JPMorgan: U.S. Deeply Distressed Loans Rise to Highest Since the Pandemic
nashnova research
Deeply distressed U.S. leveraged loans — trading below 60 cents on the dollar — have swelled to $65 billion, the highest since March 2020; tech accounts for nearly 40% of all distressed debt, as AI disruption fears and a looming maturity wall push credit stress into the broader high-yield bond market.
Deeply distressed loans at $65 billion — what does that signal?
JPMorgan strategists report that leveraged loans trading below 60 cents — meaning investors will only buy them at steep discounts because they expect the borrower may not repay — have reached $65 billion, up from $40 billion a year ago.
This means → the market is effectively writing off a growing number of borrowers, and the pace is accelerating — a more-than-60% jump in twelve months.
Widen the lens to loans trading below 80 cents, and the figure hits $139.8 billion, up nearly 90% over the past year and just $4 billion short of the all-time peak set in May 2020.
Why is tech under the most pressure?
By sector, tech accounts for 39% of all distressed loans at $54.4 billion — the single most stressed industry in the market.
Two forces are stacking: software companies face a $100-billion-plus maturity wall — a cluster of debt all coming due in a tight window — while refinancing costs keep climbing. At the same time, fears that AI could disrupt traditional software-service business models are intensifying.
In plain terms = the bill is coming due, rolling the debt is getting more expensive, and the core business may be getting eaten by AI — a triple squeeze.
The largest contributors include software providers CDK Global, QLIK Technologies, and Quest Software.
CCC-rated debt — how is the weakest tier performing?
In the riskiest corner of leveraged loans — CCC-rated credits, one notch from default — year-to-date returns stand at -1.97%, the only junk-rated tier posting a negative return.
High-yield bonds are under parallel strain: CCC spreads have breached 1,000 basis points, the widest since the 2023 U.S. regional-banking crisis. CCC yields have climbed to 15.58%, the highest since November 2022.
This means → the market is pricing the weakest borrowers near crisis levels. This is not a single-name story — the entire bottom tier of credit is deteriorating.
Could the default wave spread further?
JPMorgan strategists note that rising global bond yields and the Fed's hawkish pivot have lifted debt-service and refinancing costs for highly leveraged borrowers — just as a wave of bonds and loans reaches maturity, creating twin pressure.
This year, the volume of high-yield bonds affected by defaults has exceeded that of leveraged loans — the first time this has happened since 2020.
The bank forecasts high-yield bond default rates will rise from a projected 2.25% in 2026 to 2.75% next year; leveraged-loan defaults are expected to climb to 4.50%.
This reflects a broadening of stress from the loan market into the bond market — default risk is no longer confined to a single asset class.
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