Distressed Debt Deep Dive: Impact of Higher Interest Rates

In advanced economies, interest rates have surged by a staggering 400 basis points since late 2021. Meanwhile, emerging markets have witnessed an even more astonishing increase of 650 basis points. These aren’t just numbers – they’re the seismic shifts in interest rates made by policymakers over the past two years. And with inflation on the rise, central banks are digging in their heels, leaving borrowers grappling with doubled, even tripled interest costs. In this volatile landscape, understanding the fallout is crucial.

In this second article in our Distressed Debt series, we explore the consequences of this significant rise in interest rates over the past two years. We’ll examine how distress rates on floating rate loans have surged compared to fixed rate loans. Additionally, we’ll take a closer look at debt service coverage ratios (DSCR) and remaining terms for distressed versus non-distressed loans. By analyzing the magnitude of these effects, you’ll gain a deeper understanding of the factors driving distress, where to identify distress, and what to anticipate for various loan profiles.


distressed debt

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