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Weakest Links: Nearly three dozen portfolio companies flirt with default

Some 33 private equity-backed companies, with a total of more than $91.3 billion in affected debt, appeared on the Standard & Poor’s “weakest links” report from November 6.

That marks the highest combined affected debt in more than four years for portfolio companies on the monthly list, which highlights companies most at risk of default. Separately, 22 portfolio companies received a default rating and 12 filed for bankruptcy so far this year, according to S&P’s monthly lists for defaults and bankruptcies. The troubled energy and power industry continues to account for the most distressed companies on all three lists, 24 companies in total.

A notable addition to this quarter’s default list is Exco Resources Inc. The Dallas-based oil and gas developer received a selective default rating after it partook in a distressed exchange of its second-lien notes. Exco has affected debt of $1.25 billion and is backed by Bluescape Resources.

Two oil and gas companies also joined the most recent “weakest links” list. Triangle USA Petroleum Corp made the list due to highly leveraged credit metrics, said S&P. The company has $450 million in affected debt. Triangle USA Petroleum is sponsored by NGP Energy Capital Management.

Meanwhile, Riverstone Holdings-backed Abaco Energy Technologies, with $170 million in debt, made the list because its foothold in the oilfield services market is vulnerable.

Sponsors with multiple portfolio companies on the latest “weakest links” list include Apollo Global Management (with three companies), Energy & Minerals Group (two), Oaktree Capital Management (two) and TPG Capital (two).

All told, the latest S&P “weakest links” report from November 6 totaled 178 companies globally, both sponsored and non-sponsored. The entire list has an aggregate affected debt of about $218.6 billion. Of the 178 companies, 33 were PE-backed and combined for $91.3 billion; both of those figures are the second-highest in the past five years.

S&P compiles a monthly list of what it calls “weakest links,” or companies most in danger of debt default. To make the list, companies must have had speculative corporate credit ratings of B- or lower with either a negative outlook or a negative CreditWatch implication on October 26. From 1981-2014 an average of 7.5 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, November 2015

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