Deeply distressed US leveraged loans have risen to their highest level since the pandemic began, according to JPMorgan Chase & Co. Strategists wrote that loans trading below 60 cents on the dollar surged to $65 billion from $40 billion a year ago, the highest since March 2020. Distressed loans at or below 80 cents on the dollar total $139.8 billion, a nearly 90% jump over 12 months and just $4 billion shy of a May 2020 high.
There are now about 141 leveraged loan issuers trading below 80 cents, including software providers CDK Global, QLIK Technologies Inc., and Quest Software. The technology sector holds the biggest concentration at 39%, totaling $54.4 billion. Software firms face a challenging refinancing environment as over $100 billion in maturing debt approaches, with AI concerns adding pressure.
In the riskiest tier, CCC loan returns are down 1.97% year-to-date, while CCC bond spreads jumped above 1,000 basis points, the highest since the 2023 regional banking crisis. Yields on CCC bonds reached 15.58%, the highest since November 2022.
JPMorgan strategists noted high-yield bond default volume is outpacing loans for the first time since 2020. The bank expects default rates to rise next year to 2.75% for bonds and 4.50% for loans, from a projected 2.25% in 2026.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing