--Libby Sallaberry
The debt level at noninvestment grade corporations ballooned by almost two times during the boom years and is “unsustainable,” said Bruce Richards, president and ceo of Marathon Asset Management, one of the PPIP managers selected by the Treasury Department. In his keynote remarks at Information Management Network’s ABS East Conference in Miami today, Richards noted that recoveries on loans and bonds are wide ranging, presenting opportunities for investors. “There are wonderful opportunities in the distressed space in corporate America,” he said.
The amount of high-yield corporate debt outstanding is $2.5 trillion, up from about $1.8 in 2001 and 2002. “Companies are much more leveraged than they ever were,” said Richards. “It’s not sustainable. In some cases, they’re kicking the can down the road.” He noted that a substantial amount of the debt was being worked out in bankruptcy court and out-of-court restructurings.
Recovery rates in those workouts have been difficult to pin down. He cited General Motors Corp. as an example. The bank debt, pre-bankruptcy, was trading at 45 cents on the dollar. After the company filed Chapter 11 pre-packaged bankruptcy, albeit with the special financing from the U.S. government, lenders were paid off at par. “They filled their balance sheet with too much debt,” he said. He also noted that Charter Communications, which is in bankruptcy, will have par recovery on the bank loans. As a contrast, he said Tribune Co. lenders would see a sub-par recovery.