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As the pace of large U.S. company bankruptcies stabilizes, escalating tensions between distressed companies, private equity owners and creditors signal more bruising Chapter 11 filings to come.
Deals, trends and research in structured finance and asset-backed securities for the week of Sept. 18-24
The rental-car company is mulling two tentative offers for loans of about $1 billion to $1.5 billion. The proposals came from a group of Hertz’s unsecured creditors and a separate set of first-lien creditors.
After a boom in corporate distress when economies shut down to deal with the pandemic, 2020 had been expected to be the biggest bankruptcy year ever. The pace of bankruptcies was widely expected to pick up after last month, which was slower than May-July, but still the worst August on record.
This year has already seen a glut of corporate failures: there were 177 U.S. bankruptcy filings year-to-date by companies with over $50 million in liabilities, according to data compiled by Bloomberg
The proposed combination of lease payments and required vehicle sales proceeds would will boost credit enhancement to around 45% by December, compared to 34% in June, according to Moody's.
Under the accord, Hertz will for the rest of the year halt its effort to cancel some of the nearly 500,000 leases on the cars the company rents out to consumers. A separate Hertz entity owns the vehicles, which the company leases back under a contract that gives lenders strong collateral rights.
Moody's says anchor stores like J.C. Penney and Neiman Marcus represent only a small portion of CMBS retail exposure, but their deteriorating fortunes will hasten the decline in credit quality of CMBS-held loans backed by Class "B" and "C" malls.
Mortgages taken out to fund business operations can now be modified in bankruptcy. That’s a relief to borrowers — particularly with business failures expected to increase as the pandemic drags on — but a possible headache for banks and investors that hold the loans.
Retailers and energy firms filed for bankruptcy protection in record numbers in the first half of 2020. Meanwhile, the volume of leveraged loans mandated but yet to launch is down 55% from the end of May.
Stakeholders in a $1.5B term loan (which include CLO managers) overwhelmingly approved the failed energy company's voluntary bankruptcy plan, providing them a 76% pro-rata share of new common stock in the company after it emerges from bankruptcy.
The new $1.2 billion InSolve Global Credit Fund IV will pursue a subset of the alternative asset manager’s specialty in non-performing distressed loans, including those in insolvency, restructuring or liquidation, according to a company release.
The best outcome for creditors and ABS noteholders with approximately $6 billion in outstanding bonds is likely to be through a renewal of Hertz’s operations, rather than liquidation, according to analysis from the ratings agency.
Live Well Financial CEO Michael Hild has been charged with misrepresenting the value of a bond portfolio in parallel actions by the U.S. Attorney's Office and the Securities and Exchange Commission.
President Trump is expected to sign legislation soon that would expand the number of farmers who could file under the more lenient Chapter 12. Ag lenders are worried because farm bankruptcies recently rose and the trade war with China could worsen.
While the result is anticlimactic, the court’s observations are more interesting; they tend to reinforce doubts about the usefulness of this alternative bankruptcy proofing mechanism.
"Golden" shares with veto power over bankruptcy filings are commonly used as a backup measure for special purpose vehicles, but there are several issues to be addressed as case law develops.
The U.S. Second Circuit ruled that Momentive Performance Materials should use what's known a a "market rates" formula to determine the appropriate payout for a series of replacement notes issued to bondholders.
