A guitar legend falls as retail continues to burn: distressed ratings

Through the first three weeks of May 2018, 94 private equity-sponsored companies hold distressed ratings from Standard & Poor’s or Moody’s Investors Service, including six defaults.

Those defaults were due to missed interest payments and subsequent bankruptcy filings.

Gibson Brands, backed by Kohlberg Kravis Roberts, Silver Point Capital and Melody Capital Partners, is the latest to receive a default rating. The maker of musical instruments, including its famous lines of guitars, filed for bankruptcy on May 1.

Coincidentally, Guitar Center – backed by Ares Management – is also feeling the pressure, with a CCC+ rating and negative outlook from S&P.

A company in the rebounding energy sector filed for bankruptcy as well. FirstEnergy Solutions, sponsored by an investment group of Bluescape Energy Partners, Elliott Management, GIC and Zimmer Partners, fell into default after a sharp decline in its liquidity and cash flows.

Claire’s Stores, a staple in shopping malls across America, is expected to close around 130 of its outposts. Claire’s, owned by Apollo Global Management, has long been struggling financially and filed for bankruptcy back in March.

The retail sector continues to lead all industries, accounting for 20 of the 94 portfolio companies (21 percent) on the lists. Consumer products/services follows with 15 (16 percent) and high technology 14 (15 percent) stands third.

With retail roiled by the rise of online shopping, brick-and-mortar stores are having more trouble bringing customers in.

Private equity firms focused on the sector are trying to enhance the industry by building up stores as “experiences” instead of just thoroughfares of transaction. Time will tell if this strategy swings the pendulum back in favor of the physical retail space.

From 2013-2017, private equity-backed retail deals claimed an average of 10 percent of the overall closed deal value and about 5 percent of the overall count. Thus far in 2018, retail occupies 6 percent of the value and 4 percent of the count of all combined sectors.

 

Sponsors with multiple portfolio companies on the Distressed Asset list include Vista Equity Partners (four companies); Apollo Global Management; Ares Management; Carlyle Group; Centerbridge Partners; Clayton, Dubilier & Rice; GTCR; Platinum Equity; and TPG Capital (three each); Advent International; American Securities; Apax Partners; Golden Gate Capital; H.I.G. Partners; Leonard Green & Partners; Oaktree Capital Management; Riverstone Holdings; Sycamore Partners; Thoma Bravo; and Thomas H. Lee Partners (two each).

To make Buyouts Insider’s Distressed Asset report, private equity-backed companies must have had a speculative corporate credit rating of B- or lower from S&P or a corporate family rating of Caa1 or lower from Moody’s between Jan. 1, 2018 and May 21, 2018.

Action Item: Download the Distressed Asset report here: Distressed Assets Report