Despite relatively low overall default rates in the high-yield and syndicated loan market in 2024, a record-breaking 35% of defaults and distressed exchanges involved companies with prior defaults. This surge in repeat defaults stems from several factors. Higher interest rates have significantly increased borrowing costs, especially for financially precarious firms. Many companies that underwent distressed exchanges failed to fully resolve their debt issues, leaving them vulnerable to future defaults.
For high-yield bond investors, careful credit selection has become paramount, as repeat defaults typically result in lower recovery rates, especially for senior unsecured bonds. This trend underscores the importance of thorough due diligence and risk assessment in the high-yield market, particularly in an environment of persistent economic uncertainty and elevated interest rates.
