U.S. Chapter Tracker: Straightforward Cash Mutes Misery

(Bloomberg) – Distressed debt investors are having a hard time finding opportunities in the US, where wide-open credit markets mean more companies are borrowing out of trouble.

Only four companies with liabilities of $ 50 million or more filed for bankruptcy in the US last week. These included an aircraft parts manufacturer and a clothing seller – both hit by the pandemic.

The total number since the start of the year was 49, which is above the 10-year average of around 38, but according to Bloomberg, it is below the 57 submissions in the corresponding period of 2020.

Massive government support and persistently low interest rates caused distressed investment specialists to search for junk. According to Bloomberg, the total amount of outstanding debt fell below $ 90 billion from nearly $ 1 trillion at the height of the pandemic.

“We got into this pandemic because there was so much money on the verge,” said David W. Prager, restructuring and financial advisor at Kroll. “The money had to go somewhere and it will support a hope and a prayer.”

Prager expects a “comeuppance” over the next six months will reveal winners and losers of the pandemic as workers return to their offices and the economy regains a sense of normalcy. Hotels, airlines, cinemas, amusement parks, restaurant chains and retailers are still vulnerable, he said in an interview.

“The next big wave of filings won’t happen until the market believes interest rates will rise significantly,” said Tom Goldblatt, managing partner at Ravinia Capital, in a webinar, adding that it could take years. “It’s based on a herd mentality,” he said.

As long as investors see opportunities in riskier credit, “they will continue to see capital markets work to mute the default cycle,” said Dan Guyder, a partner in the bankruptcy practice of Allen & Overy law firm.

Felicia Perlman, co-head of the restructuring group at law firm McDermott Will & Emery, expects bankruptcy filings to pick up in the second half of the year. The numbers still won’t hit the levels predicted at the beginning of the pandemic, she said in an interview.

The story goes on

Hospitals and the broader healthcare sector will continue to be affected by the virus, Perlman said. “Healthcare was the only industry that couldn’t close but had to keep its doors open to serve the communities and grapple with the financial implications,” she said.

More shrinkage

The number of bad bonds and loans traded fell to around $ 89 billion on April 9, a 3.3% decrease from the previous week, according to data compiled by Bloomberg. The number of troubled bonds decreased 6.3%, while non-performing loans increased 5.8%.

Click here for a worksheet of bad bonds and loans

According to trace data, 232 distressed bonds from 128 issuers were traded on Monday, up from 243 and 133 in the previous week.

According to Bloomberg data, Diamond Sports Group LLC had the most heavily burdened debt from issuers who hadn’t filed for bankruptcy as of April 9. Parent company, Sinclair Broadcast Group Inc., announced in a March announcement that if the pandemic doesn’t worsen, Diamond will have enough cash for the next 12 months.

For more information on bad debt and bankruptcies, click here. First Word is curated by Bloomberg editors to bring you actionable news from Bloomberg and select sources like the Dow Jones and Twitter. First Word can be customized to fit your worksheet, sectors, geography, or other criteria by clicking Actions on the toolbar or pressing the HELP button for assistance.

(Updates with details of total NPLs in paragraph four.)

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