Fitch: Energy Poses Less Default Risk to Leveraged Loans than High Yield Bonds

NEW YORK--()--The trailing 12 month (TTM) institutional leveraged loan default rate rose to 3.9% at end-January 2015 on Caesars Entertainment Operating Co.'s bankruptcy, according to Fitch Ratings. This is the highest level seen since Energy Future Holding's Chapter 11 filing in April 2014.

A sustained period of low oil prices is a notable risk to the institutional leveraged loan default rate, but the energy sector comprises only 4% of the loan market compared to 16% of the high yield bond market. While Quicksilver Resources' expected bankruptcy filing could have an impact within the month, the bulk of potential energy loan defaults may not be evident until 2016.

'Oil prices have dropped 50% since the end of October and if low prices are sustained, there will be pressure on the energy sector. That could impact both the loan and bond default rates, but the energy loan universe is only 20% the size of the energy high yield bond universe. Big names like PDVSA and Samson Resources Corp. are already walking a tightrope,' said Eric Rosenthal, Senior Director of Leveraged Finance.

The institutional leveraged loan default rate closed 2014 at 3.2%, slightly higher than the 3% annual average from 2007 - 2014. Most companies in Fitch's institutional leveraged loan universe, outside of energy, remain on strong-enough footing to avoid default. Without Caesars and EFH's bankruptcy filings, the TTM default rate stood at 1% at end-January 2015.

The full report, 'U.S. Leveraged Loan Default Insight,' is available at www.fitchratings.com

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research: Fitch U.S. Leveraged Loan Default Insight (Energy Sector Most Prevalent for Second Liens; Default Rate 3.9%)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=861892

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Contacts

Fitch Ratings
Eric Rosenthal
Senior Director
Leveraged Finance
+1-212-908-0286
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Mark C. Sadeghian, CFA
Senior Director
Corporates
+1-312-368-2090
70 West Madison Street
Chicago, IL
or
Michael Paladino, CFA
Senior Director
Leveraged Finance
+1-212-908-9113
or
Media Relations
Alyssa Castelli, New York, +1-212-908-0540
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Eric Rosenthal
Senior Director
Leveraged Finance
+1-212-908-0286
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Mark C. Sadeghian, CFA
Senior Director
Corporates
+1-312-368-2090
70 West Madison Street
Chicago, IL
or
Michael Paladino, CFA
Senior Director
Leveraged Finance
+1-212-908-9113
or
Media Relations
Alyssa Castelli, New York, +1-212-908-0540
alyssa.castelli@fitchratings.com