Default, Transition, and Recovery: The U.S. Leveraged Loan Default Rate Could Climb To 3% By September 2024 As Economic Growth Slows

S&P Global Ratings Credit Research&Insights expects the U.S. leveraged loan default rate to climb to 3% by September 2024. To reach this baseline forecast, 36 issuers would need to default in the Morningstar LSTA US Leveraged Loan Index (see chart 1). A deceleration in U.S. real GDP growth to 1.5% in 2024 and 1.4% in 2025, per S&P Global Ratings economists' forecasts, will strain issuer credit quality. Borrowing costs will also remain high next year; benchmark interest rates are expected to fall, though risk is tilted to the upside for currently tight corporate spreads. As macroeconomic conditions continue to weigh on operating performance, liquidity is becoming increasingly constrained for speculative-grade (rated 'BB+' or lower) issuers. The leveraged loan

...- The U.S. leveraged loan default rate could rise to 3% by September 2024 from 1.9% in October 2023 amid more difficult credit conditions next year. - Speculative-grade credit quality has already deteriorated. Slowing top-line growth and high costs will remain challenges. - Restrictive primary markets have reduced access to capital, and we expect both liquidity risk and refinancing risk to increase over the next 12 months. S&P Global Ratings Credit Research & Insights expects the U.S. leveraged loan default rate to...

Commentary