Distressed debt investors are having a hard time finding opportunities in the U.S. where wide-open credit markets mean more companies are borrowing their way out of trouble.
Last week, four companies with at least$ 50 million liabilities filed bankruptcy in the United States. They included an airplane parts manufacturer and a clothing exporter- both ravaged by the pandemic.
That took the year-to-date total to 49, higher than the 10 year average of about 38, but less than the 57 filings for the corresponding period of 2020, according to data compiled by Bloomberg.
Massive government support and persistent low interest rates left distressed investment specialists rummaging for scraps. The total amount of revolving debt outstanding was below$ 90 billion at the height of the pandemic according to data compiled by Bloomberg.
We came to this pandemic with so much money sitting on the sidelines, said Kroll, a restructuring and financial advisor at David W. Prager. That money had to go somewhere and it's been going to support a hope and a prayer.
Prager expects a comeuppance to reveal winners and losers from the pandemic in the next six months or so as workers return to offices and economy regains a sense of normalcy. Hotels, airlines, cinemas, amusement parks, restaurant chains and retail all remain vulnerable, he said in an interview.
The next large wave of filings will not happen until the market thinks interest rates will be raised materially, Tom Goldblatt, managing partner of Ravinia Capital, added in a webinar that this could take years. It's based on Herd mentality, said Dan Guyder; As long as investors see the opportunity in less riskier credit, you 'll continue to see capital markets function in a way that will demonetize the default cycle, said Allen Overy, partner in the bankruptcy practice of Dan Guyder.
In the second half of the year, Felicia Perlman, co-head of the restructuring group at the law firm McDermott Will Emery, expects bankruptcy filings to pick up.
She said the numbers will still not reach the level predicted at the start of the pandemic, as in an interview. More broadly, hospitals and health care will continue to be impacted by the virus, Perlman said.
Health care was the only industry that could not shut down, but had to keep its doors open to serve communities and had to deal with the financial impact, she said. As of April 9, the amount of compiled distressed bonds and loans fell to about$ 89 billion, down 3.3% week-on week, according to Bloomberg data.
The amount of distressed bonds dropped 6.3% while the amount of troubled loans increased 5.8%. Click here to get a spreadsheet of distressed bonds and loans.
According to Trace data, there were 232 distressed bonds trading on Monday from 128 issuers, down from 243 and 133 in the prior week.
As of April 9, Bloomberg data show that Diamond Sports Group LLC had the most distressed debt of issuers that had n't filed for bankruptcy.
Diamond said in a March filing that it expects Sinclair Broadcast Group Inc. to have enough cash for the next 12 months if the pandemic does n't get worse. Click here for more news on distressed debt and bankruptcy; First Word is curated by Bloomberg editors to give you actionable news from Bloomberg and select sources including Dow Jones and Twitter.
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