(Bloomberg) — With the relentless rise of the Magnificent Seven, it’s easy to forget that many tech companies are unprofitable and struggling with debt burdens. Creditors in this sector are now turning against each other for repayment.
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Alvaria Inc., GoTo Group Inc. and Rackspace Technology Inc. are among a spate of troubled tech companies to agree to restructuring deals this year that offer some lenders debt swaps on more favorable terms than others. It is one. -Violence against creditors.
It manages debt through relatively loose agreements with bond investors (known as covenants) that allow heavily indebted companies to move assets out of the reach of creditors. It is part of a broader trend towards Jason Mudrick, founder of troubled credit investment firm Mudrick Capital, said companies typically do so because of a combination of rising borrowing costs and excessive leverage that makes it impossible for some companies to refinance. He said this was due to the company's balance sheet.
“These two phenomena, combined with the covenant-lite nature of today's leveraged loans, are the primary cause of the creditor violence we are seeing,” he said.
Read more: Will hedge funds get ahead or suffer in the struggle?
Software and services companies have been in the spotlight after issuing about $30 billion in debt, which is classified as non-performing debt, more than any other industry except real estate, according to data compiled by Bloomberg. The latest battle in this space centers on CVC Capital Partners-backed ConvergeOne after the cloud computing provider filed for Chapter 11 protection.
Lenders, including Silver Point Capital and CVC itself, have reached an agreement with the company that will reduce its debt pile by more than 80% and allow it to raise new capital. Asset managers who were left out of the deal complained and hired lawyers to consider their options.
Representatives for Silverpoint, CVC and ConvergeOne did not respond to requests for comment.
The evolution of J.Crew
The violence between creditors has evolved since 2016, when struggling retailer J.Crew transferred its brand and other intellectual property to a so-called unrestricted subsidiary and borrowed $300 million against it. is famous. Lenders who left behind old loans found their values plummeting.
One technique that has recently become popular is known as non-proportionate accretion, in which a company contracts with a small group of creditors to provide new funds to the borrower, leaving other creditors in line for repayment. It's about pushing them back. In return, they participate in bond exchanges and often receive more favorable swap prices than other creditors.
Scott Greenberg, global chairman of law firm Gibson Dunn & Crutcher's restructuring and reorganization group, said the recent high number of debt management transactions shows that as long as the spread between the two groups is reasonable, It said the deal shows it will have the support of a wide range of creditors.
Click here to listen to a podcast on the growing threat to junk credit from high interest rates
Still, some market participants question whether exchanges are really successful in preventing companies from going bankrupt. This week's report from S&P Global Ratings shows that the percentage of companies that defaulted on their debt at least once reached its second highest level last year since 2008.
“Issuers that have defaulted in the past are likely to default further if macroeconomic conditions tighten and funding conditions tighten,” Nicole Serino, director of credit research and insights at the rating agency, said in a public address. are susceptible to the effects of
1 week review
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Large Wall Street banks, attracted by narrow bond spreads and strong investor demand, are likely to take on unusually large amounts of borrowing in April after first-quarter results are released.
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Banks have been quick to appease holders of the riskiest bond pools, helping push additional Tier 1 bonds into what is now one of the most actively traded in global credit markets.
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If history is any guide, investment-grade U.S. corporate bonds may remain at their current nosebleed valuations for months to come.
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Rakuten Group, led by billionaire Hiroshi Mikitani, is recovering from five consecutive years of losses and a transition to mobile that cost billions of dollars. Doing so will prove costly.
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S&P Global Ratings downgraded China Vanke to junk rating, underscoring the growing pressure on the state-run developer, which faces funding challenges and increased scrutiny from investors.
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Barclays and HSBC Holdings Plc credit traders are among the companies creating a market for customers to bet on Thames Water's debt as the crisis deepens for Britain's biggest water utility.
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Todd Boley's Eldridge Industries is one of the final bidders in talks to buy European private credit firm Hayfin Capital Management.
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Telecommunications companies are getting into fiber securitization and are expected to raise more than $5 billion this year, according to Goldman Sachs Group.
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British asset manager Schroders is one of the biggest buyers of junior bank bonds. Now, in a rare development, the company is also planning to sell its debt.
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Dish Network Corp. has received financing offers from private credit companies.
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Silver Lake Management is preparing to raise $8.5 billion in debt financing to acquire Endeavor Group Holdings.
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Vistra Inc.'s subsidiaries on Tuesday sold a combined $1.5 billion in bonds in both the high-yield and investment-grade bond markets to refinance their debt.
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Diamondback Energy Corp. borrowed $5.5 billion in the U.S. investment-grade market as part of its $26 billion acquisition of Endeavor Energy Resources LP.
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Barings has announced plans to rebuild its direct lending team following the biggest asset management attack in years.
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Wells Fargo has hired Alexandra Barth, co-head of leveraged finance at New York-based Deutsche Bank.
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Morgan Stanley has hired Charlie Towers, who most recently served as head of leveraged loan sales and trading at RBC Capital Markets.
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SITGROUP has selected Uday Malhotra as Head of EMEA Leverage Finance and Loans, amid a long-term organizational restructuring aimed at streamlining operations.
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Bank of America has hired Matt Fink from Citigroup to lead loan sales in the Americas.
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Adam Howard is retiring after 13 years as Bank of America's head of Canada.
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Shane Azara will become Citigroup's head of asset-based and transitional finance, replacing Shapley-Smith, who is retiring next month.
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Oliver Sedgwick, former head of EMEA investment grade capital markets at Goldman Sachs Group, has begun a new role as portfolio manager at Asva Investment Partners LLP.
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Jackie Eineke has joined Swiss boutique Spring Investments as chief investment officer.
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Banco Santander has hired three dealmakers from Wall Street rivals as it continues to strengthen its U.S. investment bank.
–With assistance from Jill R. Shah, Claire Boston, and Dan Wilchins.
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