Fitch expects increase in defaulting companies in America ‎during 2024‎

Fitch Ratings Agency warned that defaults among companies in America and the eurozone will rise next year, as the impact of tightening monetary policy by central banks will continue to affect the performance of the economy.

The agency confirmed in its report that the US Federal Reserve will take a direction that is less profound than what the US markets expect regarding its monetary policy, expecting to reduce the interest rate by 75 basis points next year. It also believes that high borrowing costs will remain an obstacle for companies during 2024

It added: It appears that stressed bond and loan issuers face increasing operational challenges, achieve low or negative free cash flows, or are unable to increase earnings before interest, taxes, depreciation, and amortization to reduce high debt burdens.

Default rates among issuers of corporate bonds and US debt jumped from 1.6% to 3.04% over a 12-month period since the end of 2022 for leveraged loans.

Fitch estimates indicated that default rates may rise to a level ranging between 3.5% and 4% for leveraged loans in 2024, adding: Expectations for high default rates in 2024 reflect headwinds for the overall economy, including this includes the impact of high interest rates and a slowdown in the US economy in 2024 compared to the current year.