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Q2 2009 Corporate Defaults More Than Double 2008 Total
The second quarter of 2009 set a new record for the number of corporate defaults, with 82 non-financial events of default, consisting of 16 names in media and entertainment, 15 in autos and 15 in natural resources, according to a new report published by S&P. The total amount of defaulted debt was $254 billion, far larger than the $102 billion spread among 69 defaults in all of 2008.
Of the second-quarter defaults, the largest portion (about 42%) resulted from distressed exchanges, 28% from missed payments, and 27% from bankruptcies. Distressed exchanges occur when a borrower offers creditors securities or cash in exchange for their debt claim that are worth less than the nominal present value of their original claim.
S&P is still predicting a record amount of speculative-grade defaults over the next 12 months, with an expected peak around Q1 of 2010, hitting a total of 13.9% of issuers some time in mid-2010.
This reflects our expectation of continued weak
economic conditions and tight credit markets, although we do expect the
credit markets to continue to ease somewhat through year-end.
As Zero Hedge has discussed extensively in the past, the predominant category of default event has become distressed exchanges.
As previously mentioned, distressed exchanges
continued to account for a significant number of corporate defaults
during the quarter. The new securities will often have different coupon
rates, changes to the maturity term, or a change in a sinking funds
(i.e., cash redemption) schedule. We consider distressed exchanges to
be tantamount to default.
Not surprisingly, the sector hit the hardest was autos after the massive GM and Chrysler defaults, whose impact has been materially mitigated via taxpayer cash filling the gap.
Several sectors saw the most significant number
of defaults during the quarter: automotive, media and entertainment,
gaming and leisure, and natural resources. Three of the defaulted
issuers with large debt balances were automakers: Ford Motor Co. (about $46 billion in rated debt), General Motors Corp. (GM; about $21 billion), and Chrysler Corp.
(about $9 billion). Media and entertainment and gaming and leisure
combined accounted for 15 defaulted borrowers, including issuers with
large rated debt balances such as Harrah's Entertainment Inc. ($25.6 billion) and R.H. Donnelly Corp.
($7.6 billion). Of the defaults mentioned, Ford and Harrah's were
distressed exchanges, while Chrysler and GM filed for Chapter 11
bankruptcy protection.
And here is punchline: the impact of declining cash flows for the non TBTF is becoming increasingly acute, especially for leveraged companies that have a small chance of refinancing at anything even closely resembling preferential terms. Ironically, the artificially low Libor per the BBA is likely hindering secured debt transactions, which could be one source of refinancing as unsecured debt could potentially be rolled into the secured level at many companies which have the collateral and capacity to issue secured credit. Here is S&P's perspective:
Many companies continue to experience cash flow
pressures and covenant compliance issues because of declining sales and
earnings. Operating results and credit protection measures deteriorated
for all of the defaulted companies, leading to liquidity problems. Many
missed interest payments and were not able to obtain covenant waivers
or alternative financing, and ultimately filed for Chapter 11. We rated
these issuers in the low speculative-grade category ('B' or below).
Standard & Poor's had rated most of these issuers at 'CCC+' or
below prior to their defaults.
As the impacts from the weakness in the auto sector spreads into the supplier base and into its subsequent feeder channels, look for increasing weakness across whatever is left of the US industrial base, and, of course, continuing layoffs.
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"cash flow pressures and covenant compliance issues"
A notable improvement over the old-fashioned word "broke".
The financial geniuses may have left the world literally broke, but we should be grateful for their rich linguistic legacy.
here you have it TD
http://tinyurl.com/pmxhnc
the truth is in the income
ignore the data. listen to ben. everything is fine.
Feigenbaum's constant can be used to predict when chaos will arise in such systems before it ever occurs. It was discovered in 1975.
This was better than expected!
LOL
I'm going to call up Visa and tell them I'm having "covenant compliance issues" on my 90day delinquent card , and see if they can float me like $50k for a business trip to NYC, mainly to sample hookers and blow from 'emerging markets'. Look Visa, its just "cash flow pressures". I'm good for it -- I swear. I can make it back in like , an hour at Atlantic City. Just keep the bolivian marching powder coming.
Better to create a new LLC, get a EIN and get an American Express business account. Then you would have another excellent deduction.
You sir, are a better man than I. -- Delaware, where art thou?
Vegas baby!
Nevada does LLC's better than anyone. Especially with their prepackaged mail & answering services...
You guys are a riot!! love reading you...;-) Last I heard it was Less Vegas.
Nawww.
It's Lost Wages for all the inwestors out there.
its Less Vegas now. my old neighborhood is about 20% occupied.
sad sad ghostown out in the burbs of henderson man... =\
All that damage...And the explosives plant didn't even blow up, recently.
You made me laugh! Sadly, that's pretty much exactly what is going on...
pisani said this is a clear victory for the bulls
nope he learned a new word today: bifurcation.
Wasn't that first foray into four syllable land?
