Overall private credit default rate declines to 2.4 per cent, says Proskauer
International law firm Proskauer has announced the results of the Proskauer Private Credit Default Index for the first quarter.
The default rate continued to decline since peaking in Q2 2020. In Q1 2021 the overall default rate was 2.4 per cent, down from 8.1 per cent in Q2 4.2 per cent in Q3, and 3.6 per cent in Q4.
The quarterly index tracks the default rates of senior secured and unitranche loans.
"We saw another significant drop in the default rate this quarter, reflecting the improvements we are seeing across our practice.” says Stephen A Boyko, co-chair of Proskauer's Private Credit Group. “While we are not out of the woods, we have seen a large number of loans return to performing credits, and we expect that trend to continue for the foreseeable future”, says Boyko.
Companies with more than USD50 million of EBITDA at the time of origination had a 1.0 per cent default rate continuing a downward trend in the default rate from a peak of 5.3 per cent in Q2.
Similarly, companies with USD25-49.9 million of EBITDA had a 1.4 per cent default rate continuing a downward trend in the default rate from a peak of 6.7 per cent in Q2.
The Index also includes several proprietary features for clients including an analysis of defaulted loans by industry including: consumer/retail, food/beverage, healthcare, manufacturing and software/technology by EBITDA band (0-USD25 million, USD25-49.9 million, and USD50 million-plus) by default type (payment, bankruptcy, financial covenant, other material default, etc.) and by comparison to the publicly reported default rates for leveraged loans as reported by the rating agencies.
The Proskauer Private Credit Default Index includes 721 active loans in the United States representing USD131.1 billion in original principal amount. We have attempted to keep our database as a living repository to reflect market conditions as accurately as possible. While the influx of new deals may drive down overall default rate we believe it is a more accurate portrayal of the health of the market. The Index includes companies across all major industry groups with EBITDA (earnings) from USD0 to more than USD1 billion.