The overall count in S&P’s latest “weakest links” report rose slightly over the last three months, although the amount of debt they owe fell sharply.
The Nov. 4 “weakest links” list includes 124 entities with combined debt of $185.9 billion around the world. From this, Buyouts identified at least 24 companies with LBO sponsors, accounting for $45.726 billion of the debt. S&P had 120 weakest links companies with $391.96 billion in debt in its August report. At that time, we counted 23 portfolio companies that represented $134.84 billion of the total debt.
The latest report, Global Weakest Links And Default Rates: Weakest Links Continue To Edge Higher As Eurozone Anxiety Persists, included two more companies with U.S. financial sponsors, while one dropped out. Entities on the “weakest links” list have a speculative corporate credit rating of ‘B-’ or lower, plus a negative outlook, have a CreditWatch with a negative implication, or both.
One of the biggest developments over the last three months was the drastic reduction in the affected debt of all the entities on the listing, as well as the level for those with LBO sponsors. In fact, all the portfolio companies that remained on the list since August list showed some reduction in debt.
The overall reduction stems largely from Energy Future Holdings Corp., which is sponsored by
From the 24 portfolio companies in the latest report, two industries together accounted for 11 of the spots. Media and entertainment had half a dozen representatives, while Retail/Restaurants had five. Other categories, including consumer products, capital goods and transportation had one or two on the list. Media and Entertainment accounted for three of the latest additions Buyouts identified on the list.
At various points in September, S&P lowered the rating on three players in the media and entertainment field to warrant inclusion on the “weakest links” list. In addition to the downgrade on Hunt Valley, Md.-based Sheridan Group to ‘CCC+’ from ‘B-’ on Sept. 14, the ratings agency cut its corporate credit rating on
In addition, S&P downgraded
No one sponsor had more than a couple of investments in the November “weakest links” list. GS Capital Partners,
Defaults And Bankruptcies
Meantime, S&P has seen about 35 issuers default so far this year, including four entities that are confidentially rated. From this group, Buyouts counted at least 11 with U.S.-based buyout shop sponsors. These are companies that received either a ‘D’ or ‘SD” rating from the ratings agency this year.
The 35 issuers represent debt of $54.9 billion and the 11 portfolio companies accounted for $37.4 billion of this aggregate. A major piece of this pie is still held by Energy Future Holdings Corp.’s Texas Competitive Electric Holdings Co. LLC subsidiary.
Since the start of October, at least four portfolio companies have joined the ranks of defaulters.
Wastequip Inc.’s rating was reduced to ‘SD’ from ‘CCC’ on Oct. 19. The ratings agency said it cut its view on the Charlotte, N.C.-based waste handler and recycling equipment maker based on confidential information it received regarding the portfolio company’s unrated mezzanine loan. Wastequip is sponsored by both
One of the others that fell in with the crowd is
The other was Travelport Holdings Ltd., which is backed by
In addition, Buyouts has been keeping tabs on LBO-sponsored companies that filed for bankruptcy protection under Chapter 11 of the U.S. bankruptcy code. To date, we’ve counted 18. None have filed for protection in the fourth quarter and two submitted the paperwork in the last days of October, including
Despite continuing pressures, a few portfolio companies emerged from Chapter 11. Summit Business Media Holding Co. exited from bankruptcy in May. The insurance and financial information provider cut $140 million in debt from its balance sheet through the proceedings. It filed for protection in January;
Sbarro Inc. received court approval for a reorganization that paved the way for the pizza chain to emerge from Chapter 11 on Nov. 28, 2011. Interim President and Chief Executive Officer Nicholas McGrane said in a press release, “When we emerge from bankruptcy, our debts will have been reduced by approximately 70%, and we will have access to $35 million in fresh capital provided by our new ownership group.” Sbarro is no longer a part of