Credit Crunch Takes a Toll in the US

The credit squeeze in the global economy led by the United States is rearing up in multiple forms. First we had the big tech layoffs that saw thousands lose their jobs as big tech companies right-sized (euphemism for cutting costs), but now things are getting nasty as seven large companies filed for Chapter 11 bankruptcy protection within 48 hours. 

What’s more, the companies straddle not just one vertical but several that includes media, healthcare, home security, pigment makers etc. A report by Bloomberg says this is the largest number of filings on record during a two-day period since 2008, especially those companies that have at least $50 million of liabilities. 

What takes the cake is that these filings came at a time when two senior Fed Reserve officials indicated that they were in favor of pausing the monetary-tightening campaign that resulted in the current credit market squeeze. Most businesses have reported higher interest costs making it tough to refinance loans and bonds. 

The biggest or should one say the most prominent company that sought bankruptcy protection was Vice Media, till recently considered a bellwether of sorts in the media business. The company secured $450 million from private equity firm TPG in 2017, which put the valuation at a whopping $5.7 billion. 

With advertisers cutting costs due to an uncertain economy, media was an easy target. However, some others such as Monitronics and Venator saw the breaking points looming amid debt maturities that come up in the next few years. Here’s a quick look at some of the companies that filed for bankruptcy protection: 

• Vice Media listed assets and liabilities ranging beyond $500 million to $1 billion in their petition while striking a deal to sell itself to creditors including Fortress Investment Group, Soros Fund Management and Monroe Capital for $225 million, thus keeping itself open for rival bidders.  
• For Monitronics, a company offering home security systems, there’s a $1 billion in debt coming up in 2024 and the filings are a starting point to help restructure. The company aims to reduce its debt to $500 million under the pre-arranged and partially pre-packaged plans. The company had filed for bankruptcy earlier in 2019. 
• The KKR-backed medical staffing company Envision has been discussing restructuring options, having skipped a bond coupon payout in mid-April. It raised over $1 billion in fresh cash last year but struggled to pay off its debts as interest burden mounted and wage costs also went north. 
• The story of pigment maker Venator is similar as there’s a $350 million first-lien term loan that gets due in August of 2024 and $600 million more in 2025. The company cut down spendings in February and reduced inventory. Now it’s filed for bankruptcy with assets and liabilities of over $1 billion to $10 billion. 
• A closely held oil producer, Cox has been negotiating with creditors to reduce or defer payments in order to avert bankruptcy filings. However, none of this seems to have yielded any results as the company filed estimated liabilities and assets of $100 million to $500 million each in its filing. 
• Pharma company Athenex did reach an agreement with lenders to expedite a sales process of its assets in the primary business. This is expected to conclude on July 1 leaving it with $100 million to $500 million in estimated liabilities, which it blames on the regulatory hurdles tied to a new drug as well as tough macroeconomic conditions. 
• Industrial fire protection company Kidde-Fenwal is seeking sale of the company as a going concern while filing $1 billion to $10 billion in estimated liabilities. Its challenge is the ever-mounting litigation against one of its units that sold firefighting foam containing chemicals between 2007 and 2013. There are 4000 lawsuits pending against it.