(Bloomberg) — The default rate across 1,300 US private debt borrowers tracked by Fitch Ratings rose to a record high in the second quarter, according to a report released Thursday.
The trailing 12-month private credit default rate in the US increased to 6% as of the end of the quarter, up from a previous high of 5.7% reached in the prior three-month period. Fitch recorded 32 instances of private credit default events from 20 new, unique defaulters during the quarter, bringing total defaulters to 84.
Maturity extensions under stress overtook payment-in-kind and interest-rate deferrals as the leading driver of quarterly delinquencies, Fitch said. More than half of the quarter’s 32 recorded default events featured some form of maturity extensions.
“Coming into the year, we expected defaults in private credit to moderate given an expected decline in interest rates and a pick-up in M&A,” said Lyle Margolis, Fitch’s head of private credit for North America. “With markets now pricing in rate hikes and M&A remaining subdued, we expect defaults to remain elevated for the balance of the year.”
The highest default rates were in the industrials and manufacturing sector at 10.4%, up from 5.9% in the first quarter. Healthcare default rates also rose over the quarter across private debt borrowers to 9.4% from 6.9%.
Despite broader market concerns brought on by the rapid developments in artificial intelligence, the technology software industry “continued to show relatively limited stress,” according to the report’s authors led by Margolis. Software posted the lowest default rate among the top sectors at 1.2%, a decrease from last quarter’s 2.3%.
“Fitch’s global outlook remains ‘neutral’, though we note that the Iran conflict and related inflation shock have reduced the prospect of near-term rate relief for leveraged issuers,” the report said.
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