August 28, 2024 (MLN): The trailing 12-month (TTM) U.S. leveraged loan (LL) default rate remained above 4.0% in July, Fitch Ratings says.
Macroeconomic pressures and sector-specific risks, such as shifts in consumer spending priorities, continue to exert upward pressure on default rates as issuers await the Fed’s decision in September.
Defaults in July included AMC Entertainment’s distressed debt exchange (DDE), which contributed $1.9 billion and $518 million in LL and high-yield default volume, respectively.
AMC Entertainment has now closed on its fourth DDE in four years, highlighting the prevalence of recurring defaulters as issuers are still faced with high interest expenses. The TTM HY default rate decreased to 2.11% in July, down from 2.34% in June.
Rodan & Fields also completed a DDE shortly after it failed to make amortization and interest payments on approximately $563 million of LL debt, its second DDE in 15 months.
Technology company Mobiluem also defaulted in July, seven months after missing interest and amortization payments due last December, as a result of ongoing operational and financial challenges.
Online education company 2U filed for Chapter 11 following a post-pandemic decline in demand for online learning services.
The Top Market Concern Loan list rose by a meaningful $3 billion in August, driven by eight additions. Franchise Group was added to the top list as it is at significant risk of a covenant breach.
Retail sales beat expectations in July, but the discretionary segments Franchise Group operates in are exhibiting near-term weakness leading to significant declines in revenue.
Fitch added Allen Media to our Top Bond list due to its challenges with declining advertising revenue alongside high leverage and interest expense.
