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Grim Milestones For U.S. Retail, Energy Bankruptcies

Energy Bankruptcies

EDITOR NOTE: Let’s not be in denial that we all saw this coming months in advance. We’re talking about bankruptcies in the retail and energy sectors. Perhaps it began as a gut prediction, or just plain common sense, considering the economic fallout of COVID-19. But now the official numbers are in. The first two quarters of 2020 saw the largest number of corporate bankruptcy filings than any other period in American history. Unless you’re one of those “Robinhood” investors, it's hard to see how such data supports the likelihood of a V-shaped recovery.

(Bloomberg) -- More U.S. retail companies sought bankruptcy protection in the first half of 2020 than in any other comparable period. Energy filings piled up at the fastest pace since oil prices plunged in 2016, data compiled by Bloomberg show.

There have been 75 filings among all companies with liabilities of at least $50 million in the last three months, matching the same period of 2009, the second-worst quarter ever. Signaling more trouble ahead, the universe of issuers with bonds trading at distressed levels expanded for the first time since April.

Three retailers filed last week, including Grupo Famsa SAB de CV, CEC Entertainment Inc. and GNC Holdings Inc. That made 16 bankruptcies for the year-to-date, the most ever for the first six months of a year, according to Bloomberg data going back to 2003.

The sector remains under pressure from lockdowns that are crushing demand. Cirque du Soleil Entertainment Group -- one of the best-known brands in live performance -- filed for protection from creditors in Canada Monday.

The energy sector is the second-biggest contributor to this year’s bankruptcy surge, with June’s seven oil and gas filings matching the April 2016 peak. Chesapeake Energy Corp.’s insolvency highlights risk lurking in the shale sector, which remains under pressure from weak global demand.

Lilis Energy Inc., a Permian basin oil and natural gas producer, filed for bankruptcy protection, citing pressure from the Covid-19 pandemic. Exploration and production company Sable Permian Resources LLC also filed.

California Resources Corp. got an extension until June 30 to make interest payments originally due May 29. And Seadrill Ltd. is considering bankruptcy in the U.S. as one option for its upcoming debt restructuring.

Almost a third of U.S. shale producers are technically insolvent with crude at $35 a barrel, Deloitte LLP said in a study. High-yield exploration and production companies saw reserve-based loans cut after their spring redetermination, according to S&P Global Ratings.

Trouble Brewing

The amount of distressed bonds and loans outstanding rose to $348 billion as of June 26, a 1.2% increase since June 19 but down significantly from the $544 billion trading on May 15, data compiled by Bloomberg show. The distressed bond universe grew 3% while leveraged loans contracted by 2.3%.

There were 686 distressed bonds from 372 issuers as of June 29, compared with 1,896 issues from 892 companies at the March 23 peak.

Click here for a worksheet of distressed bonds and loans

The number of corporate issuers in the U.S. and Canada rated CCC+ has jumped to 256 from 132 since the start of February, S&P Global Ratings said in a report Monday.

“Issuers in the CCC category have an unsustainable capital structure and therefore are particularly vulnerable to default,” said Sudeep Kesh, head of S&P Global Credit Markets Research. “Their historical default rates from 1981 through first-quarter 2020 are 11 times higher than those in the B category.”

AMC in Focus

Bombardier Inc. and American Airlines Inc. topped the ranks of issuers with the most debt trading at distressed levels that hadn’t filed for bankruptcy as of June 26, data compiled by Bloomberg show. Also on the list is AMC Entertainment Holdings Inc. -- the largest U.S. cinema chain -- which pushed back reopening its theaters to July 30, two weeks later than planned.

Originally posted on Yahoo! Finance

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