Weakest Links: Avaya is only PE-backed company to default so far in 2017

Avaya Inc, a wireless data communications company backed by Silver Lake Partners and TPG Capital, is the only PE-backed company to default so far in 2017, according to the Standard & Poor’s first-quarter Weakest Links report.

Avaya, which holds more than $7.6 billion in affected debt, filed for Chapter 11 protection from creditors on Jan. 19.

Overall, consumer-products companies led the Weakest Links list, with oil and gas not far behind. They accounted for 19 and 17 of the 80 companies on the Weakest Links, default and bankruptcy lists, outpacing all other sectors.

Private equity got a slight reprieve in the report, which included 79 PE-backed companies compared with 86 in the fourth-quarter report. Combined affected debt fell to $147.5 billion from $151.8 billion in Q4, a difference of $4.3 billion, or 2.8 percent. Both totals stack higher than they did a year earlier.

The media and entertainment industry led the report in dollar amount, with nine companies making the lists, totaling $67.6 billion in debt. This amount was driven by the $34.7 billion in affected debt of Caesars Entertainment Corp (backed by Apollo Global Management, Blackstone Group and TPG), as well as Bain Capital and Thomas H. Lee Partners-sponsored iHeartMedia and its nearly $20.7 billion debt tag.

Sponsors with multiple portfolio companies on the latest Weakest Links list include Apollo Global Management (six companies); Riverstone Holdings (five); Blackstone Group and Carlyle Group (each with four); Apax Partners, Canada Pension Plan Investment Board, First Reserve Corporation and Oaktree Capital Management (each three); Advent International, American Industrial Partners, Ares Management, Bain Capital, Crestview Partners, Energy & Minerals Group, Energy Capital Partners, Golden Gate Capital, Kohlberg Kravis Roberts & Co, Leonard Green & Partners, Rhône Capital, Thomas H. Lee Partners and TPG Capital (each two).

All told, 241 sponsored and non-sponsored companies were on the list. The entire list has an aggregate affected debt of $322 billion.

To make the Weakest Links list, companies must have had speculative corporate credit ratings of B- or lower with either a negative outlook or a negative CreditWatch implication on Jan. 19.

From 1981 to 2016, an average of 7.5 percent of all global entities rated B- defaulted within 12 months, and the average default rate was much higher for entities rated lower than B-.

Action Item: Download the Weakest Links report here: Weakest Links

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