Key Takeaways
- • Distressed loans in the Morningstar LSTA US Leveraged Loan index reached 8.3% as of Oct. 23, 2026, the highest level since 2020 and up from 3.4% a year earlier, according to PitchBook-LCD data cited by Pensions & Investments.
- • The dollar value of distressed leveraged loans climbed to nearly $131 billion as of Oct. 23, 2026, roughly double the $66.8 billion recorded at year-end.
- • Software companies account for about one-third of the distressed loan universe, a concentration that bears watching for institutional credit portfolios.
- • Approximately 53% of distressed loans mature by the end of 2029, with $7.4 billion due in 2027, $24.4 billion in 2028 and $37.5 billion in 2029, raising refinancing and default risk.
Summary
The share of U.S. leveraged loans trading in distressed territory, defined as prices below 80, has risen over the past year, according to data from PitchBook-LCD reported by Pensions & Investments. As of Oct. 23, 2026, distressed loans accounted for 8.3% of the Morningstar LSTA US Leveraged Loan index, the highest level since 2020, when the pandemic triggered a sharp spike, and considerably above the 3.4% recorded a year earlier. For context, the share reached 24.3% in March 2020 and peaked above 80% during the Great Recession in late 2008.
The dollar value of distressed loans rose to nearly $131 billion as of Oct. 23, 2026, compared with $51.1 billion at the end of October 2025 and $66.8 billion at year-end. The concentration in software companies, which represent about one-third of the distressed universe, is a notable feature of the current cycle.
Maturity schedules add to the pressure. Issuers of a large share of these loans must refinance, take other corrective steps, or potentially default. Only $7.4 billion of distressed loans matures in 2027, but the amount rises to $24.4 billion in 2028 and $37.5 billion in 2029. Overall, 53% of the distressed loan universe comes due by the end of 2029.
Pensions & Investments notes that higher short-term interest rates and the maturity wall could weigh on borrower fundamentals and lift default rates, a development institutional investors holding leveraged loan exposure will need to monitor closely.
The dollar value of distressed loans rose to nearly $131 billion as of Oct. 23, 2026, compared with $51.1 billion at the end of October 2025 and $66.8 billion at year-end. The concentration in software companies, which represent about one-third of the distressed universe, is a notable feature of the current cycle.
Maturity schedules add to the pressure. Issuers of a large share of these loans must refinance, take other corrective steps, or potentially default. Only $7.4 billion of distressed loans matures in 2027, but the amount rises to $24.4 billion in 2028 and $37.5 billion in 2029. Overall, 53% of the distressed loan universe comes due by the end of 2029.
Pensions & Investments notes that higher short-term interest rates and the maturity wall could weigh on borrower fundamentals and lift default rates, a development institutional investors holding leveraged loan exposure will need to monitor closely.
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