The default rate on leveraged loans increased rapidly early in the pandemic but has declined since last summer (figure 2-7). Additionally, downgrades of leveraged loans have slowed significantly over the same period, returning to their pre-pandemic pace. However, the share of newly issued loans to large corporations with high leverage-defined as those with ratios of debt to earnings before interest, taxes, depreciation, and amortization greater than 6-has exceeded the historical highs reached in recent years (figure 2-8).

2-7. Default Rates of Leveraged Loans

Note: https://cartitleloanscalifornia.com/wp-content/uploads/2018/04/Depositphotos_163610594_m-2015-360×270.jpg The data begin in ount in default over the past 12 months divided by the total outstanding volume at the beginning of the 12?month period. The shaded bars with top caps indicate periods of business recession as defined by the National Bureau of Economic Research (NBER): , and –present. As of the publication of this report, the NBER has not declared an end to the current recession.

2-8. Distribution of Large Institutional Leveraged Loan Volumes, by Debt-to-EBITDA Ratio

Note: Volumes are for large corporations with earnings before interest, taxes, depreciation, and amortization (EBITDA) greater than $50 million and exclude existing tranches of add?ons and amendments as well as restatements with no new money. Key identifies bars in order from top to bottom.

Vulnerabilities from debt owed by small businesses have decreased, but many small businesses remain financially strained

While many small businesses closed or significantly scaled back their operations as a result of measures to contain the pandemic, credit quality for the small businesses that have continued operating or reopened has stabilized in recent months. Short-term loan delinquencies have declined notably since last summer, and long-term delinquencies have also ticked down, indicating an improvement in firms‘ balance sheets.Continue reading→