Leveraged Loan Distress Hits Pandemic High

Market Overview

JPMorgan reports a significant increase in deeply distressed leveraged loans, reaching $65 billion as of October 6, 2026. This represents a nearly 90% jump year over year and puts the figure close to the peak recorded in May 2020.

Sector Spotlight: Technology

Technology companies account for 39% of the distressed loan pool, or roughly $54.4 billion. The sector faces challenges in refinancing and is under pressure from artificial intelligence disruptions.

Default Risk

Despite the slump in loan prices, actual defaults remain rare. The trailing 12-month payment default rate for the leveraged loan index has stayed below 1% in recent months.

Creative Debt Fixes

Companies are finding ways to avoid formally defaulting at all. The market has seen an ongoing shift toward liability management exercises and distressed exchanges, which allow struggling borrowers to rework their debt.

Implications

The key indicator to watch is whether the sub-1% default rate starts climbing toward what loan prices are implying. If those deals start failing, the distressed pile becomes more than a pricing signal.