Industrials lead distressed companies; retail continues to struggle

Forty companies started 2019 with room for improvement, most of them from the industrials and retail sectors.

These are private-equity-sponsored companies that received distressed ratings, defined as an issuer credit rating of B- or lower with a negative outlook from S&P or a corporate family rating of Caa1 or lower with a negative outlook from Moody’s for 2019 through April 10.

Industrials led all sectors with nine companies (23 percent) to receive a distressed rating. Retail, which had the most distressed companies in 2018, starts this year in second place with seven companies, or 18 percent. Media and entertainment came in at third with six companies, or 15 percent.

Seven companies defaulted in Q1 2019, including three from the retail industry.

Savers Thrift Stores, sponsored by Berkshire Partners, received a selective default rating from S&P when it made a debt-for-equity exchange of its senior subordinated notes.

Charlotte Russe started the year by receiving a negative outlook from S&P in January. The Advent International-backed company then filed for Chapter 11 on Feb. 4. It plans to close 94 store locations.

Payless received distressed ratings from both S&P and Moody’s in January, which speculated an imminent default or restructure. The Blum Capital and Golden Gate Capital portfolio company filed for Chapter 11 on Feb. 19. It plans to shut down its online operations and close 2,500 stores.

The one company from the industrials sector to default was API Heat Transfer. The IGP-backed company was the first PE-backed company to default in 2019 when it completed a restructuring by converting debt outstanding into equity interests.

Seven sponsors saw at least two companies receive distressed ratings: Advent, Blackstone, Centerbridge, Energy Capital Partners, Goldman Sachs, KKR and TPG.

One company emerged from the default list in 2018, though it received another distressed rating.

After receiving multiple distressed ratings last year, David’s Bridal filed for bankruptcy on Nov. 19, 2018. The Clayton, Dubilier & Rice portfolio company emerged from bankruptcy on Jan. 18 but still faces sustainability problems.

Download the Distressed Asset report here: Distressed Assets Q1 2019