Actually to digress for a moment as I get drunk,
Bifurcation fractals represent period doubling of the graph of the quadratic iterator. All chaotic systems pass through a bifurcation fractal on the path from order to chaos. Interestingly enough, there is a constant, much like PI -- called Feigenbaum's constant -- which is present in all nonlinear dynamical ('chaotic') systems as they progress from order to chaos via period doubling. This includes everything from heart attacks (ventricular fibrillation) -- to the branching of a green fail fern -- to fluid turbulence in a river -- to electrical neural attractors plotted in phase space -- to the microscopic fissures of decaying skin at the top Hank Paulson's shining bald head.
"As a consequence of this generality, every chaotic system that corresponds to this description will bifurcate at the same rate. Feigenbaum's constant can be used to predict when chaos will arise in such systems before it ever occurs. It was discovered in 1975."
http://en.wikipedia.org/wiki/Bifurcation_fractal
http://en.wikipedia.org/wiki/Bifurcation_theory
http://en.wikipedia.org/wiki/Feigenbaum%27s_constant
http://upload.wikimedia.org/wikipedia/commons/4/45/Chaosorderchaos.png
Period-halving bifurcations leading to order, followed by period doubling bifurcations leading to chaos.
CB - Your insights?
I am not CB, but it doesn't look all that usefull to me. To bring the big words down to something a little more managable, you would say that everytime that something happens, things either get simpler, or more complex. This is of course absolutely logical. The halving or doubling thing lets you fit the function to any system, with the proper amount of hand waving. To me it would be much more useful to use something like a Fourier Transform to find the underlying functiouns, that way you could at least try to isolate the variables. Speaking of, has anyone ever done a fourier transform on the nyse or sp500? I would be very interested to see the results of that.
Sorry if I stepped on your toes, but that was the first time I had seen that function so I have no case history to judge it against.
in don't know Layne; i look the world trough Cantors eyes; i will take a look at this and get back to you in an hour or two. i would have to look at a system as a set fit finite number of elements interacting chaotically with another set of the same cardinality. I'm not so good when it comes to applied mathematics; I'm more of a purist. Oh and to the dude above me; yes Fourier would fit better here; but you would have to pre-suppose that the system has known number of elements and the property of those elements is also known, also you would need to know all possible Boltzmann paths if the system is R3(which in this case is ) etc etc ... Basically Fourier is excellent when it comes to deterministic systems and calculating the probability of an outcome out of all possible known functions and Boltzmann paths, than when it comes to a chaotic non-linear systems with unknown numerable elements; and if i understood well, Feigenbaum constants are descriptivities, not functions.
Thanks to both of you. I am once more engaged in the discussion and enjoy the spirit of contemplation.
I join you in using a bit of time to consider.
No apology needed defender. I simply am more aware of CB's interest and work in these areas, but I enjoy inputs from all sources. Agreed or not. I find it aids in forming my ever changing considered opinion.
OK. Layne i crunched some numbers, did some calculations and basically Feigenbaum constant can predict chaotic movements to a certain degree before they happen, if and only if all states of the system are known. But when speaking of chaos there arises a problem. chaos is a dynamical behaviour of a system, but dynamical behaviour does not need to be chaotic; it can be well ordered; the same truth does not hold for chaotic movement. Also if system Mn has two states denoted by p and q no one knows if the order will be just the same system after chaos occurs and stable system again orders, or will it be a new system with non-chaotic dynamical behaviour, or will it be a new static system. There is infinitely numerable states which new system can be described. Also Feigenbaum constants work if width of the tine is known, if not it can be only assumed that Feigenbaum's constants will arise. Basically, yes it can be used in the stock market, because states p trough pn can be known with certainty when the system is either a) ordered dynamical behaviour b) static c) when all sub-tines are known in value in time point T small enough to assure high degree of certainty d)state of xi. Also, what will system behave like during chaos is also problematic to know if all those three necessities are not satisfies + all possible random variables in xi. But now I'm going into Fourier transformations so i will stop. Hope this helped.
Most certainly.. Thanks once more
read Mandelbrot......
read Mandelbrot......
YOY #s looked great.
As walstreetpro would say "more green f#ckin' shoots !"
yeehaw
what is right, and wrong, with the world in one photo.... http://img394.imageshack.us/img394/254/extra3ej1.jpg
Right. Peabody right, AIG wrong. Except in this market the price of AIG will soon be higher than BTU.
Oh yeah - that haircut is wrong on both of them. Mandy going for the 2020 future look, Pissonmi still in the 80s.
= RALLY!
Where is Dennis Kneale tonight? I'm stuck watching Marijuana Inc for the umteenth time.
Still never tire of seeing the pot stores. The one good thing about Cali.
Standard & Poor's had rated most of these issuers at 'CCC+' or below prior to their defaults.
And how many did they still have rated as IG when they broke their covenants... All?
It's important to not lose faith in face of reality. Because then you have no magical powas.
