Amid improving credit conditions, Fitch Ratings has lowered its forecast for U.S. leveraged loan defaults in the next couple of years.
The rating agency dropped its loan default rate forecast to 4.5% from 7%–8%, and its forecast for 2022 was reduced to 4%–5% from 5%–7%.
“The lowered 2021 and 2022 forecasts reflect the pushed out maturities that occurred recently as well as expectations that access to capital markets will remain receptive,” said Eric Rosenthal, senior director of leveraged finance at Fitch.
While the overall default forecast has improved, certain sectors are still expected to be hit hard.
“Defaults are likely to be concentrated this year, with leisure/entertainment projected to comprise roughly 25% of the total,” Rosenthal said.
Fitch said that the leisure/entertainment sector could see a default rate approaching 30% this year, up from 9.9% in 2020.
Other industries that suffered in 2020, such as the retail and energy sectors, are expected to see improved default rates this year.
Fitch said that its cumulative forecast for the Covid-19 crisis period (2020 to 2022) is 13%–14%, which would be slightly below the defaults recorded in the global financial crisis, which was 15% for the 2008-2010 period.