If a U.S.-based company fell into default last month, chances were nearly 50/50 that it was backed by a buyout shop.
Of the 18 total U.S.-domiciled companies that defaulted on their debt in June, at least eight them, nearly 45 percent, were portfolio companies of LBO sponsors at the time of their transgressions.
This latest batch of monthly defaulters helped raise the U.S. trailing 12-month speculative-grade default rate to 9.16 percent as of the close of June, up more than a full percentage point from the 8.13 percent in May, and dwarfing the 2 percent rate that held sway in June 2008, according to Standard & Poor’s most recent U.S. Credit Metrics Monthly report.
“We expect the speculative-grade default rate to escalate to a mean forecast of 14.3 percent by May 2010, but it could reach as high as 18.5 percent if economic conditions are worse than expected,” S&P said.
At the close of the second quarter, a total of 119 U.S.-based companies tracked by S&P had defaulted on their debt. Forty-three of those entities were portfolio companies of U.S.-based buyout firms, according to further analysis by Buyouts. On a global basis, 45 companies backed by U.S. sponsors were found in default as of June 30, 2009.
The stories behind most of June’s LBO-backed defaults are remarkably similar. Seven of the eight U.S. companies that defaulted last month did so because they repurchased portions of their own debt at discounts to par deemed so steep that they were considered distressed exchanges, which S&P considers tantamount to default.
Enticed by the steep discounts in the secondary market and the strategic strength of having less leverage on their balance sheets, sponsor-backed companies have been voraciously acquiring and retiring their own debt.
Among the June class of debt buybacks, Sabre Holdings Corp., a provider of online travel services including Travelocity.com that’s backed by
The only sponsor-backed company that defaulted last month for reasons unrelated to a debt repurchase was Cooper-Standard Automotive Inc., a maker of automotive components that’s backed by The