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BDC Credit News: Thursday June 4, 2020

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Underperforming Company News

Murray Energy: May Postpone Projected Lay-Offs – S&P Global

“The reduction in force at the facility may be postponed because of an extension of the bankruptcy court proceedings to confirm the anticipated sale of the company’s assets” (Cion, BDCA)

Fight Over ‘Predatory’ J.C. Penney Bankruptcy Loan Gets Ugly – Bloomberg Fixed Income

           “The U.S. retail giant filed for Chapter 11 protection last month with a $900 million financing package lined up from senior lenders including H/2 Capital Partners LLC and Silver Point Capital LP, according to a presentation at the time. Another set of lenders has lambasted the deal, calling the terms “predatory” in court documents and accusing the other group of strong-arming J.C. Penney. ..J.C. Penney entered Chapter 11 protection last month having already paid a $45 million commitment fee on the proposed financing package. The loan is contingent on a plan to, among other things, get approval from senior creditors on a new business plan by July 14 and spin some of its properties into a real estate investment trust. Financing tied to a specific Chapter 11 strategy is increasingly common in corporate bankruptcy. Such deals can help companies cut costs and exit bankruptcy quickly, but concerns have been raised about whether they may trample the rights of smaller creditors or lead to suboptimal deals”.  (TSLX,FSIC II)

BDC Reporter Adds: We believe the BDC with the biggest exposure – TSLX – is amongst the H/2 Capital Partners group. At March 31, 2020 $21mn invested at cost was written down (55%).

Credit News

U.S. leveraged loan downgrade ratio five times worse than 2008-09 – Reuters

“The downgrade-to-upgrade ratio in S&P’s LSTA Leveraged Loan index hit 43.20 in the U.S. in May, well above the peak of around 8.45 in January 2009, according to data from S&P Global’s LCD..The data illustrates why credit markets are worried about a ripple effect from loan defaults.Leveraged loans can be packaged into collateralized loan obligations (CLOs), which then issue bonds and pay bondholders using cashflows from the loans. A flurry of defaults could push CLO tranches into default too. CLOs have been a key factor behind the increase issuance of these risky loans over the last decade”.

U.S. Business Bankruptcies Increased 48% In May  (WSJ)

“U.S. courts recorded 722 businesses nationwide filing for chapter 11 protection last month, a yearly increase of 48%, according to figures from legal-services firm Epiq Global. In May 2019, a total of 487 businesses filed for that type of bankruptcy, which lets corporations resolve their financial problems and continue operating. The number of corporate bankruptcies this May matches the tally from May 2011, when the scars of the recession were still fresh…Legal experts said they see no reason for the pace of corporate bankruptcies to slow in the coming months, especially as government relief programs taper off. Experts said the pace of filings will also be affected by the patience of lenders and landlords who might be willing to bend contracts and put off foreclosing, keeping firms out of bankruptcy. “The Cares Act and other swift government measures have been successful in keeping consumers afloat during the crisis,” said Amy Quackenboss, executive director of the American Bankruptcy Institute, which represents more than 12,000 professionals, in a statement. “As this relief runs its course, however, mounting financial challenges may result in more households and companies seeking the shelter of bankruptcy.”

Economy News

This Is Bad, But It’s Not Looking Like the Depression  – Bloomberg

“On Friday the Bureau of Labor Statistics will release the employment report for May. The median forecast of the report’s unemployment rate from economists surveyed by Bloomberg is 19.5%, worst since the 1930s. But as bad as it is, the unemployment rate is a bit of an outlier. Other measures of the health of the economy are considerably stronger than they were during the Depression, which was really two downturns separated by a brief recovery”.

AmEx Fears Second Joblessness Wave After No-Layoff Vows Expire – Bloomberg

American Express Co. fears the U.S. could see another increase in unemployment next year as large companies’ vows to avoid job cuts in 2020 begin to expire…The firm has pulled back on adding new credit-card customers because it can’t get a clear picture of consumers’ financial health and employment trends”.

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