Bangkok--8 Aug--Standard & Poor's
According to a report released yesterday by Standard & Poor's Ratings Services, the first half of 2011 was a period of abundant liquidity for U.S. nonfinancial corporate borrowers, with a sharp rise in transactions with less-credit-friendly features, ranging from covenant-lite loans and dividend recapitalizations to second-lien loans and even payment-in-kind (PIK) toggle notes.
"We believe that these actions of early 2011 may leave some companies, or their investors, in a weaker position to deal with any severe and prolonged economic downturn," said Standard & Poor's credit analyst Gregg Lemos-Stein. "For example, we would expect a higher default rate among companies that have taken out large dividends, as was the case during the financial crisis and ensuing recession. We would also expect borrowers to use PIK toggle features wherever possible, thereby adding debt to corporate balance sheets. And investors in covenant-lite and second-lien loans may recoup less of their investments in the event of a payment default."
The article, titled "U.S. Credit Markets Were Covenant-Lite And Dividend-Heavy In The First Half Of 2011," is part of Standard & Poor's Ratings Services' "Reshuffling The Debt" series, which was launched at the beginning of 2011. The series rekindles the "Leveraging Of America" series of articles that Standard & Poor's published in 2007, which commented on the large increases in nonfinancial corporate issuers' debt leverage shortly before the Great Recession began. "Reshuffling The Debt" investigates the leveraging trends of these entities now that we are in the wake of the recession.
The report is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to
[email protected]. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.
Media Contact:
Mimi Barker, New York (1) 212.438.5054,
[email protected]
Analyst Contacts:
Gregg Lemos-Stein, CFA, New York (1) 212-438-1730