- Global firms are showing signs of distress as high rates ramp up their debt burdens.
- Distressed exchanges, a form of debt restructuring, accounted for the highest share of defaults since 2009, per S&P Global.
Firms worldwide are showing signs that they're struggling to deal with high debt loads, with one particular type of restructuring accounting for the most defaults since 2009, according to S&P Global.
The number of distressed exchanges, a form of debt restructuring that takes place outside bankruptcy court, accounted for two-thirds of all global defaults in July, and over half of all global defaults recorded so far this year, the firm said in a note.
That's the highest proportion of distressed exchanges as a proportion of total defaults since the Great Financial Crisis, analysts said.
"Distressed exchanges led defaults in July," the analysts wrote. "The increase in distressed exchanges partly results from a growing number of repeat defaulters, which are companies that have already defaulted once," they added, noting that repeat defaulters accounted for nearly a third of total corporate defaults.
Corporate defaults worldwide totaled 87 at the end of July, with 52 occurring in the US, S&P data shows. That's slightly lower than the number of defaults recorded in the US over the same period last year, with 60 corporate debt failures recorded at the end of July.
Wall Street has kept a close eye on corporate debt levels in the US after the Fed began raising interest rates in March 2022 to lower inflation. Prices have cooled from their peak several years ago, but rates in the economy remain at their highest level since 2001. Triple-A-rated corporate bond yields hovered around 5% in July, according to Moody's data.
Corporate defaults in the US could continue to rise, particularly for riskier, speculative-grade debt, Fitch Ratings said in a forecast at the start of this year. Late payments, one indicator of potential defaults, have been piling up at commercial banks, with the delinquency rate on business loans rising to 1.13% as of the first quarter, according to Federal Reserve data.