A total of $2 billion of loan defaults in November led by Millennium
Health LLC pushes the trailing 12-month (TTM) default rate to 1.7% from
1.5% at the end of October, according to Fitch Ratings. Millennium's
$1.8 billion Chapter 11 filing on Nov. 10 represents the largest default
in the institutional leveraged loan market since Caesars Entertainment
Operating Co. in January.
Defaults in the energy and metals/mining sectors are also continuing to
place pressure on the rate, underscored by the chapter 15 filing for
Essar Steel Algoma Inc. In addition, Miller Energy Resources Inc. was
the fifth energy loan default filing since March, driving the October
energy TTM rate to 5.8%, compared to the 1% historical sector average.
The metals/mining TTM rate will rise to roughly 13% from 10.9% due to
Essar, the fifth default in the sector since May. Dex Media Inc. ($2.1
billion) is expected to file for bankruptcy in mid-December and will
send the broadcasting/media TTM rate to roughly 6% from 0.4%.
Overall, the 2015 default rate should come in near the top of Fitch
Ratings' 1.5%-2% projection. Removing defaults for energy, metals/mining
and Caesars would put the full-year rate at approximately 0.8%.
Energy and second-lien issuance has virtually halted. Since April, the
energy sector has provided just 6% of second-lien issuance due to a lack
of appetite for junior liens, and as oil prices in the mid 40's pressure
valuations. The energy sector has the largest share of second-lien
loans, at 21%. From third-quarter 2014 through first-quarter 2015,
energy accounted for 22% of total second-lien issuance. Third-quarter
2014 ushered in the bulk of this volume as crude oil prices peaked.
Overall, second-lien loans comprise 8% of the institutional market.
Weak energy second-lien bids are also a focus. The average bid price for
second-lien loans on a par-weighted basis was 89.9 cents last week, with
14% of the sample bid below 80 cents. Removing energy from the mix, the
average price stands at 94.3 cents, with only 6% bid below 80 cents.
Apart from energy, the healthcare/pharmaceuticals sector is also
struggling, with notable weakness in the secondary market since the end
of September due to contagion from Valeant Pharmaceuticals
International. The company drew Congressional attention for significant
drug price hikes and then faced hedge fund allegations of accounting
manipulation, heightening political and regulatory uncertainty for the
sector. 38% of loans were bid above par just two months ago, but that
figure is now 4%. In addition, 39% of healthcare/pharmaceuticals term
loans are currently bid below 98 cents versus 10% in mid-September.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article, which may include
hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.
Fitch U.S. Leveraged Loan Default Insight ($2 Billion in Loan Defaults
for November; Weak Second-Lien Bids for Energy)
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View source version on businesswire.com: http://www.businesswire.com/news/home/20151124005760/en/
Copyright Business Wire 2015
Source: Business Wire
(November 24, 2015 - 10:23 AM EST)
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