Distressed Digest

August 2nd 2020

Currently tracking 242 credits from 148 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

  • Tupperware Brands reported and beat earnings estimates this week. The stock rallied to levels it has not seen since Oct 2019. The short-dated bonds (TUP 4.75 ’21) ended the week higher by 10pts to 92 yielding 15.4%. The bonds have now rallied 60pts from their low of 32 set back a few months ago.

  • Hovnanian K Enterprises (HOV 10.00 ’22) traded higher by nearly 10pts to 82.5 yielding 21.7% as historically low mortgage rates continue to help home builders.

  • Bombardier (BOMBF) was stronger across the capital structure by 3-5pts.

  • Mallinckrodt Intl (MNK 5.75 ’22) traded higher by 6pts this week to 18.00.

  • WeWork’s credit continues to rally as the WEWORK 7.875 ’25 moved higher by another 4.5pts to 67.5 yielding 18.4%.

  • Diamond Sports Group LLC (DSPORT) traded lower by 8-10 points for both high yield credits. The company which owns regional sports networks across the country, with exclusive rights to 42 professional teams spanning the MLB, NBA, and NHL, continues to struggle with abbreviated sport schedules. The DSPORT 6.625 ’27 notes are now trading at 55 yielding 18.3%.

  • American Airlines (AAL 11.75 ’25) newly issued secured notes continue to fall. They ended the week lower by 2.75pts to 87.25 yielding 15.5%.

  • Hertz (HTZ) unsecured notes traded higher by 4-5pts to above 40.


Rising Bankruptcies

It is a great time to be a bankruptcy lawyer as another 22 companies filed for bankruptcy in July. An increase from the previous month, where 17 companies entered bankruptcy with at least $500 million in revenues and liabilities.

There were many well-known consumer discretionary companies that highlighted July such as Remington Outdoor, Ascena Retail, Brooks Brothers, and California Pizza Kitchen. Some big energy companies (California Resources and Denbury Resources) finally entered bankruptcy to restructure their large capital structures.

To give some perspective on the pace of these filings, the number of monthly bankruptcies has risen each month going back to December of last year. It’s also interesting to note that the monthly bankruptcy totals for the last three months were greater than in any month of 2009

In general, the markets are usually slow during the month of August. Yet it is expected that 5-10 companies will file for bankruptcy this month. For more details in potential filers check out the recent article titled “Give me just a little more time.”

This year’s bankruptcy total is currently at 81 with five months to go for 2020. The total for 2009 – which many people consider to one of the worst financial years in recent history – was 86.

The main difference between the two years (2020 vs 2009) has been the number of filings versus the size of filings. In 2009, well-established large-cap companies like General Motors, CIT Group, Brookfield Property, and Nortel Networks entered into bankruptcy with significant amount of assets and liabilities.

During this time of turmoil, the US stepped in and quickly provided liquidity to the markets. This has trickled down to the corporate debt market, allowing companies to raise more capital. This has been vital for many Covid affected industries such as airlines, cruise-liners, and REITs as their businesses continue to struggle.

If the economy does not recover as quickly as some people expect, we may see the pace of filings continue to increase along with the size of companies filing for bankruptcy.


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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.