The fears surrounding leveraged loans and the private credit industry have been increasing with each passing month, with many people apprehensive that defaults may rise and the catalyst for the next downturn could be near.
Despite the trepidation of many, portfolio managers seem less worried – or at least have a lesser sense of urgency – according to S&P Global Market Intelligence’s Leveraged Commentary and Data’s latest quarterly survey.
At the time of the survey in June, the default rate for the S&P/LSTA index was 1.24 percent on average. Managers predicted that this rate will grow steadily over the next few years, as opposed to a sharp increase.
The report showed that managers are continuing to elongate the timeline for their predictions about when default rates will hit their historic average of 2.92 percent. Their estimates in the latest survey are even further out from what they predicted in March.
In June, some 17 percent of fund managers predicted the leveraged loan market would reach the historic average default rate in 2020. That is down from 25 percent in March’s survey. The predictions for 2021 have also declined. In March, 75 percent of managers predicted the spike in 2021; in June that number fell to 58 percent. The remaining one-fourth from this quarter’s survey predicted 2022.
When asked the same question at this point last year, a quarter of managers predicted it would happen in 2019.