US private credit defaults climb to record 6.3%
The default rate among US private credit borrowers reached a record 6.3% in August, according to a report by Bloomberg citing data from Fitch Ratings, highlighting continued pressure on leveraged companies amid higher borrowing costs and subdued deal activity.
US private credit default rates surged to a record 6.3% in August, according to a Bloomberg report citing Fitch Ratings data. The surge reflects ongoing stress on leveraged firms amid higher borrowing costs and reduced deal activity. Fitch's trailing 12-month default rate for private credit borrowers rose from 6.1% in July to 6.3% in August, marking the highest number of default events in the past year.
In August, there were 14 default events affecting 11 individual borrowers and three companies that had previously defaulted. Maturity extensions continued to be the most common form of default, accounting for 45% of August's cases. Companies are increasingly extending loan maturities due to uncertainty around interest rates and inflation, coupled with weak transaction activity, making it harder for private equity sponsors to sell struggling portfolio companies before debt becomes due.
Payment deferrals and the shift from cash interest to payment-in-kind arrangements also played significant roles, contributing to 47% of the 89 defaults recorded by Fitch over the past 12 months. Healthcare, industrials, and manufacturing were the sectors hardest hit, each recording a 9.9% default rate, up from 9.5% in July.
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