Hold up HOLD UP HOLD UP. WHAT ABOUT LEHMAN BROTHERS? HOW DOES THAT GET FACTORED INTO ALL OF THIS OR IS IT CONVENIENT TO LEAVE THAT DATA OUT OF THIS ARGUMENT SO THIS CAN FURTHER APPEAL TO THE ZEROHEDGE CRYBABIES
I don't understand was lehman brothers some special event that counted as like 1000 financial events all by itself?
get these bad loans off the books
Holy crap. It's all crumbling right here. Right now. It's out of control.
http://www.321gold.com/fed/temp_bank_res.html
17.5 billion dollars in the stink hole.
Yep. Convert those Dollars into gold quick, before they lose their value...
ODE TO SHRUB
(sung to the tune of the beverly hillbillies show)
How George W. Bush became President"
Come and listen to my story 'bout a boy name Bush.
His IQ was zero and his head was up his tush.
He drank like a fish while he drove all about.
But that didn't matter 'cuz his daddy bailed him out.
DUI, that is. Criminal record. Cover-up.
Well, the first thing you know little Georgie goes to Yale. He can't spell his name but they never let him fail.
He spends all his time hangin' out with student folk.
And that's when he learns how to snort a line of coke. Blow, that is. White gold. Nose candy.
The next thing you know there's a war in Vietnam.
Kin folks say, "George, stay at home with Mom."
Let the common people get maimed and scarred.
We'll buy you a spot in the Texas Air Guard.
Cushy, that is. Country clubs. Nose candy.
Twenty years later George gets a little bored.
He trades in the booze, says that Jesus is his Lord.
He said, "Now the White House is the place I wanna be."
So he called his daddy's friends and they called the GOP. Gun owners, that is. Falwell. Jesse Helms.
Come November 7, the election ran late.
Kin folks said, "Jeb, give the boy your state!"
"Don't let those colored folks get into the polls."
So they put up barricades so they couldn't punch their holes.
Chads, that is. Duval County. Miami-Dade.
Before the votes were counted five Supremes stepped in. Told all the voters "Hey, we want George to win."
"Stop counting votes!" was their solemn invocation.
And that's how George finally got his coronation.
Rigged, that is. Illegitimate. No moral authority.
Y'all come vote now. Ya hear?
thanks for them memories chimp....
Crunch closing Grand Ave. gym
By: Monée Fields-White and Lorene Yue Aug. 17, 2009
(Crain’s) — The owner of Crunch gyms is set to close one of its last two locations in Chicago.
The gym at 38 E. Grand Ave. could shut as early as Sept. 8. Owner AGT Crunch Acquisition LLC, a New York-based fitness gym operator, wants to sell certain assets and memberships to Chicago-based Fitness Formula Clubs, according to court filings.
The Grand Avenue closing awaits approval from a New York bankruptcy court.
AGT Crunch, which still operates a Crunch gym at 939 W. North Ave., has closed three other Chicago locations since seeking Chapter 11 bankruptcy protection on May 6. The company is in the process of selling its gyms to buyers including CH Fitness Investors LLC and LA Fitness.
AGT Crunch couldn’t make money running the gyms, claiming in court documents that it has been overpaying to rent the North Avenue and Grand Avenue facilities and failed to “negotiate rent reductions with the landlords under the agreements.” Crunch was paying $122,057.10 a month for its gym at North and Clybourn avenues and $50,283.75 a month for the Grand Avenue location.
CH Fitness Investors LLC has indicated that it is not interested in taking over either lease.
I wonder how many multiples of times, this is playing out to landlords/ CRE all across our metro areas....NEED A SPOT...a SPOT, --SPOT- anyone?
Hey why don't we just turn these debts into public obligations at the Fed as well!!! Heck, if we refuse to let all these bad economic actors face the consequences of their bad decisions so those resources can be freed up for use by people who might actually know what they're doing, why not just throw a couple more trillion on the fire?
Muahahaha!!!
Are these defaults triggering payment on CDOs?
Only if written by AIG on entities too sacrosanct to fail...and if indeed it is a sacrosanct bank, they get free money from the back door of AIG.
Especially when the swap is in essence a side letter.
Tyler, have you seen Moody's equivalent default report? They think that the rolling 12 month default rate will be 4.4% next July! Compare that to S&P's 13.9% baseline estimate (S&P's estimates were 11.4% in the optimistic case and 18% in the pessimistic case).
Its rational to lower your default expectations for the next year as companies refinance upcoming maturities with new (more expensive) high yield bonds or amend-and-extends, but unless the fundamentals at these companies drastically improve, they are only delaying, not avoiding, restructuring. At this point I think most expect decreasing, though higher than historical default rates (~4%) for several years, especially given the glut of institutional loan maturities in 2012 - 2014.
I'd really like to understand how Moody's sees only a 4.4% default rate over the next 12 months, which seems optimistic even for a V-shape recovery scenario.