US leveraged loan default rates rise in March as distress ratio hits 3-year high

US leveraged loan default rates ticked higher in March, and the share of loans trading at distressed levels is now at its highest point in roughly three years.

Key March metrics

• The distress ratio by amount (share of loans priced below 80 cents on the dollar) rose to about 7.2% by the end of March, up from around 6.4% in February and 4.3% in December 2025.

• This March distress level is the highest since late 2022, when it was last in the mid‑7% range.

• February data from the same benchmark showed a payment default rate by amount of about 1.4% and by issuer count of about 1.4%, indicating defaults had already begun to edge up before March’s further stress.

Context and market implications

• The rise in the distress ratio signals increasing pressure on lower‑quality borrowers and typically foreshadows further defaults over the following quarters.

• Market surveys and rating‑agency forecasts going into 2026 already anticipated elevated leveraged loan default rates versus pre‑2024 norms, with expectations that defaults would remain high even as policy rates begin to ease.

• Late‑2024 data show the U.S. leveraged loan default rate had already reached a decade high around the mid‑5% area (including distressed exchanges), so March’s move suggests the system is working through a prolonged, not transitory, default cycle.

Comparison snapshot