International law firm Proskauer has launched the Proskauer Private Credit Default Index which tracks, on a quarterly basis, the default rates of senior secured and unitranche loans.

“Traditionally, the private credit market has been viewed as being opaque with few sources of information on default rates. Our new Default Index provides a new level of transparency and gives investors a window into the market, and its performance, they have otherwise not had,” says Stephen A Boyko, co-chair of Proskauer’s Corporate & Transaction Department and Private Credit Group. “Given the number of deals we are seeing and the growing importance of this market as a source of funding for many companies, the Index, along with our proprietary data, surveys and market experience and expertise gives our clients the critical insights they need to remain a step ahead in this highly competitive environment.”

As of the end of Q1 2020, the Proskauer Private Credit Default Index© reported the following:

• Overall default rate was 5.9 per cent
• Companies with more than USD50 million of EBITDA at the time of origination had a 4.4 per cent default rate,
• Companies with USD25-50 million of EBITDA had a 5.2 per cent default rate
• Companies with less than USD25 million of EBITDA had a 7.0 per cent default rate
• The default rate for healthcare deals was 5.5 per cent, primarily due to a high number of defaults by managed service organisations
• The default rate for software/technology deals was 4.5 per cent, lower the average for all other deals
• The default rate for business services deals was 1.4 per cent, significantly lower the average for all other deals
• Over one-third of defaulted loans were originated in 2017

The Proskauer Private Credit Default Index includes 576 active loans in the United States, representing USD95bn billion in original principal amount. The Index includes companies across all major industry groups with EBITDA (earnings) from USD0 to more than USD1 billion. While there are varying conventions of what is considered a default for purposes of calculating a default rate, the Index includes loans that have a payment, financial covenant or bankruptcy default, loans that are otherwise in default if the default is expected to continue for more than 30 days (excludes immaterial defaults) and loans that were amended in anticipation of a default.

The Private Credit Group continues to create tools that offer unique insights to their clients, including an annual survey that features predictions from top lending institutions, which compliments the findings of Proskauer’s proprietary Private Credit Insights annual report. And since the onset of the COVID-19 pandemic the group has begun releasing short, pulse surveys in order to gain insights on the impact of the pandemic on the private credit market.

Over the past five years, Proskauer has worked on more than 800 deals for more than 75 private credit clients across the United States and Europe with an aggregate transaction value exceeding USD150 billion.

As a market-leading advisor to the private credit industry, Proskauer has assembled a cross-disciplinary finance and restructuring team exclusively dedicated to private credit investors. This team includes over 50 restructuring and transactional lawyers focused on representing credit funds, business development companies, and other direct lending funds in the restructuring of “clubbed” and syndicated credits and preferred equity investments.