Corporate junk debt defaults hit post-pandemic high in February

FILE PHOTO: Woman holds U.S. dollar banknotes in front of Euro banknotes in this illustration taken May 30, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

Defaults among U.S. corporate junk debt issuers reached a post-pandemic high in February, JPMorgan said in a new research report.

Nine junk-rated borrowers either filed for Chapter 11 bankruptcy or missed their interest payments on a total of $5.97 billion in loans and bonds last month, JPMorgan noted.

Three other companies opted for a distressed exchange on a total $3.96 billion in loans and bonds, the report added.

READ: More junk-rated US companies to default in Q1, Moody’s forecasts

February was only the second time in 11 months that the volume of defaults outweighed distressed exchanges.

Since the Federal Reserve began hiking interest rates in 2022, companies facing default have increasingly turned to out-of-court distressed exchanges, credit rating agency Moody’s said in a recent report.

Last month’s $9.9 billion in combined defaults and distressed exchanges surpassed 2023’s monthly average of $7.2 billion, JPMorgan said. It was the highest combined volume of the two since $16.9 billion posted in April 2023.

Moody’s and other ratings agencies anticipate the default rate among junk-rated issuers will rise this quarter before leveling out by the end of 2024.