💥Learfield. West Marine. Yellow. And More.💥
Small Bankruptcy Cases Abound (Soft Surroundings, Noble House Home).
The big macroeconomic news this week — aside from a now-record-long 3Y/10Y yield curve inversion — was the rise in headline CPI (for August) which came in at 3.7%, 0.1% above consensus. For its part, core CPI rose merely 0.3%, which was 0.1% hotter than expected, to 2.4%, a figure getting awfully darn close to the Fed’s target 2%.
While food prices rose slightly, the biggest contributor to the increase was higher oil prices.
We can all thank the Saudis and Russians again. The market generally seemed unbothered by the news and continues to price in a Fed holding pattern in the near term (meeting next week) and perhaps for the rest of ‘23.
Watching Jerome POW-ell and Co. temper their aggressive interest rate campaign may be a welcome turn of events for many corporates. We reckon (the obvious that) many borrowers (and their lenders) would prefer the Fed start reversing course sooner rather than later. Already $7b of CLO-held loans have defaulted in ‘23, nearly 2x as many as all of ‘22 (according to BofA Global Research). Making matters worse, BofA pegs the average recovery rate for ‘23 loan defaults at approximately 26% — yes, 26% — versus a historical rate of 70-80%. BofA expects that rate to rebound to around 50%, citing some esoteric inputs into the metric (and overweighted effects from big name debtors like Diamond Sports).
*****
BofA can add another CLO-held loan to its default mix…
Learfield Communications is a multimedia company owed by Atairos, Endeavor Group Holdings Inc. ($EDR) and Silver Lake that traditionally bought and resold collegiate sports broadcast rights. Formed in ‘18 via a merger with competitor IMG College, the company is over-levered and has struggled mightily since the pandemic.
One of the big issues it has is a robust capital structure which looks something like this:
$125mm 1L RCF;
$862mm ‘23 L+325 1L TL;
$75mm ‘24 L+725 2L TL; and
$125mm ‘23 1L PIK TL B1.
Hold on.
We need to use past tense now.
This week the company shared an announcement: