Firms & Funds

Clock is ticking for 71 distressed PE-backed companies

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time, distress, distressed, clock is ticking, time running out
  • S&P and Moody’s label 71 PE-backed as distressed, up from 40 at end of Q1
  • Industrials leads list with 13 distressed companies
  • A dozen PE-backed companies are in default, up from seven at end of Q1

The number of PE-backed companies with distressed credit ratings shot up 77 percent in the past three months — from 40 at the end of Q1 to 71 as of June 20.

For Standard & Poor’s, a distressed company has an issuer credit rating of B- or lower and a negative outlook. For Moody’s Investors Service, a distressed company has a corporate family rating of Caa1 or lower and a negative outlook.

Industrials continues to lead all sectors, with 13 distressed companies (18 percent of the total). Consumer Products and Services is second, with 11 troubled enterprises (15 percent). And Retail, which led the list in 2018, tied for third with Media and Entertainment, with eight distressed companies (11 percent).

The sponsor with the most distressed companies in its portfolio is Apollo Global Management, with five. Five others have three distressed companies apiece: Centerbridge Partners, KKR, Oaktree Capital Group, Platinum Equity and TPG Capital.

Meanwhile, six companies received a further downgrade from the last report, two of which are backed by Oaktree: David’s Bridal and IEA Energy.

Retailer David’s Bridal, which emerged from bankruptcy in February 2019, first received a B- from S&P. It took only until May 21 of this year for S&P to downgrade it to a CCC+, due to weak performance and unsustainable capital structure.

In the Industrials sector, IEA, an energy infrastructure construction company, received a B- from S&P on May 22. Two months earlier, IEA had received a Caa2 from Moody’s due to cost overruns on six of nine major projects.

Default list grows

As for defaults, 12 PE-backed companies were in default as of June 20, up from seven at the end of Q1.

Retail tops the list, with four such companies in default:

  • The Neiman Marcus Group, backed by Ares Management and CPPIB.
  • Charlotte Russe Inc, sponsored by Advent International.
  • Savers, backed by Berkshire Partners.
  • And, Payless Inc, which is sponsored by Blum Capital and Golden Gate Capital.

The only other sector with more than a single PE-backed default was Media and Entertainment, which has two companies in default: Crossmark, a Warburg Pincus company, and Fuse, which is backed by Columbia Capital and Rho Capital Partners.

Download the Distressed Assets report here: Distressed Report Q2 2019