Reorg on the Record: Municipals showing an expanding pipeline of distress for 2022 and beyond…

Since its launch in April 2021, Reorg’s Americas Municipals has increased its coverage of performing, high-yield and distressed municipal borrowers to over 600 discrete obligors from its humble launch of fewer than 100. Our timing couldn’t be better. A frothy market in 2021 lifted our primary coverage and helped populate a pipeline of distress for 2022 and beyond.

A good example of this continuum is a life plan community in Broome County, New York, called Good Shepherd Village at Endwell. Reorg recently moved its lifecycle on this name to stressed/distressed from performing after Good Shepherd sought a waiver this summer from bondholders for violating a financial covenant.

Reorg initiated coverage of the borrower in November 2021 when it sold $52 million of BBB- bonds. At the time, we highlighted its net deficit and thin cushion on financial covenants as part of our analysis. Yet it sold a 15-year term bond at 112 to yield 2.02% as part of the sale. Those bonds now trade at 89.5 to yield 5.06%.

With over $75 billion in outflows through 2022 and an aggressive monetary policy from the Federal Reserve Open Markets Committee that raised rates 225 basis points this year, a broad selloff is inevitable. When the cost of capital rises, credit work becomes more important. Whether negotiating in the primary market or in bankruptcy court, pricing risk is as much about credit quality as it is about macro trends.

As we look into the back half of the year, we expect to see more distress in the healthcare and senior living space while performing credits, such as the City of New York, will continue to pay up for their long-term capital needs.

Regards,
Seth Brumby

Our Americas teams are working tirelessly to bring subscribers the most in-depth data, analysis and reporting on more than 3,000 performing and distressed credits. A glimpse into our offering is shown below:

ProMedica Health System
ProMedica registered an operating loss of $155.1 million for the three months ended June 30, compared with an operating loss of $8.7 million in the same period a year earlier, the Ohio-based healthcare organization reported in an unaudited quarterly disclosure posted to EMMA on Monday, Aug. 15. The company stated that the losses were primarily driven by labor costs as industrywide workforce shortages resulted in increased amounts of agency staffing in the senior care and provider divisions. » Continue Reading

New York, New York
New York City has tapped the market twice during August with $1 billion in general obligation bonds and another $1 billion through the Transitional Finance Authority. While the credits are double-A and triple-A rated, respectively, a rising rate environment and the city’s growing capital needs have driven borrowing costs above their typical spreads to risk-free benchmarks. » Continue Reading

AGS/ Inspired Entertainment
On Aug. 8, casino gaming equipment provider AGS released its financial results for the second quarter of 2022. The company reported $34.1 million of EBITDA for the quarter, compared with $32.1 million in the second quarter of 2021. The company’s LTM EBITDA as of June 30 was approximately $131 million. » Continue Reading

Endo International Plc
Judge James Garrity granted the Endo International debtors’ first day relief at a largely uncontested hearing on Aug. 18, though potential fault lines opened between the debtors and two groups left out of their proposed section 363 credit bid sale to first lien creditors: the ad hoc cross-holder group represented by Paul Weiss and the ad hoc unsecured noteholder group represented by White & Case. » Continue Reading

Available Now:
After a historically low year for chapter 11 filings in 2021, early 2022 began much the same way. January filings were down 47.7% from the 2016-’21 monthly average of 30.6 cases (and down 50.2% from the 2019-’21 average of 32.1 cases). Cases remained at depressed rates until they began to climb toward the end of May, when they returned to historical averages, largely on the basis of rising inflation, high fuel and commodity prices and continued supply-chain issues. » Download the full report

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