The corporate default rate is up and rising as interest rates remain elevated, making it more expensive for companies to refinance debt.
Corporate defaults rose last month, with 41 in the U.S. so far this year. That's more than double the same period last year, according to Moody's Investors Service.
Federal Reserve Board Chairman Jerome Powell departs after speaking during a news conference following the Federal Open Market Committee meeting, at the Federal Reserve in Washington, DC, on June 14, 2023.to keep hiking interest rates to stem inflation, which means an increase in corporate default rates is likely in coming months.
Bankers and analysts say high interest rates are the biggest culprit of distress. Companies that are either in need of more liquidity or those that already have hefty debt loads in need of refinancing are faced with a high cost of new debt. Meghji added that his firm has been particularly busy since the fourth quarter across numerous industries. While the most troubled companies have been affected recently, he expects companies with more financial stability to have issues refinancing due to high interest rates.
In many cases, these defaults are months, if not quarters, in the making, said Tero Jänne, co-head of capital transformation and debt advisory at investment bank Solomon Partners.
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