Introducing LCD’s dual-track default rate: Sponsors drive distressed exchanges

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In tandem with LCD’s legacy criteria capturing general defaults of missed payments and bankruptcy filings, LCD is now tracking a separate rate that includes distressed transactions stemming from out-of-court restructurings, exchanges, and subpar buybacks, or so-called “distressed exchanges.” The current payment default rate (excluding distressed exchanges) by issuer count was 2.05% at the end of December. However, LCD’s newly unveiled dual-track default rate (DTDR), which includes payment defaults and distressed exchanges, was 3.8% by issuer count at the end of 2023, up from 1.5% at the end of 2022. Default rates are measured as the TTM calculation of defaults among performing companies in the Morningstar LSTA US Leveraged Loan Index.