Fitch: US private credit defaults to rise in 2024
US private credit default rates are expected to rise this year as sponsors walk away from distressed companies, according to Fitch Ratings.
The ratings agency’s research said that default rates for middle market companies – those with less than $100m (£79m) of EBITDA – will remain elevated this year although they will be in the low-to-mid single digits for the second year in a row.
It said default rates are likely to increase “as sponsors walk away from companies with impaired business models and untenable capital structures, rather than continue to support them in an environment where capital has gotten significantly more expensive”.
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However, Fitch Ratings also said that US private credit deal origination volumes are expected to increase in 2024, due to the stabilisation of rates – albeit at higher levels – and increasing pressure from investors for a return of capital from private equity funds.
This is despite intense competition for deals, particularly in the upper middle market, due to the return of broadly syndicated loans.
Read more: Lenders introducing more flexibility to loan docs to beat competition
“Fitch expects a challenging environment for private credit in 2024, marked by elevated defaults including a greater number of restructurings,” said Lyle Margolis, senior director at Fitch Ratings.
“Deal origination volumes are expected to increase as interest rates stabilize and the pressure on funds to deploy capital persists.”
Read more: Fitch: Competition in private debt is intensifying
