DLD Direct Lending Index, which serves as the foundation for our default rates and forecasts in the U.S. KBRA Analytics is a portfolio company of Parthenon Capital.
Contacts
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Adam Tempkin, Director of Communications
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Niki Masino, Head of Sales
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U.S. Default Data
Eric Rosenthal, Senior Director
+1 646-731-1204
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