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.
The reports cites Fitch Ratings as saying that its trailing 12-month default rate across a sample of approximately 1,300 private credit borrowers increased from 6.1% in July to 6.3% at the end of August. The ratings agency also recorded the highest number of private credit default events in the past 12 months during the month.
There were 14 default events in August, involving 11 individual borrowers and three companies that had previously defaulted, according to Fitch.
The agency said stressed maturity extensions remained the most common form of default for the third consecutive month, accounting for 45% of August’s events. Companies are increasingly seeking to push out loan maturities as uncertainty around interest rates and inflation, combined with weak transaction activity, makes it more difficult for private equity sponsors to sell struggling portfolio companies before debt comes due.
Payment deferrals and the switch from cash interest to payment-in-kind arrangements have also become significant features of the stress in private credit. Together, the two measures accounted for 47% of the 89 defaults recorded by Fitch over the previous 12 months.
Healthcare, industrials and manufacturing were the most affected sectors in August, each recording a 9.9% default rate, up from 9.5% in July.
