By Matt Tracy
(Reuters) -U.S. corporate issuers defaulted on privately placed debt at a higher rate in the second quarter this year than in the first quarter, ratings agency Fitch Ratings said on Monday.
In its monitor of roughly 1,200 corporate borrowers of private credit, Fitch reported a default rate of 5.5% in the second quarter versus 4.5% in the first quarter. Eight different borrowers defaulted in the second quarter versus four in the first quarter, it found.
Four of the eight second-quarter defaults arose from maturity extensions by “financially stressed” companies, while three defaults stemmed from interest deferrals and the introduction of payment-in-kind, or non-cash, payments.
One remaining second-quarter default resulted from an “uncured payment default,” according to Fitch.
The second quarter witnessed a 16% drop in debt issuance by the U.S. middle market – the cohort of middle-sized businesses that comprise the majority of private credit lending. The volume of new U.S. middle-market debt fell to $11.6 billion in the second quarter from $13.7 billion a year ago, Fitch found.
“Smaller, private issuers remain particularly vulnerable to economic swings, GDP slowdowns, and persistent elevated interest rates, especially given their floating-rate structures,” said Lyle Margolis, Fitch Ratings’ head of private credit, corporates.
About three-quarters of Fitch’s 1,200 monitored private credit issuers belong to Fitch’s rated middle market collateralized loan obligation portfolio, the report noted, while the remaining quarter is privately rated by Fitch for the benefit of insurance companies.
(Reporting by Matt TracyEditing by Marguerita Choy)
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