Default Surge on Hold as Leveraged Credit Markets Refuse to Buckle

Posted by FTI Consulting on Jul 29, 2018 9:00:00 AM

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The last default cycle happened nearly a decade ago, and restructuring professionals are eagerly awaiting the next one. As a decade between default cycles is a significant amount of time, chatter that “we are due” is increasing. However, default cycles do not spontaneously occur and the ground conditions that preceded prior ones are not yet in place. Distressed debt levels are low and leveraged credit markets remain supportive of high risk borrowers.

Despite recent adverse developments in the first quarter of 2018, corporate credit markets have withstood and there are new reasons to believe that they will continue to support high risk credits for the foreseeable future barring a shock event. Highly respected market watchers have made repeated warnings about deteriorating lending standards, weakening lender protections and distorted risk/return prospects. Yet leveraged credit markets continue to roar. Until the current backdrop changes, it is difficult to make the case that a substantial uptrend in default activity and bankruptcy filings is in the offing.

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Topics: Financial