U.S. distressed leveraged loan market reaches pandemic-era peak, tech sector hit hardest
Distressed U.S. leveraged loans have risen to levels not seen since the early months of the pandemic, with technology firms accounting for the largest share.
U.S. leveraged loans classified as distressed—trading at 80 cents on the dollar or less—have surged to $139.8 billion, almost twice the amount recorded twelve months prior and only slightly below the peak reached in May 2020. The most severely discounted segment, loans below 60 cents, has expanded to $65 billion, a figure not seen since March 2020. The number of issuers with debt under the 80-cent mark has risen to roughly 141, an increase of 35 over the previous year.
Technology firms dominate the distressed pool, contributing 39% ($54.4 billion) of total volume, with software providers CDK Global, QLIK Technologies and Quest Software among the largest exposures. Analysts warn that over $100 billion of maturing software debt faces refinancing challenges, heightened by concerns that AI advancements could disrupt service-based software businesses. Meanwhile, CCC-rated leveraged loan paper has slipped 1.97% this year, while high-yield bond spreads on similarly rated debt have widened above 1,000 basis points, indicating rising default risk across both markets.
Why it matters
Rising distressed loans signal heightened credit risk for tech firms and could pressure broader financial markets.
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