The Bank of America has speculated that defaults in corporate private credit will exceed those in the syndicated loan market next year if interest rates remain consistently higher, as reported by Bloomberg.
The report cites a note from Bank of America which stated: “Potential problematic situations within private debt remain unaddressed and are likely to surface near term. At particular risk are unitranches, business development companies, older vintage funds with highly levered deals, and recurring revenue loans.”
With an estimated one-third of deals set to come due in the next two-and-a-half years, a BoA report suggests that private debt defaults will reach 5% by early 2024, compared to an estimated 3% default rate for broadly-syndicated loans in the same environment.
The report also highlights that Proskauer’s Private Credit Default Index, which tracks senior secured and unitranche loans in the US, showed a default rate of 1.64% for the second quarter of this year, while the default rate in the US leveraged loan market stood at 1.9% in August, according to S&P Global Ratings.
