Distressed Debt


Highlights of our extensive coverage and analysis of the largest stressed and distressed debt, loans, funds, companies and the distressed debt market across the Americas, EMEA and Asia. Our intelligence, reporting and analysis also includes information on distressed trading and investing written specifically for investment managers, investment bankers, legal professionals and corporate professionals.

Reorg’s Asia Core Credit Reports on Modern Land Bondholder Call
Thu Oct 21, 2021 1:41 pm Bankruptcy Filings  Distressed Debt

Our Asia Core Credit team dialed into a conference call Modern Land bondholders the company’s management, and reported that the company has identified more than 90% of holders of its $250 million due Oct. 25 notes for its proposed consent solicitation, and that the company’s cash on hand stood at a paltry $100 million.

Management of China-based property developer Modern Land told bondholders on a conference call today, Oct. 12, that the company has identified the holders of more than 90% in principal amount of the $250 million 12.85% senior notes due Oct. 25, 2021 for its proposed consent solicitation to extend the notes’ maturity by three months. Continue reading for more reporting on Modern Land’s proposed consent solicitation from our Asia Core Credit team, and request a trial to access reporting and analysis on stressed, distressed and performing credits in Asia.

Management said the company only has $100 million offshore cash and overall just RMB 450 million at holding company level. There is a cash shortfall due to a delay in the approval of an onshore loan but management expects to be able to redeem its next maturity, the $200 million 11.8% notes due Feb. 26, 2022, using operating cash and a shareholder loan. Modern Land has also suspended all land acquisitions in the fourth quarter in order to preserve cash and there are available channels for transferring funds from onshore to offshore, management added. (more…)

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Reorg on the Record: Supply chain problems halting the market’s bull run…| 10/20/21
Thu Oct 21, 2021 1:04 pm Distressed Debt

Written by Robert Schach, Editor, Distressed Debt & Restructuing || The last couple of weeks seem to be an inflection point for the European leveraged finance market, with persistent supply chain problems, inflationary pressure and runaway energy costs finally halting the market’s bull run since the end of lockdown in Spring. Several new deals have slipped below par in secondary and, while primary issuance continues, deal flow seems to be slowing down. The rising caution is reflected in fund flows, with high-yield funds recording outflows for the last two weeks.

That suggests the easy refinancing conditions, which have characterized the primary markets for so long and kept distressed activity at bay, may be coming to an end. It will certainly make several touch-and-go refi prospects a lot trickier, with Haya FinanceLowenplay and Raffinerie Heide all looking a little more difficult to pull off than a few weeks ago.

Several credits had already been struggling with rising input costs over the last few months, especially in the packaging sector where issuers such as PaccorWeener Plastics and Kloeckner Pentaplast had been grappling with surging resin costs. They are finally managing to pass those through, but are now facing jumps in non-resin input costs. Rising gas prices in particular are proving a headache for the energy-intensive glass packaging sector, with Frigoglass and Bormioli bonds slipping. (more…)

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Litigation Coverage: Moby Accuses Bondholder, Morgan Stanley of Trying to Scuttle Restructuring
Tue Oct 5, 2021 4:39 pm Distressed Debt  Financial Restructuring

With more than 25 updates on Italian ferry operator Moby so far this year, our European coverage team has been looking closely at the stressed credit. The big news at the end of September, was that Moby SpA was suing Antonello Di Meo, Morgan Stanley and Morgan Stanley employees Massimo Piazzi and Dov Hillel Drazin in the Southern District of New York for “attempting to illegally acquire control” of the company and its Italian concordato restructuring proceeding by purchasing a controlling stake in Moby’s bonds at a “substantial discount using inside information.”  (more…)

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Reorg Webinar Series: Enforcement Mechanisms for Keepwell Notes

Recent developments around stressed Chinese companies including property developer China Evergrande Group have again brought to the fore mechanisms for enforcing keepwell deeds for offshore notes issued by the companies. In this webinar, Shasha Dai from Reorg will host a panel discussion with Fergus Saurin and Jacqueline Tang from Kirkland & Ellis and Junqi Wang and Chandice Wang from DeHeng Law Office (Shanghai) to discuss the latest developments, their implications for creditors and considerations around enforcing keepwell deeds. Register now.

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Fri Oct 1, 2021 4:30 pm Bankruptcy Filings  Distressed Debt

Reorg’s Head of Credit Research, Jenn Jutakeo was pleased to join BBC News to discuss the Evergrande debt crisis during the Asia Business Report segment, saying: “All eyes will be on [Evergrande] today, but the real question is what will it look like if they address foreign creditors before onshore, when they still have quite a bit of onshore debt to address”.

 

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Webinar: PBF Energy’s Path Forward Amid Regulatory Complexity
Mon Sep 27, 2021 2:27 pm Distressed Debt  Financial Restructuring

Join Reorg on Thursday, Sept. 30, at 12 p.m. ET as we discuss PBF Energy’s background, recent financial results and the regulatory challenges it faces in the latest installment of our webinar series.

