Q1 Restructuring Perspectives - SOLIC Capital Advisors

Deterioration and bankruptcies are evident

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The SOLIC Q1 2024 Restructuring Perspectives indicate lower leveraged loan default rates, but other metrics signaling well-above averages.

While the leveraged loan default rate dropped to a 13-month low of 1.14% in March 2024, S&P forecasts credit quality deterioration for the rest of the year. S&P specifically noted trends in lower-rated credits and sectors with exposure to declining consumer spending.

Meanwhile, payment default rate, by issuer count, stood at 1.9% in March 2024, higher than its 10-year average of 1.6%. Additionally, the distressed cohort of performing index loans, which are trading below 80% of par, rose to 3.5% in March 2024, up from 3.3% in February.

Another signal for deterioration is the downgrades to upgrades ratio, which has been increasing steadily in 2024, reaching 1.9x in March.

Bankruptcy Trends:

Bankruptcy filings are expected to rise in 2024 due to increased cost of funds, reduced consumer discretionary spending, higher housing costs, and continued drawdown of excess savings. There were several notable bankruptcies in Q1 2024 include JOANN Inc., Enviva Inc., Cano Health, Inc., and CURO Group Holdings, Corp., primarily in consumer discretionary, healthcare, and industrial sectors.

These are now joined by, among others, Red Lobster Management LLC as of May, 2024.

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