The 2021 institutional U.S. loan default rate forecast has been lowered to 1.5 percent from 2.5 percent, reflecting continued capital market confidence as constricted sectors re-open, according to a new Fitch Ratings report.
"The anticipated 1.5 percent default rate would be the lowest rate since 2011 when it dropped to 0.6 percent. 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 percent and is expected to fall to 1.9 percent 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 percent or lower.
The leisure and entertainment default rate forecast remains high, at 14 percent but could finish well below last year's 9.9 percent level if Cineworld Cinemas and Travelport avoid defaulting.
The retail default rate is expected to finish the year at 7 percent, though roughly half of the amount stems from Belk's February missed interest payment. The year-end energy default rate forecast is 5 percent, a significant drop from the May TTM 14.5 percent mark. The lower rate reflects improved crude oil prices and smaller sized defaults compared with last year.
The 2.5 percent -3.5 percent 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 percent - 10 percent would end below the three-year cumulative default rate of 15 percent during the 2008-2010 financial crisis.
The full report titled "U.S. Leveraged Loan Default Insight Report" is available at www.fitchratings.com.