Citi Says ‘Messier’ Default Rate Overstates Risk for Investors

Default rates of bonds and leveraged loans are becoming harder to predict as more companies restructure their debt, according to research analysts at Citi. That’s making it more difficult for investors to accurately assess risk in the market.

Distressed exchanges — where troubled companies swap their old debt for new, often giving some investors less favorable terms — have outnumbered traditional default events by three times, analysts Michael Anderson and Steph Choe wrote in a Friday note. As a result, distressed exchanges have inflated default rates, making these calculations “messier and less reflective of risk appetite in recent years,” ...