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U.S. corporate debt defaults surged in 2023 and are poised to continue heading higher this year, Moody’s Investors Service says.

In a new report, the rating agency said the annual corporate default total for 2023 hit its highest mark since the onset of the pandemic, as non-financial defaults almost tripled to 92 in 2023 from 31 in 2022.

The annual issuer-weighted default rate came in at 5.6% by the end of last year, and Moody’s said that’s set to rise to 5.8% in early 2024 before slowly reversing.

The rate is expected to finish the year at about 4%, it said.

The ranks of companies with the weakest credit ratings also rose in the fourth quarter, Moody’s reported.

“Many of these weaker private companies will succumb to default as liquidity conditions for those in the leveraged loan market deteriorates in the months ahead,” it noted.

“Looking ahead, the telecommunications and durable consumer goods sectors will face the highest default rates projected for 2024,” Moody’s said.

In the fourth quarter of 2023, the telecom, retail, health care and packaging sectors drove the default activity.

Moody’s said private equity–backed companies led the way, which resulted in more loan defaults than bond defaults — a trend that it expects to continue this year.

Additionally, about half of the defaults in the fourth quarter involved repeat offenders, as many of them were private equity–backed companies that had gone through at least one distressed debt exchange and a restructuring before eventually defaulting.

“We expect this trend to persist through most of [2024], as the default rate is set to remain above average through the first half of the year,” Moody’s said.