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Fitch Ratings lifts forecast for retail default rate

Data: Fitch Ratings; Chart: Axios Visuals

The leveraged loan default rate for retail is now projected to increase to 5% by the end of the year compared with a previous forecast of 3% at the end of December, according to Fitch Ratings' latest monthly report.

Why it matters: The default rate indicates where the overall health of an industry is trending — and the red line is creeping up.

Driving the news: Instant Brands, whose debt is trading at distressed levels, is working with law firm Ropes & Gray to ensure the business is well capitalized, it said.

Of note: The default rates illustrated in the chart show the percentage of leveraged loans that have been defaulted on within that specific industry.

Catch up fast: As the U.S. began to emerge from the COVID-19 pandemic last year, the leveraged loan default rates for the retail and consumer products sectors stood at 0.5% and 5.3% respectively at the end of 2022.

The big picture: Fitch is forecasting that the overall institutional leveraged loan default rate will increase to between 2.5% and 3%.

  • That's up from 1.6% at the end of 2022 and 1.7% currently.
  • The ratings agency is factoring in a mid-2023 recession and 0.2% GDP growth for the year.
  • Other key factors include rising interest rates, lingering inflation and tightening credit markets.

What we're watching: Retailers on the Fitch's Top Market Concern watchlist include department store operator Belk, surf brand Boardriders, apparel brand Outerstuff, apparel manufacturer Premier Brands Group (formerly Nine West Holdings) and boating and fishing retailer West Marine.

  • Consumer products companies on the watchlist include beauty businesses Anastasia Beverly Hills and Rodan & Fields.
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