Tag Archives: Corporate bankruptcies

An Unlikely Sector Leads the Way in Surge of Corporate Leveraged Loan Defaults, by Birch Gold Group

Posted on September 6, 2020 | Leave a comment

The credit contraction is here, and the oil and gas sector is leading the way. From the Birch Gold Group at birchgold.com:

The economic effects of the COVID-19 pandemic and recent Fed monetary policy continue to reveal themselves.

The latest “reveal” that’s taking center stage is risky corporate leveraged loans, with defaults soaring to their highest levels since 2010 by issuer count, and since 2015 by rate.

A report by S&P Global Intelligence breaks everything down, starting with a summary:

U.S. loan defaults continued to rise in July, surpassing 4% by issuer count for the first time since 2010, after five constituents of the S&P/LSTA Leveraged Loan Index tripped defaults on $7.7 billion of term loans.

You can see the billions in defaults by year in the chart below, and how the U.S. hasn’t seen an amount even close since 2009 (with four months still remaining in 2020):

us leveraged loan defaulted amount

“With economic fallout from the coronavirus pandemic playing an increasing role, default volume over the last 12 months, at $46.35 billion, outpaces the same period of 2019 by 233%,” according to the same report.

Even more sobering than this astonishing surge, it looks like a critical sector of the economy that shouldn’t be defaulting on leveraged loans is the sector that’s contributing the most defaults…

Oil and Gas Companies Reveal How Fragile the Situation Is

It appears things wouldn’t be “so” bad if oil and gas companies weren’t defaulting by more than 30% of their total loan amount. You can see their “contribution” to this dire situation reflected in the chart below:

us leveraged loan default rate by amount

You can also see how oil and gas leveraged loan defaults could also have played a role in the dramatic Dow crash at the end of 2018 in the same chart above.

The S&P Global report notes that some examples of the energy sector carnage include (but are by no means limited to):

  • California Resources, which in July filed for Chapter 11 bankruptcy.
  • Fieldwood Energy defaulted in May upon failing to make payments… just one year after emerging from bankruptcy.
  • Ultra Petroleum Corp. in May filed for bankruptcy after completing a distressed exchange in 2018, having emerged roughly one year earlier from bankruptcy

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US Default Bomb Goes Off: 2020 Will Have A Record Number Of Large Corporate Bankruptcies, by Tyler Durden

Posted on August 24, 2020 | Leave a comment

Don’t tell the stock market about the impending bankruptcies. From Tyler Durden at zerohedge.com:

The disconnect between the all time highs in the stock market and the broader economy has never been greater (with even Janet Yellen, one of the main architects of this disconnect, agreeing), and one of the places where this chasm is most glaring, is in the staggering number of major corporations filing for bankruptcy in 2020. Indeed, this year large US corporate bankruptcy filings are running at a record pace and are set to surpass levels reached during the financial crisis in 2009 (when the S&P was far from an all time high).

According to FT calculations, as of August 17, a record 45 companies each with more than $1 billion in assets has filed for Chapter 11 this year; this compares with 38 for the same period of 2009 during the depths of the financial crisis and is more than double last year’s figure of 18 over the comparable period.

In total, 157 companies with liabilities over $50 million have filed for Chapter 11 bankruptcy this year and as we warned several months ago, many more are coming.

 

“We are in the first innings of this bankruptcy cycle. It will spread far across industries as we get deeper into the crisis. It’s going to be a bumpy ride,” said Ben Schlafman, chief operating officer at New Generation Research.

The spike in bankruptcies comes despite trillions of dollars in government aid to mitigate the fallout of the coronavirus pandemic on businesses, highlighting the catastrophic and lasting impact Covid-19 is having on the US economy. Or perhaps those trillions in government aid are going to the wrong recipients, and as a result companies that stand to benefit from mass defaults are now sporting record market caps. In fact, the irony is that in its pursuit to crush monopolies such as Amazon and Google, the government has made them bigger and stronger than they have ever been.

Meanwhile, with the US economy driving right over the fiscal cliff as Congress failed to extend emergency covid benefits, sending spending by those receiving Unemployment Insurance sharply lower…

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The “Biblical” Default Wave Arrives: Here Is The Avalanche Of Bankruptcies Unleashed By Coronavirus, by Tyler Durden

Posted on July 14, 2020 | 3 comments

This article examines just corporate debt and bankruptcies, but rest assured similar avalanches are coming in every category of debt. From Tyler Durden at zerohedge.com:

Two months ago, we said that it was just a matter of time before a “biblical” wave of bankruptcies was about to be unleashed on the US as a result of the coronavirus pandemic…

… and sure enough, the first wave is corporate defaults is starting to wash across US shores, with companies in every industry – from retailers, to airlines, and restaurants – but also sports leagues, a cannabis company and an archdiocese plagued by sex-abuse allegations. These are some of the more than 110 companies tracked by Bloomberg that have declared bankruptcy in the U.S. this year and blamed Covid-19 in part for their demise.

While some were in deep financial trouble even before governors ordered non-essential businesses shut to help contain the spread of the virus, most will reorganize and emerge from court smaller and less-indebted. But the hardest hit, are liquidating assets and closing for good.

Among the filers are some of the most iconic names of US business: Hertz, J.C. Penney and as of last week, Brooks Brothers, too. However most are small and medium-sized businesses scattered across the country. Their downfall might not normally garner much attention, but it does underscore the full extent of the damage Covid-19 has inflicted on the economy.

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