November 24, 2023 (MLN): Six defaults in the last 30 days have brought the United States (US) trailing twelve-month (TTM) leveraged loan default rate back above 3%, Fitch Ratings states in its latest post.
Operational issues and free cash flow challenges, in tandem with elevated leverage, high interest expense, and weak liquidity, pushed several issuers to file Chapter 11 or engage in distressed debt exchanges (DDEs) to address near-term maturities.
The U.S. Leveraged Loan TTM Default Rate stands at 3% by volume and 3.5% by issuer count in October, up from 2.9% and 3.4% in September.
YTD default volume as of Nov. 20 is $49.7 billion from 61 issuers, compared with $25.1bn from 23 issuers over the same period in 2022.
There were six defaults over the past month, four of which were DDEs, and two were issuers in healthcare.
API Holdings III Corp. recently completed a DDE that folded old debt, including a fully drawn revolver due May 2024, into the new first-lien term loans (TL) with 2027 maturities.
The new debt includes a new $20.4 million priority priming term loan.
The DDE meaningfully lowered cash interest expense and removed required amortizations, providing the company some runway to address operational challenges from productivity inefficiencies and higher input costs due to inflation.
TortoiseEcofin, a Lovell Minnick Partners-backed asset management company with an ESG focus, also completed a DDE on November 01 that exchanged its $300m TL due January 2025 into a $60m term loan due October 2028 and $190m of perpetual convertible preferred equity.
The issuer had struggled with high leverage, weak liquidity from elevated interest and amortization payments, depressed operating revenue and FOCF that was trending to negative in 2023.
Proceeds from the original term loan were used to finance the company’s purchase by its sponsor.
Moran Foods LLC, a Missouri-based wholesale distributor (doing business as Save-A-Lot) completed a restructuring of its credit facilities in late October 2023, its second DDE in the last 12 months, that converted its existing first and second lien term loans into new first lien term loans with a PIK option with a minimum 2% cash pay.
The maturity date on the new loans is unchanged from June 2026. Consenting lenders also received new equity from SAL Topco LLC, an indirect parent of the issuer.
Moran continues to face downward pressure from high leverage and weak FCF generation from lower-than-expected consumer demand and challenges to implementing its turnaround strategy to improve operations.
Two other companies, both in the healthcare sector — the top sector on the Market Concern Loan List — also recently defaulted.
Quincy Health, a US-based hospital and outpatient services provider, in September, amended it $625mTL facility to allow the company to PIK its October 2023 interest payment in a DDE that was confirmed in November.
Its ABL facility due July 2024 was unchanged. While the DDE alleviated some pressure, the company remains constrained by weak liquidity, high leverage and a tight leverage covenant on its term loan.
Air ambulance operator Air Methods filed for Chapter 11 on October 23.
The issuer had struggled with weak operating performance and negative FCF from the No Surprises Act, rising fuel prices and increased wage expense due to pilot and clinical staff labor shortages, high leverage and elevated interest expense.
Some at-risk issuers, however, continue to find refinancing opportunities in the private credit market. Zotec, a ‘CCC’/’Caa1’ rated revenue cycle management provider, refinanced its $311m TL due in February 2024 into a five-year private credit loan due 2028 from Francisco Partners.
Copyright Mettis Link News
Posted on: 2023-11-24T17:00:10+05:00
