Fitch sees U.S. junk bond defaults rising

Washington, D.C., Aug. 16 – Fitch Ratings said it expects high-yield defaults to continue rising to 4.5% to 5% by the end of 2023.

Higher interest rates are hurting issuers with near-term maturities and other liquidity issues, Fitch said.

The U.S. high-yield trailing 12-month (TTM) default rate rose to 2.6% by volume and 2.8% by issuer count in July, compared with 2.3% and 2.6% in June, respectively. Year-to-date default volume as of Aug. 11 totaled $24.6 billion from 30 issuers, compared with $9.5 billion from nine issuers over the same period last year, the agency noted.

“The Top Market Concern Bond list totaled $53.7 billion in August, up from $53 billion in July. It was $26.4 billion in August 2022,” Fitch said in the news release.

“Removals from the Top list during August totaled $1.2 billion. Aggregate defaults of $4.3 billion drove the Top list removals and include Exela Technologies, Azul Investments LLP and U.S. Renal Care Inc., all of which completed distressed debt exchanges. Mallinckrodt Pharmaceuticals also missed an interest payment in June and entered into a forbearance agreement in July with first- and second-lien bondholders, while Western Global Alliance filed for Chapter 11.”

Fitch’s Top Market Concern Bond list’s top three issuers are Bausch Health Cos., Carvana Co. and Ligado Networks LLC, holding a total volume of $24.1 billion of bond debt, or 45% of the Top Market Concern Bonds list by par value outstanding.

The agency warned if Bausch files for Chapter 11, it would propel the health care sector default rate to 15% from 4%.

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