BoA says $46 billion of distressed debt is on the horizon

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via businessinsider:

  • The US could see a $46 billion wave of distressed high-yield debt next year, BofA warned.
  • That’s because defaults are accelerating and could speed up at 1.5 times the pace next year.
  • Higher interest rates could cause defaults and bankruptcies to peak in early 2024, experts warn.

Brace for a wave of distressed debt to hit the market as higher borrowing costs cause corporate defaults to accelerate, Bank of America warned.

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The bank’s strategists expected more pain stemming from higher interest rates, with the central bank having raised its fed funds rate target to the highest level since 2001.

“We expect defaults to continue to accelerate going into 2024,” Bank of America warned in a note on Friday. “From $30bn in DM USD HY impaired face value over the past 12 months, we project the pace to increase 1.5x to $46bn over the next year for a 3.4% default rate.”

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Most of those defaults are likely to take place in three areas, the bank said, with an estimated $14 billion of distressed debt showing up in technology, media, and telecom, $13 billion in the health sector, and $8 billion in the cable sector.