U.S. middle market (MM) issuance was flat in 2023, according to a new Fitch Ratings report. The report, which incorporates data from Fitch’s LevFin Insights, shows that issuance was $36.5 billion in 2023, compared to $36.7 billion in 2022, and down slightly from $38.3 billion in 2021.

Turmoil in the banking sector, geopolitical and recessionary concerns, and lingering inflation and supply chain issues contributed to a slow first half in 2023. Fourth quarter MM issuance declined 14.8% yoy to $9.5 billion and dropped sequentially by 16% from 3Q23. While MM issuance was down, the market maintained momentum into 2024 on the coattails of a robust third quarter.

The default rate for Large Middle Market (LMM) issuers within Fitch’s leveraged loan universe reached 5.5% for 2023, the highest rate within Fitch’s data going back to 2007. This rate was higher than the 4.6% and 4.0% rates for 2009 and 2020, respectively, which corresponded to the Great Financial Crisis and Covid-19. In Fitch’s privately rated Middle Market (PMM) portfolio, four defaults occurred in 4Q23 across three issuers, contributing to 15 defaults across 10 issuers in 2023. This was subdued compared to 21 and 18 defaults in 2020 and 2021, respectively. Approximately 28% of the issuers within Fitch’s PMM portfolio are rated ‘CCC+’ and below as of YE2023 up from 25% as of YE2022. This may signal an upcoming increase in default levels in the intermediate term.

LBO issuance in 4Q23 was scarce, with only four deals closing, the lowest amount since 3Q20 when no deals cleared. Although fourth quarter volume declined 8.3% yoy to $1.3 billion, annual 2023 issuance volume came in 6.9% higher than 2022 levels, primarily driven by $2.5 billion of issuance in 3Q23.

To access the full Fitch Ratings report, click here.