Reorg on the Record: Middle market chapter 11 filings on the rise…

Since the beginning of this year, close to 200 middle-market companies with under $500 million in liabilities have filed for chapter 11, according to Reorg’s First Day database. The pace of filings picked up toward the third quarter as macroeconomic headwinds, notably inflation, rising interest rates and rising energy costs, worsened, signaling the onset of a recession. Isagenix, United Road Services and Fly Leasing are recent examples of businesses that either sought or are seeking forms of relief from their creditors; however, companies that fail in their talks with lenders will eventually be forced to join the list of chapter 11 filers.

With the U.S. Federal Reserve set to continue down its path of rate hikes to rein in inflation, the ability to tap the primary markets as a refinancing source for many corporates, including middle-market companies, has weakened dramatically. However, direct lending activity remained robust throughout this year’s market turmoil, representing more than a third of the private debt capital allocated in the first half of 2022, and North America accounted for more than 88% of the capital raised globally this year, according to Pitchbook. Although market volatility has driven more and more financially stressed, smaller-sized companies to seek rescue options from either their lenders or third-party direct lenders, with successful examples including Unique Fabricating, Dhanani Group and Dunn Paper, covered by Reorg’s Americas news team, not all were ultimately rescuable, as investors remain picky with regard to credit quality.

Regards,
Adelene Lee

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Isagenix
The company missed a principal interest payment on Friday, Sept. 23, before entering into a forbearance agreement with an ad hoc group of lenders last week that lasts for 45 days, Reorg reported on Sept. 27. The company is aiming for an out-of-court restructuring to address its liquidity shortfall, upcoming revolver maturity in June 2023 and potential covenant breach, sources said. In addition, the company has $18.8 million in amortization payments due before the end of the year and $5 million of Zija notes due in March of next year. » Continue Reading

IXS Coatings
The Houston-based maker of industrial spray-on protective coating is wrestling with slowing auto production and rising inflation. The company’s adjusted EBITDA for the second quarter ended June 30 dropped 33% year over year to $12 million, Reorg reported on Sept.19. Revenue fell 17% year over year to $173 million. The prolonged semiconductor shortage has idled global auto production. » Continue Reading

United Road Services
United Road Services has been working with PJT Partners as financial advisor and Kirkland & Ellis as counsel as the company continues to burn cash amid the labor and microchip shortage, Reorg reported on Sept. 28. The truck and car hauling company has struggled with an acute truck driver shortage in the United States, as many have left the line of work because of low pay and grueling work hours. The U.S. has a deficit of about 80,000 truckers. » Continue Reading

FLY Leasing
Fly Leasing, a Carlyle-backed global aircraft leasing company, has been authorized to repurchase $50 million of its $390.5 million 7% notes due 2024 in the secondary market and has received a $50 million equity line of credit, Reorg reported on Sept. 19. “Fly Leasing’s Board has authorized the Company to repurchase the 2024 notes in open market transactions up to $50 million of original face value. The Board has also authorized an equity line of credit of $50 million for Fly from its ultimate parent, which can be drawn upon for general liquidity requirements,” Carlyle said in a statement to Reorg. » Continue Reading

The Reorg Primary View: Listen now: The Loan Syndications & Trading Association (LSTA)’s Meredith Coffey, also a member of the Federal Reserve’s Alternative Reference Rates Committee, discusses the transition to SOFR in this podcast with Reorg’s head of primary, James Holloway. The conversation comes as about $4 trillion of leveraged loans are due to transition from LIBOR by the end of June 2023. Reorg’s Sept. 16 article highlighted the efforts by some lenders to push back against the efforts of borrowers to switch to SOFR without according them a credit spread adjustment. Listen here.

DealCatalyst’s U.S. Specialty Lender Finance and Private Credit Forum takes place in New York this November. So far over 150 Specialist lenders and investors have already signed up. Specialist lenders and Investors can currently sign up for free. If you are not a specialist lender or investor, Reorg has secured you a 20% discount, saving $400 on the standard ticket price. Register here and use the code REORGPOD to secure your discount.