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Despite strong economy, 70 PE-backed companies run into trouble

Nearly six dozen companies have cause for concern as 2018 nears an end, and the honeymoon is over for Clayton, Dubilier & Rice and David’s Bridal.

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 Standard & Poor’s or a corporate family rating of Caa1 or lower with a negative outlook from Moody’s Investors Service for 2018 through Oct. 16.

Retail led all sectors with 18 companies, or 26 percent, to receive distressed ratings. Media and entertainment had nine companies, or 13 percent. Four sectors had seven companies, or 10 percent: high technology, consumer products/services, energy and power, and industrials.

One retail company and one tech company received additional downgrades from earlier this year. These additional downgrades may be a harbinger of default.

Fresh Market received a Caa2 from Moody’s. This is after the Apollo Global Management-backed retailer received a CCC from S&P earlier this year. The additional downgrade comes with the news that the company will be closing 15 stores.

Triple Point Group, which earlier this year received a Caa1 from Moody’s, received a CCC from S&P. S&P foresees heightened default risks for the high-tech company over the next year. Triple Point is backed by ION Investment Group.

Six sponsors had at least two portfolio companies receive distressed ratings: Apollo (six); Platinum Equity (four); CD&R (three); and Bain Capital, Ares Management and Sycamore Partners (two).

Three companies defaulted in October, two of which had received distressed ratings earlier this year. This brings the total number of defaulted companies to eight.

American Tire Distributors, a TPG Capital and Ares portfolio company, in April received negative outlooks from S&P after losing a major customer. The company initiated Chapter 11 bankruptcy proceedings on Oct. 4, 2018.

Soon afterward, FR Dixie Acquisition Corp defaulted when it missed interest and principal payments. The First Reserve portfolio company has entered forbearance agreements with certain lenders. The company is one of two within the energy and power industry to default.

The struggling retail industry claimed its third default this year. David’s Bridal, a CD&R portfolio company that received multiple distressed ratings this year, received a selective default rating from S&P after it deferred the interest payment on its unsecured notes.

Download the Distressed Asset report here: Distressed Assets through 10.16