OREANDA-NEWS. Energy sector defaults hit the institutional leveraged loan market in March for the first time since December 2013, according to Fitch Ratings. At end-March 2015, the energy trailing 12-month (TTM) sector institutional leveraged loan default rate stood at 1.7%, higher than its 1% long-term average.

Chapter 11 bankruptcy filings in March by Quicksilver Resources and Cal Dive International serve as bellwethers, with the default rate expected to rise further on Shoreline Energy's early April bankruptcy filing and Sabine Oil and Gas' April 21 missed interest payment. Samson Investment is also engaged in restructuring discussions.

"The energy sector will remain an outlier for leveraged loan defaults while it navigates the current rough patch," says Eric Rosenthal, Senior Director of Leveraged Finance.

The overall TTM leveraged loan default rate fell to 3.6% in March from 3.9% in February. Average coverage improved to 3.4x at year-end 2014 from 3x one year earlier, while revenue and EBITDA also increased over the same timeframe. Average leverage declined 10% over the past year to 5x from 5.5x.

The institutional leveraged loan market grew 18% over the past year. Covenant-lite facilities comprise 58% of the outstanding universe and will likely remain high.

Despite the increased energy default rate, the industry comprises just 5% of outstanding institutional leveraged loans compared with 18% of the high yield bond market. At 14% services and miscellaneous is the largest sector, followed by computers and electronics, and healthcare and pharmaceutical.

The full report, "Fitch U.S. Leveraged Loan Default Insight: Energy Defaults Return While Broader Market Metrics Improve," is available at www.fitchratings.com or by clicking on the link.