Global Credit Highlights: August 2023
Reorg’s editorial leadership has selected the following list of the most compelling and topical situations across our global coverage universe.
As part of Reorg’s global data and analytics product expansion, Fundamentals by Reorg now offers earnings transcripts of both public and private debt issuers. For further inquiries, please email email@example.com.
Twenty-four debtors filed for chapter 11 over the past two weeks, a list dominated by real estate names with liabilities of less than $10 million. The sector has been hard hit by rising interest rates and a sluggish recovery in occupancy as the pandemic’s “work from home” model becomes a permanent feature of the American landscape. Those hoping for relief in the form of interest rate cuts by the Federal Reserve have been heartened by economic data showing that pricing pressures are abating, but the ongoing strength in the labor markets supports the theory that the Fed will hold rates at their current level, the highest since 2001, for an extended period. A Labor Department report on Friday, Aug. 4, showed that the U.S. added 187,000 jobs in July, slightly less than consensus expectations, while the employment rate fell to 3.5%. The Fed meets again in September, with most expecting policymakers to stand pat.
Fitch Ratings downgraded the U.S. to AA+ from AAA on Tuesday, Aug. 1, citing “fiscal deterioration over the next three years, a high and growing general debt burden and the erosion of governance relative to AA and AAA rated peers.” Fitch is the second ratings agency to downgrade the U.S. In 2011, S&P Global Ratings downgraded the U.S. to AA+ from AAA. Moody’s and DBRS have maintained their AAA ratings on U.S. Treasury bills, or T-bills. The yield on the 10-year Treasury note rose to 4.18% on Thursday, Aug. 3, from 3.95% on Aug. 1.
In Europe, the second-quarter earnings season is revealing continued pressure on EBITDA margins across nations and industries. This was nowhere more evident than at French supermarket chain Casino, whose management revised its 2023 EBITDA guidance down by 51% from a forecast given just a month earlier. The heavily slimmed-down EBITDA budget was included in a July 27 presentation detailing Casino’s in-principle new-money and restructuring agreement with a consortium of investors led by EP Global Commerce and creditors holding more than two-thirds of its term loan B debt. Casino is now drafting lockup agreements and aims to implement the €8 billion debt restructuring under an accelerated safeguard proceeding by October 2023.
In Asia, while closely watched Dalian Wanda managed to transfer funds at the eleventh hour to redeem its $400 million offshore notes due July 23, the repayment failed to allay concerns around China’s real estate market. Turmoil has more recently spread to state-backed names such as Greenland Holdings and Sino-Ocean Group, and despite declarations of policy easing, the position of key developers remains precarious. Country Garden, or CoGard, recently announced an expected net loss for the first six months of 2023, compared with a net profit of 1.91 billion Chinese yuan ($268.5 million) for the year-earlier period. In the same announcement, CoGard declared it would actively seek guidance and support from the government and regulatory authorities.
To access the full story, as well as monthly access to Reorg’s Global Credit Highlights, request a trial.