Fitch Ratings raised its 2025 default rate forecasts for U.S. and European leveraged finance due to a weaker macroeconomic outlook caused by an escalating trade war.
U.S. high-yield bond defaults are now expected to reach 4.0% to 4.5% and leveraged loan defaults 5.5% to 6.0%. In Europe, Fitch forecasts 5.0% to 5.5% for high-yield bonds and 2.5% to 3.0% for leveraged loans.
The U.S. economy is now projected to grow just 1.2% in 2025, while Europe is expected to grow 0.6%. Only one 25-basis point Fed rate cut is forecast for late 2025. Corporate margins, cash flows, and liquidity conditions are deteriorating, while access to funding for highly leveraged and cyclical issuers is tightening.
In the U.S., sectors like autos, retailers, technology hardware, and telecommunications are seen as most vulnerable. Large issuers expected to contribute to defaults include Altice France, Radiate Holdco, Tropicana, Sonrava Health, DISH, At Home Group, and Sunnova Energy. Defaults could be lower if CSC Holdings avoids default this year.
In Europe, sectors impacted by tariffs include automotive, manufacturing, chemicals, and technology hardware. Major European issuers already facing distress include Altice France, Thames Water, Garfunkelux, Ardagh Group, and Kloeckner Pentaplast.
Value Investor2025-04-26
