Portfolio companies continue to account for a high percentage of troubled companies, according to the Standard & Poor’s latest “weakest links” report.
By our count, the number of weakest-link companies with U.S. buyout sponsors rose by 12, to 58, since our last review of the report three months ago. While 10 portfolio companies dropped off the list for reasons that include improved performance and one default (Residential Capital LLC), 22 joined the list during that time. The 58 with buyout sponsors represented affected debt of about $47.6 billion. By comparison, we identified 46 LBO-backed companies with a combined debt of $26.5 billion on the S&P weakest links list in May.
Companies make the S&P list if they have a speculative corporate credit rating of ‘B-’ or lower, along with a negative outlook or negative CreditWatch status. Altogether as of Aug. 11, the ratings agency described 156 entities around the world, with combined debt of at least $352 billion, as weakest links.
Portfolio companies in the automotive sector saw a turn for the worse in the quarter in the eyes of S&P. Specifically, two
S&P cut its rating on Chrysler LLC and the auto maker’s financing arm DaimlerChrysler Financial Services Americas LLC on Aug. 7 to ‘CCC+’ from ‘B-’ partly on the deterioration in the domestic market for vehicles. “The greatest threats to the ratings in the near term are the depth of economic weakness in the U.S., the extent of the demand shift away from light trucks, and the ability of the finance company to continue its timely access to the asset-backed securities markets in support of Chrysler’s sales,” the ratings agency said.
Meantime, companies in consumer products, media & entertainment and restaurants/retailers continued to dominate the S&P weakest-links list. The consumer products sector accounted for 11 of the LBO-backed companies, media and entertainment 10 and restaurants/retailers nine in the August 11 tally. Just these three sectors represented more than half of the 58 companies with LBO sponsors.
Carlyle In Front
With the downgrade of Oriental Trading Co. to ‘CCC+’ on Aug. 8,
The other firms with at least two portfolio companies on the latest report are
Two additions, both restaurant companies, made returns to the list.
The other returning portfoli company is
S&P also reported a rise in the number of defaults during the quarter. Through Aug. 11, the ratings agency had identified 52 defaulters (including 11 confidentially rated companies) with affected debt of $41.3 billion. Of those, Buyouts has identified at least 19 with LBO sponsors, including Cerberus Capital’s Residential Capital unit,
Since S&P’s weakest-links list was published last month, the ratings agency has already changed the ratings or outlook on several portfolio companies. On the bright side, Fenway Partners’s Coach America Holdings Inc. saw its outlook revised to stable on Aug, 20. “The outlook revision is based on Coach America’s recent improvement in operating performance and our view that these gains will be sustained over the next year,” S&P said.
On the other hand, the rating on Carlyle Group’s Hawaiian Telcom Communications Inc. investment was lowered further on Aug. 19 to ‘CCC+’ because of S&P’s view that the portfolio company’s liquidity will be insufficient to service debt and fund operations through 2009.