Distressed Digest

July 19th 2020

Currently tracking 237 credits from 145 companies.

If you wish to view the Distressed Watchlist within Google Sheets, please request access to it and I will shortly grant you access to it.

https://docs.google.com/spreadsheets/d/17CE82ulzQX9KuRBMBeWXdyyx6LSjXqdaTepEc27A-8s/edit#gid=1148751060


Leaders for the Week

Laggards for the Week


Highlights

  • WeWork (WEWORK 7.875 25) traded higher by nearly 10 points to 58.50 yielding 22.5%. A WeWork chairman said it expects the company to be cash flow positive next year, a year ahead of schedule.
  • Briggs and Stratton (BGG 6.875 20) senior notes traded lower by 20+ points as it is expected the company will seek a 363 sale of its business in bankruptcy later this week. If the reported stalking horse bid amount remains file, it would only over secured creditors, leaving the 6.875% notes nearly worthless.
  • Carlson Travel (CTHM 6.75 23) traded higher by 22 points to 87.00 yielding 11.5%.
  • Washington Prime Group (WPG 6.45 24) traded lower as Covid cases continue to rise, forcing weak traffic to malls. The bonds ended the week at a new all-time low of 45.00 yielding 31.5%.
  • Tupperware Brands (TUP 4.75 21) continue to trade higher, ending the week up 15 points to 80.00. After a series of debt repurchases, the notes have risen from the low 30s in less than 8 weeks.
  • California Resources entered into bankruptcy this past week with a plan to hand ownership over to its creditors. If approved, the plan will give secured lenders approximately 93% of the new reorganized company, while the second lien bondholders (CRC 8.00 22) will receive 7%. The second lien notes traded actively between 2.75 and 3.00 which is significantly lower from where it started 2020 (50.00).

Give me just a little more time

It has been a busy year for bankruptcies. Many of these businesses were on the fringe before the Covid pandemic. The extra disruption only exacerbated their leverage problems.

Yet, companies and their lenders are not rushing to file for bankruptcy so quick. Many skip their debt payments and utilize their right to the “grace period”. These period vary but usually give a company an extra 15-30 days before an default event could be triggered. If you are unfamiliar with term grace period, feel free to read more here.

The majority of time, companies that enter the grace period, end up not making their skipped payments. The time is usually spent as a period of negotiations with lenders. Large companies with complex capital structures can lead to expensive bankruptcy process.

Usually, the most important thing for a business entering into bankruptcy is to line up DIP financing. To speed up the bankruptcy process as well as ensure certain secured creditors see recovery value. The time spent during the grace period can also help complete any plans of reorganization or asset sales. If a company enters the process with a lending in place as well as plan agreed upon by the majority of creditors, it will lessen time in bankruptcy.

Here are a few companies that are currently in grace period and are expected to file within the next month.

  • Tailored Brands (TLRD)
  • CBL & Associates (CBL)
    • https://www.koyfin.com/snapshot/s/CBL
    • On June 1st, the company skipped an interest payment on its 2023 notes. Since then, lenders have extended its grace period twice as it is expected to enter bankruptcy later this week.
  • Lonestar Resources (LONE)
  • Denbury Resources (DNR)
  • Rose Resources (ROSE)
  • Chaparral Energy (CHAP)
    • https://www.koyfin.com/snapshot/s/CHAP
    • On July 15th, the company skipped an interest payment on its 8.75% notes, entering into a 15-day grace period. The company last filed for bankruptcy back in 2016.
  • Briggs & Stratton (BGG)
  • Noble Corp (NE)

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I am Rich, the co-founder of Koyfin. As a former distressed high-yield trader now designer/developer, I wanted to share some thoughts and observations I see in the distressed high-yield corporate bond market. During my trading days, I shared a daily distressed digest with clients containing trading color and news. Now, I hope to share them with you. Feel free to follow me on Twitter @koyfinTrader as well as share any feedback. My DMs are always open.