Leveraged loans

If creditors can now be pushed down the repayment pecking order without notice and have no recourse to fight back, they will be forced to reassess risk – and potentially demand higher interest rates – when granting loans and buying certain kinds of bonds.

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.

Money managers including Owl Rock Partners, Pretium and PGIM are racing to add workers with restructuring and bankruptcy experience as they take in record amounts of cash to buy cheap assets battered by the economic fallout of the coronavirus pandemic.

Restricted from taking on distressed debt or debtor-in-possession loans, CLO managers are being left out of opportunities in coronavirus-related debt restructurings. "It's frustrating," says one manager. "We are supposed to be the bully, not the one being pushed around.”

Leveraged loans and collateralized loan obligations do not represent an "existential" threat to the global economy or to the U.S. banking system, as some recent highly charged reports have suggested.

The leveraged loan market, long favored by private equity firms to fund LBOs, has lagged. The largest buyers of the debt - vehicles known as collateralized loan obligations - are not purchasing as much as they used to as they deal with the wave of downgrades that has hit many of the companies they already hold.

The firm will offload parts of its business including its business development company, Garrison Capital Inc., and other credit vehicles.

“Since April, the decline in corporate credit has resulted in a significant number of downgrades among the assets underlying some CLOs,” a Moody’s press release stated on Wednesday.

Shut out from many coronavirus relief programs, private equity companies have found a back door at HHS, where they have borrowed at least $1.5 billion.

A New York judge last week dismissed a claim that a leveraged loan JPMorgan Chase & Co. and other Wall Street banks sold in 2014 could be considered a security and, as such, be subject to the same disclosure requirements as stock and bond offerings.

In a report issued Tuesday, the ratings agency notes that 1,287 companies as of April 28 faced prospects of potential debt and issuer downgrades, impacted by the coronavirus outbreak and a virtual shutdown of the global economy this spring.

Unlike public equities and even high-yield bonds, funds focused on CLO equity show little evidence of rebounding anytime soon from steep losses in total value.

The Federal Reserve's unprecedented scale of intervention sparked an immediate surge in demand for both investment-grade and junk bonds. Now that the program has started buying, it’s unclear what happens when – and if – the funding runs out.

The central bank's Financial Stability Report said companies may face difficulties repaying debt given lower earnings, “which could trigger a sizable increase in firm defaults."

J.C. Penney Co., the department-store chain that’s been negotiating with creditors on a plan to restructure in bankruptcy court, made good on a missing loan payment and said it’s still considering solutions to its crushing debt load.

The Federal Reserve said a facility designed to purchase eligible corporate debt from investors will launch today, bringing a key part of the U.S. central bank’s emergency coronavirus lending program online following weeks of anticipation

The worst recession since the Great Depression is prompting indebted companies to default, and increasingly more will do so in a way that’s harder for investors to detect.

First, J. Crew. Now Neiman Marcus. Flashing red: J.C. Penney, Hertz and many more. The coronavirus has crushed the life out of some venerable household names.

Small and mid-sized companies are facing higher borrowing costs as private lenders grow more cautious about lending to beaten-up businesses