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U.S. Loan Default Rate Forecast Lowered to 1.5% for 2021, Lowest Since 2011

Date: Jun 22, 2021 @ 08:05 AM
Filed Under: Industry News

The 2021 institutional U.S. loan default rate forecast has been lowered to 1.5% from 2.5%, reflecting continued capital market confidence as constricted sectors re-open, according to a new Fitch Ratings report.

"The anticipated 1.5% default rate would be the lowest rate since 2011 when it dropped to 0.6%. The year-end default rate could finish even lower than the projection if the current, strong environment continues," said Eric Rosenthal Senior Director Leveraged Finance.

YTD default volume totals $4.6 billion compared with $37.1 billion one-year prior, the lowest recorded since 2011, which translates to a declining TTM rate. The May TTM default rate stood at 2.4% and is expected to fall to 1.9% by the end of June.

Technology, healthcare/pharmaceutical and service/miscellaneous, the three largest sectors of the $1.50 trillion institutional loan market, are all projected to finish the year with default rates at 1% or lower.

The leisure and entertainment default rate forecast remains high, at 14% but could finish well below last year's 9.9% level if Cineworld Cinemas and Travelport avoid defaulting.

The retail default rate is expected to finish the year at 7%, though roughly half of the amount stems from Belk's February missed interest payment. The year-end energy default rate forecast is 5%, a significant drop from the May TTM 14.5% mark. The lower rate reflects improved crude oil prices and smaller sized defaults compared with last year.

The 2.5%-3.5% default forecast for YE 2022 remains unchanged although our confidence grows that it will finish at the lower end of the range and revert near the non-recessionary average. Fitch's higher 2022 default rate forecast reflects uncertainty about the sustainability of the economic recovery for some sectors. Fitch's cumulative forecast for 2020-2022 of 8%-10% would end below the three-year cumulative default rate of 15% during the 2008-2010 financial crisis.

The full report titled "U.S. Leveraged Loan Default Insight Report" is available at www.fitchratings.com.

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