Our coverage team will provide an overview of PBF Energy’s business and the continuing effects of the Covid-19 pandemic, which led to more than $1 billion of 2020 FCF burn. While the company’s cash burn rate has improved upon entering 2021, PBF Energy has encountered increased Renewable Fuel Standard, or RFS, compliance costs due to dramatically higher market prices of RFS-related renewable identification number, or RIN, credits. Adding to the company’s regulatory complexity, the Bay Area Air Quality Management District, or BAAQMD, on July 21 adopted particulate matter-reduction amendments that PBF initially estimated would require it to install an $800 million wet scrubbing system at its 2020-acquired Martinez refinery.

Please join members of our financial, legal and regulatory teams as we explore these issues. Among additional items, our coverage team will also discuss:

  • The mechanics of the RFS program;
  • The current state of the RFS, and the roadmap to additional clarity on renewable volume obligations, or RVOs;
  • PBF Energy’s Martinez Refinery Co.’s Sept. 7 complaint in California Superior Court challenging the BAAQMD rulemaking along with other means to address the matter;
  • The potential financial consequences of PBF’s escalating environmental compliance costs

Register for this webinar below and request a trial and get up to speed on our extensive and ever-expanding coverage of PBF Energy’s financial situation here: https://reorg.com/trial

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Americas Podcast: Johnson & Johnson “Texas Two Step” and Yak Access Creditors Organize
Mon Sep 20, 2021 7:37 pm Distressed Debt  High Yield Bonds  Leveraged Finance

Featuring a discussion on Johnson & Johnson’s response to a group of talc plaintiffs’ motion for an injunction from a New Jersey state court preventing the company from pursuing a “Texas two-step” chapter 11 strategy to shed its talc liabilities, as well as the company Yak Access, whose creditors have began to organize, and Cornerstone Chemical, our Americas Core Credit podcast dives deep into the most prominent distressed debt, performing credit and high-yield news from the week. 

On Johnson & Johnson, the plaintiffs alleged that a Texas divisional merger that allocates all the companies talc liabilities to a spinoff without sufficient assets to meet those liabilities would be avoidable as a fraudulent transfer and therefore should be enjoined before it occurs. Johnson & Johnson argued that if this were true, the plaintiffs would have a sufficient remedy of law, an action to avoid the merger should the defendants ever actually transfer assets citing Judge Lori Silverstein’s August 26 decision denying Imerys talcs request for a similar injunction in its chapter 11 cases. 

Discussing Yak Access, an ad hoc group of first lien lenders organized with Akin Gump amid rising concerns about the company’s liquidity and business outlook after a disappointing second quarter according to sources. The company’s second lien lenders also reportedly organized with Ropes and Gray. Members of the ad hoc first lien lender group includes Seabam, KKR and Soundpoint.

Listen to the full episode below to hear our detailed discussion on Johnson & Johnson, Yak Access, Cornerstone Chemical and more.  

 

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Tue Sep 14, 2021 7:25 pm Distressed Debt  Financial Covenants Analysis

Analyzing the Papa John’s secured debt, our Americas Covenants team took a look at the company’s new unsecured notes, leverage-based restricted payments and investment baskets accessible at issuance with 2.5x, 2.75x headroom. After launching $400M of senior unsecured notes due 2029, the company is expecting to repay in full their existing term loan and revolving credit facilities.  Also, with plans to amend their credit facility, Papa John’s secured debt allowance is likely to increase. The amendments to their credit agreement will increase revolving commitments from $400M to $600M and extend the maturity for an additional five-year term.

Click through for our full analysis of the Papa John’s secured debt allowance as well as our discussion on the company’s secured debt capacity, value leakage, quarterly dividends, gross leverage ratios, flexibility under the new notes and more: https://reorg.com/papa-johns-debt-analysis/

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Americas Core Credit Podcast: Purdue Chapter 11; Fraudulent Transfer Claims and Third-Party Claims
Mon Sep 13, 2021 4:04 pm Bankruptcy Filings  Distressed Debt  High Yield Bonds

Each episode of Reorg’s weekly podcast series features a look back at highlights and top stories from the week in review and a preview of what’s to come in the week ahead, followed by a deep dive on issues and companies in the distressed and high-yield space. For this week’s deep dive, Reorg’s Karen Leung and David Zubkis discuss the $4.6 billion settlement with the Sackler family in the Purdue chapter 11 cases and explore the releases of fraudulent transfer claims and third-party claims against the Sacklers.

Purdue has been taking up a lot of headlines and with the opioid crisis coming to a head with a variety of litigation cases accelerating due to the pandemic, our Americas Core Credit analysts dive deep into the chapter 11. The plan is both innovative and controversial, and the Purdue chapter 11 was the first major bankruptcy driven by the opioid crisis. Thousands of related lawsuits have been tied to the company’s role in developing, making, marketing and branding oxycontin, the narcotic painkiller. What you can see in the plan is the parties in the case using the tools in the chapter 11 toolbox to address not bonds and loans, but trillions of dollars in claims related to a mass social crisis. Listen to the full episode below.

