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Number of PE-backed companies on ‘weakest links’ list hits seven-year high

  • 76 PE-backed companies make S&P list
  • Largest number since February 2009
  • Companies represent $144.3 bln in affected debt.

Chalk this up to another sign of impending doom: Seventy-six private equity-backed companies are listed on Standard & Poor’s “weakest links” report from March 8. That is the largest number of PE-backed companies on the list since the great credit freeze in February 2009.

The 76 PE-backed companies represent more than $144.3 billion in affected debt. That is the highest affected debt total in seven years for PE-backed companies on the monthly list.

S&P’s monthly report on weakest links highlights companies most at risk of default. So far this year, seven portfolio companies have defaulted and three have filed for bankruptcy, according to S&P.

The energy and power industry continues to be depressed due to anemic oil prices. Thirty-two energy and power companies so far this year have either been included on the “weakest links” list, defaulted or filed for bankruptcy protection — by far the most of any industry.

Chaparral Energy Inc, the Oklahoma City-based oil and gas exploration company, received a default rating on March 2 after it elected to not make an interest payment on its senior notes. Chaparral, which is backed by CCMP Capital Advisors, has affected debt of $1.25 billion.

Seven oil and gas companies joined the most recent “weakest links” list. Quantum Energy Partners-backed Linn Energy LLC headlined those seven, making the list due to liquidity trouble and interest burdens, S&P said. Linn Energy has about $11.7 billion in affected debt.

Meanwhile, Midstates Energy LLC, with almost $4.9 billion in debt, made the list because it is seen as a prime candidate for a Chapter 11 bankruptcy filing in the near future. Midstates is sponsored by First Reserve Corporation.

Sponsors with multiple portfolio companies on the latest “weakest links” list include Apollo Global Management (with two companies), Bain Capital (three), Canada Pension Plan Investment Board (two), Crestview Partners (two), EIG Global Energy Partners (two), Energy Capital Partners (three), Energy & Minerals Group (two), First Reserve Corporation (three), Providence Equity Partners (two), Quantum Energy Partners (two) and Riverstone Holdings (five).

All told, there were 231 sponsored and non-sponsored companies on the list. The entire list has an aggregate affected debt of about $330.4 billion.

To make the “weakest links” list, companies must have had speculative corporate credit ratings of B- or lower with either a negative outlook or a negative CreditWatch implication on Feb. 23. From 1981 to 2015, an average of 7.2 percent of all global entities rated B- defaulted within 12 months, and the average default rate was much higher for entities rated lower than B-.

Weakest Links Tracking Chart_03212016

Action Item: Download the “Weakest Links” report here: Weakest Links Report

Photo: ©iStock/deliormanli

Update: This story was updated to include fresh data released by Standard & Poor’s on March 8, 2016.