Moody’s warns US corporate default risk at 9.2%, with smaller, loan-financed firms facing higher distress amid slow economic growth
Mumbai: The probability of default by US companies has hit a post-financial crisis high of 9.2 per cent, double of 2021 at the end of last year, and there are no signs of a clear peak approaching, a research note by Moody’s Asset Management said.
The asset management arm of Moody’s warned of higher default chances for relatively smaller, loan-financed firms.
“The share of US companies with severe credit risk early warning signals surpassed pandemic levels in 2024. But the risk is unevenly spread. Using probability of default (PD) metrics, Moody’s has found a 5.9 percentage point gap between default risks for all US public companies and high-yield companies. This is the largest ever, highlighting much higher default chances for relatively smaller, loan-financed firms,” said Moody’s Asset Management.
According to Moody’s, the US economy is facing a ‘growth recession,’ a situation where the economy continues to grow, but at a rate that is insufficient to alleviate financial strains, particularly among smaller, heavily leveraged companies, in a higher-for-longer rates environment. However, unlike previous credit cycles, this time there were more distressed restructurings than hard defaults.
The research found that the credit risk of business development companies closely tracks that of the Baa-rated US corporate market. But, given the challenging credit outlook for medium-sized companies, their resilience might get tested in 2025, it said.
