While headline default rates have ticked up in the last two years, they are primarily driven by distressed exchanges, see the first chart. The increase in dollar-weighted default rates has been less severe—those have, in fact, been trending lower recently—suggesting that a disproportionate number of small companies are facing stress, see the second chart.
The implication is that even as default rates have ticked up, credit losses suffered by high-yield and leveraged-loan investors remain pretty muted. However, with interest rates staying higher for longer, the increase in distressed exchanges could pressure future recoveries if the underlying issuer fundamentals remain stressed.
For more discussion, see our 2025 credit outlook here.
Source: Shobhit Gupta, PitchBook LCD, Apollo Chief EconomistSource: Shobhit Gupta, Moody’s Analytics, Apollo Chief Economist
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