PF distress rates down
Municipal transportation infrastructure and contracted independent power generation assets offer significantly lower distress and default rates than other rated sectors, according to a report by Fitch Ratings, which showed distress rates in project finance and infrastructure have largely returned to those seen before the global financial crisis.
Fitch looked at nearly 1,100 obligation ratings outstanding from Fitch rated issuers between January 1 2004, and June 30 2025. The study excluded non-rated issuers and bonds in the sector. The agency discovered that its Global Infrastructure and Project Finance portfolio has one of the lowest rates of distress among major market sectors, of just 5.2%, measured from 52 instances of distress ratings against nearly 1,100 obligation ratings in the period. This was surpassed only by supranationals, insurance and US public finance.
The North American distress rate of 4.3% was lower than that of Latin America at 7.6% and EMEA at 8%, reflecting the high concentration of investment-grade ratings in North America, particularly its core of municipal transportation ratings.
Distress rates remained low for most major sectors within project finance and global infrastructure, particularly in sports and transportation. Power had the highest rate, followed by whole business securitisations. In the power sector, rates of distress were driven by thermal power-specific risks and counterparty rating changes. The power sector recorded the highest count of distressed ratings of 25 and the highest distress rate of 12.1% within the portfolio, approaching the overall 13.5% rate for corporates.
The largest concentration of distressed ratings in the sector corresponded to single-site thermal power generation projects that burnt either coal or non-conventional fuels. These ratings faced higher operational risks, rising fuel costs and regulatory pressures from environmental compliance.
Sports ratings were supported by resilient demand and strong league structures. Most transportation ratings benefited from quasi-monopolistic assets, consistent demand and municipal ownership. Of the transportation ratings, the largest sectors of airports and toll roads performed particularly well, showing distress rates well below the portfolio aggregate and close to the performance of the US public finance and insurance sectors. Seaports’ distress rate was higher, but the small sample size and Russian sovereign downgrades skewed the overall results for the sector.
Rates that peaked at speculative grade during the financial crisis showed consistently higher distress rates than those that peaked at investment grade, the study showed. Investment-grade ratings typically took four years from peak rating to reach distress, while speculative grade took 18 months.
In general, ratings moved towards distress incrementally, regardless of speed. The vast majority, or 75%, moved through the B category before reaching distress, with only a cluster moving directly to distress, mimicking the patterns observed on the path to default. Ratings are considered distressed when they are downgraded from B or above to CCC or below, while default is defined as a rating downgraded from C or above to RD or D.
