JPMorgan Says Deeply Distressed US Loans Hit Highest Level Since Pandemic

Bloomberg··US·Read original
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Summary · why it matters

The deeply distressed tail of the leveraged loan universe has grown to levels not seen since the beginning of the pandemic, with technology the single biggest sector under pressure, according to strategists at JPMorgan Chase & Co. In a Tuesday report, strategists including Nelson Jantzen wrote that the value of loans trading below 60 cents on the dollar, or deeply distressed levels, rose to $65 billion from $40 billion a year ago, the highest since March 2020. Distressed leveraged loans, or those trading at or below 80 cents on the dollar, also climbed, totaling $139.8 billion, a nearly 90% jump over the past 12 months and just $4 billion shy of a high in May 2020. About 141 leveraged loan issuers now trade below 80 cents on the dollar, 35 more than a year earlier, with software providers CDK Global, QLIK Technologies Inc. and Quest Software among the biggest contributors. The biggest concentration of distressed loans sits in the technology sector at 39%, a total of $54.4 billion, as software companies face a challenging refinancing environment with more than $100 billion of maturing debt approaching and concerns mounting that advances in artificial intelligence would disrupt software services. Returns on CCC loans, the lowest tier of junk, are down 1.97% year-to-date, while CCC high-yield spreads have jumped above 1,000 basis points, the highest since the 2023 regional banking crisis, and CCC bond yields have climbed to 15.58%, the highest since November 2022. JPMorgan expects both high-yield bond and leveraged loan default rates to rise next year from a projected 2.25% in 2026 to 2.75% and 4.50% respectively.

Impact on assets 1

Digital Finance & Tokenization▲
JPMorgan Chase & Co
JPM
± MixedCapitalrelevance

JPMorgan's strategists authored the report on rising distressed leveraged loans and default-rate forecasts, a research note rather than a direct financial event for the bank.

Off-coverage companies 3

CDK Globali
Private▼ NegativeCapitalrelevance

CDK Global is named among the biggest contributors to deeply distressed leveraged loans, reflecting refinancing stress.

Qliki
Private▼ NegativeCapitalrelevance

Qlik is named among the biggest contributors to loans trading below 80 cents on the dollar, signaling a challenging refinancing environment.

Quest Softwarei
Private▼ NegativeCapitalrelevance

Quest Software is named among the biggest contributors to loans trading below 80 cents on the dollar, indicating refinancing distress.