Companies Repeated Defaults at Record Level in 2024, JPMorgan Says

(Bloomberg) — Risky companies defaulted more than once at a record rate in 2024, according to a new report from JPMorgan Chase & Co. 

Around 35% of the year’s defaults and distressed exchanges were repeat offenders in a historical record, the report from strategists led by Nelson Jantzen said. That’s while the leveraged loan default rate is at a roughly four-year high. 

Interest rates remaining higher for a big part of last year weakened balance sheets of lower-rated companies. That impact has been especially pronounced in the leveraged loan market as those issuers borrow on a floating-rate basis, with interest costs nearly doubling for some when the Federal Reserve raised interest rates. While the central bank cut rates three times last year, it signaled that it would slow its pace in 2025.

The loan market also has a greater share of lower-rated issuers than the high-yield market as private equity firms increasingly tapped the asset class during the period of near-zero rates. That’s meant that the default rate in the loan market has far outpaced that of the high-yield bond market, with the gulf between the two at a 24-year high, the report said. 

The par-weighted US high-yield bond default rate stood at 1.47% while the same metric for loans was 4.49% at the end of the year. 

Loan issuers with high debt loads have increasingly undertaken so-called liability management exercises to reshape capital structures, often while facing a looming maturity or cash crunch. A record 70% of the 2024’s default and exchange volume was attributed to a distressed exchange, according to the report. 

Still, such transactions don’t always slash enough debt to turn companies around, and borrowers could end up defaulting again, leading to still lower recoveries for investors. 

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