US private credit defaults drop in Q3

The default rate on US private credit loans fell to 1.95 per cent in the third quarter of this year, according to law firm Proskauer’s latest index.

The index tracked 872 senior-secured and unitranche loans in the US, worth $152.1bn (£117.4bn) in total.

The third-quarter default rate is a decrease from 2.71 per cent in the prior quarter, but it is still higher than the first-quarter default rate of 1.84 per cent.

Read more: US private credit defaults increase for third quarter in a row

“We continue to see a relatively stable default rate across our portfolio, in contrast to the rising default rates we see in the syndicated markets,” said Stephen A. Boyko, partner in Proskauer’s private credit group and co-chair of its corporate department. “The lower default rates are likely a result of some of the structural differences of private credit: more rigorous underwriting, constant monitoring, greater access to information/management, a small group of lenders, and in some cases, financial maintenance covenants.”

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The index also breaks the default rate down by EBITDA.

For companies with EBITDA of less than $25m, defaults decreased from 2.6 per cent in the second quarter to two per cent in the third quarter.

For companies with EBITDA ranging between $25m and $49.9m, default rates slightly rose from 2.7 per cent in the second quarter to three per cent in the third quarter.

Meanwhile, firms with EBITDA of $50m and above saw defaults decrease from 2.8 per cent in the second quarter to 0.8 per cent in the third quarter.

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