The Fitch is Back

Fitch Ratings, a big shot in credit rating agencies, has updated its U.S. Market Concern Loan and Bond lists. These lists include issuers that may be at risk for increased credit problems or a higher chance of a Distressed Debt Exchange (DDE).

Some issuers were added to these lists because of weaker credit metrics or an increased risk of a DDE. Many of these issuers have been struggling with tight liquidity and declining operational performance, mainly due to slower economic growth in the United States and lower demand from end customers. A few issuers have also faced unique challenges such as product recalls or regulatory obstacles.

Fitch Ratings has also added several issuers back to its Top List after they completed DDEs but failed to adequately address near-term maturities or improve their liquidity.

As of February 23, 2023, the Top Market Concern Loans list included a whopping $76.6 billion across 87 issuers, up from $75.1 billion in January with 86 issuers. Notable additions to the list include Magenta Buyer, H-Food Holdings, Orchid Orthopedic Solutions, Mold-Rite, and Constellis, among others, due to elevated default risk.

In the high yield market, the Top Market Concern Bonds list totaled $68.2 billion across 32 issuers as of February 23, 2023, compared to $65.5 billion across 35 issuers in January. The addition of CommScope contributed to the increase in net volume. Notable removals from the list include GoTo Group following its default after a DDE completed on February 5, 2023, and Cano Health, Audacy, and Gol Linhas Aereas Inteligentes, which filed for Chapter 11 bankruptcy.

Fitch Ratings has predicted default rates for 2024, projecting a range of 3.5%-4.0% for leveraged loans and 5.0%-5.5% for high yield bonds. These rates are higher than the 2023 default rates of 3.3% for leveraged loans and 2.79% for high yield bonds. For 2025, Fitch anticipates default rates to range from 2.0%-3.0% across both markets on an issuer count basis.

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