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Spanish Direct Lending Analysis, Opportunity to Expand
Wed Sep 8, 2021 4:25 pm Distressed Debt  Leveraged Finance

Spain is an increasingly attractive market for private debt investors. As the country’s banking sector faces another wave of mergers, direct lenders will have the opportunity to expand on the back of the banks’ reduced capacity to cover the mid-market space. As the economy recovers from Covid, we expect the number of Spanish direct lending deals in 2021 to bounce back to 2019 levels, or even higher. Pemberton opened its Madrid office in 2020 to support all our local clients, and Spain is an important part of our strategy to build pan-European portfolios for investors.

Spain is the fifth-largest economy in Europe and the fourth-largest in the Eurozone. Like most of Western Europe, it has been badly affected by the Covid pandemic, and the growth of Spanish direct lending stalled in 1H 2020 – though only temporarily in our view.

Due to the impact of Covid the Spanish economy contracted -10.8% in 2020. The extent of the pandemic’s impact was partly structural. For example, the tourist sector, a prime victim of anti-Covid measures everywhere, represented about 12% of the pre-pandemic economy. However, the Spanish Government is forecasting 6.8% growth for 2021, which would represent a strong rebound.

However, the political situation over the past few years has not deterred investors from putting their money into investment opportunities in the country, both on the debt and equity side. Part of the reason for this is that Spanish businesses post Global Financial Crisis (GFC) have focused on diversifying their footprint, particularly from a geographical standpoint, thus reducing their reliance on the Spanish economy.

As a result, PE investment in Spain has progressively increased up to its all-time high in 2019 with c. €8.5 billion invested, and international funds representing c. 75-80% of that volume each year. Whilst in 2020, the investment of PE funds in Spain fell by 41.8% to €6.3 billion, in line with the global decline, 1H of 2021 has shown a strong bounce back with €2.1 billion invested, +27% yoy growth. 

According to Deloitte’s Alternative Lender Deal Tracker report, Spain recorded 137 direct lending transactions in the last 33 quarters – since January 2012. Although that figure seems small when compared to the 978 transactions recorded in the UK (the cradle of direct lending in Europe), it puts Spain in fifth position, only surpassed by France, Germany and Benelux. Spanish direct lending is a trend that has just begun and which all experts believe will grow exponentially in the future.

Against this mixed backdrop, the level of Spanish direct lending activity during 2020 was – unsurprisingly – lower than in 2019 with 21 deals closed in 2020 compared with 36 in 2019. This gap is mainly explained by the low activity seen in H1, when just four deals were closed as most of the sale or refinancing processes were put on hold given the uncertainty the lockdown brought. However, from June onwards, once lockdown restrictions were lifted, M&A activity resumed, this time very much focused on resilient sectors that coped well through the lockdown or even benefitted from the uncertain environment.

Despite the short-term Covid-driven problems, we take a positive view of the prospects for Spanish direct lending in 2021 and beyond. There will be fewer bank players in the market, creating opportunities for direct lenders to expand their market share from the current 20%.

Spain has traditionally had a strong dependence on bank financing. The consolidation of the Spanish banking system that followed the GFC of 2007-2010 reduced the number of banks and savings banks from 55 in 2009 to just 12 by 2021. After the wave of mergers between 2009 and 2014, in the last six years there were only two deals of note. However, the Spanish banking sector is clearly entering another period of consolidation that is forecast to reduce the number of banks to around five large institutions, plus a few smaller/regional entities. CaixaBank & Bankia and Unicaja & Liberbank have agreed to join forces in 2021, and analysts expect Sabadell to find eventually a partner.

In stark contrast to the situation during the GFC, Spain’s banks now have good levels of liquidity and solvency, but a sustained period of low interest margins has reduced their profitability. These new mergers should help the sector to make the necessary operational savings, but are likely to bring concentration issues, allowing direct lenders to seize the initiative. Bank mergers typically result in lower credit limits for the merged entity, so a reduction in the number of institutions will – on past experience – also mean a reduced size for individual tickets. Banks are also reported to be more cautious about club deals and concerned about their ability to get out of a deal if something goes wrong.

All this will help those direct lenders who can step in and take up the slack. Given that they already have the advantages of flexibility, bigger single tickets and speed of decision-making, continued medium-term growth for the sector looks secure.

So in terms of overall activity – and given that many of the sale or refinancing processes originally expected to take place in 2020 have been delayed to 2021 – we expect Spanish direct  lending deals in 2021 to return to 2019 levels, with c.30 deals in total. Looking further ahead, we think that the 20% of the lending market currently taken by direct lenders could grow to 30-40% by 2025.

The speed and lower execution risk – combined with our capacity to provide tailor-made financings – have been highly valued by our clients. As we continue to reinforce our presence in Spain, we look forward to playing a part in growing the region’s private debt market, allowing it to become a real financing alternative for expanding local mid-market companies.


Guest post written by Leticia Ruenes, Managing Director, Spain at Pemberton.

To learn more about the Spanish direct lending as well as news, commentary and analysis on issues affecting the high-yield, stressed and distressed markets in EMEA visit our EMEA Core Credit product page.

              

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