2024 Primer on the U.S. Leveraged Finance Market
Expert View / 8 May, 2024
The "2024 Primer on the U.S. Leveraged Finance Market", published by Fitch Ratings, offers a deep-dive analysis into the complexities and nuances of the U.S. leveraged finance market.
This comprehensive overview focuses on key factors influencing risk and opportunity for market participants such as corporate bond and loan underwriters and investors, CLO investors, corporate debt issues, private equity sponsors and regulators.
The primer includes a detailed overview of leveraged loans – what they are, what are the different types, their characteristics and their components. The document is a valuable resource for navigating the complexities of the levfin arena, providing a comprehensive understanding of the current state and forward look of the market.
To read the full document follow this link. Please note that a Fitch Ratings account may be necessary to access the report.
Key Findings
- Market dynamics: The report reveals a deteriorating outlook for the leveraged finance sector in 2024, attributed to restricted access to capital markets and higher for longer interest rates. Highly leveraged issuers are pinpointed as particularly vulnerable under these conditions. However there are signs of improvement in high yield issuance volume.
- Default rates:The forecast is for an uptick in default rates across high yield (HY) and leveraged loan (LL) markets, underpinned by the dual pressures of escalated interest obligations and stunted economic growth.
- Default rates:An anticipated rise in default rates for high yield and leveraged loans is forecasted, driven by an increased interest expense burden coupled with a projected economic slowdown. Default rates for leveraged loans are expected to exceed historical averages.
- Sectoral analysis:A granular breakdown pinpoints healthcare, telecoms, leisure and entertainment, broadcasting and media, retail, and technology sectors as critical arenas contributing significantly to anticipated default volumes.
- Market activity:A resurgence in refinancing and repricing activity marks a proactive response to impending maturity walls, while private credit markets have shown positive growth for issuers unable to access the public credit markets. Meanwhile, CLO issuance activity has remained steady despite market challenges.
- Private credit and private equity:The report delves into the growth of direct lending in light of the heightened banking regulations in the aftermath of the financial crisis. In addition, there is commentary on the US private equity market, where fundraising volumes remain flat as market activity contracts due to inflationary pressures and increases in interest rates.