This year has been a struggle for nearly 100 PE-backed companies. As of Oct. 7, there were 99 companies to receive a distressed credit rating, up 29 percent from this time last year.
These distressed ratings are defined as an issuer credit rating of B- or lower with a negative outlook from Standard & Poor’s or a corporate family rating of Caa1 or lower with a negative outlook from Moody’s Investors Service.
Consumer products and services and industrials are the leading sectors, each tied with 17 companies (17 percent) to receive a distressed rating. High technology contained 12 companies (12 percent). Retail, which led this list in 2018, currently has 11 companies (11 percent).
Fifteen companies received a further downgrade from the last report. Three of these companies received at least two distressed ratings in the third quarter.
Checkers received three distressed ratings in September. The Oak Hill Capital portfolio company first received a selective default on Sept. 3 from S&P when it converted its interest payments to payment-in-kind, but S&P quickly reassigned it a CCC two days later. The company is not out of hot water yet, though, as Moody’s then issued it a Caa2 on Sept. 16, with the belief that its capital structure is unsustainable.
99 Cents Only also went through loan exchanges, which prompted a selective default rating from S&P on July 23. The Ares Management– and CPPIB-backed retailer then received a CCC+ from S&P on Aug. 1 with the belief that it could sustain improvements through turnaround initiatives.
In March of this year, S&P believed that VIP Cinema could violate its financial covenant. On Aug. 29, S&P issued a further downgrade to the H.I.G. portfolio company, giving it a CCC- when it entered into a forbearance agreement with its first-lien lenders. Moody’s then issued a Caa2 for the company, noting its weak liquidity.
Two more companies join the default list, which now stands at 14.
First came Acosta Inc. The media & entertainment company, backed by the Carlyle Group, elected to defer repayment that was due in September of this year and miss an interest payment due in October. S&P issued the company a selective default on Oct. 2.
Soon after came the default of Medical Depot Holdings Inc, a healthcare portfolio company of Clayton, Dubilier & Rice. The company completed a series of debt exchanges, resulting in a default rating from S&P on Oct. 7.
Thirteen sponsors had at least three companies receive distressed ratings: Apollo Global Management (six); TPG Capital (five); KKR, Platinum Equity (four); Bain Capital, Blackstone, Carlyle Group, Centerbridge, CVC Capital, Golden Gate Capital, Leonard Green & Partners, Oaktree Capital, CD&R (3).
Download the Distressed Asset report here: Distressed Report Q3 2019