Post-default liquidation now more likely in corporate bankruptcies

October 26, 2008 by · Leave a Comment
Filed under: Industry News 

This is a happy article, it talks about this environment being unforgiving for companies that have to go into receivership.  It is normal that we will see more liquidation than restructuring.  I want to see more failures that rescues, if it is warranted than that is the normal working of a free-market enterprise system.

Press Release:

Companies that file for bankruptcy are more likely to be forced into liquidation in the current environment as the availability of financing for restructuring has dried up, Standard & Poor’s said on Thursday.

 S&P said that’s the conclusion of a review of some of the largest speculative-grade issuers rated “B-minus” or lower. That rating is six notches into speculative, or “junk” status.

“Under current market conditions, the availability of debtor-in-possession financing for some defaulted issuers may be in question, with the number of DIP providers dropping sharply,” said S&P recovery analyst Tom Mowat.

DIP is a loan made to help bankrupt companies reorganize their operations.

“We think it’s reasonable to expect that we will see a rise in the number of bankruptcies leading to liquidation,” Mowat said.

In that scenario, the debtholders of defaulted entities may face recovery prospects below their original expectations, he said.

Earlier, Fitch Ratings said the coming wave of U.S. high-yield corporate bond defaults could be the worst ever and impact more industry sectors that the downturn of 2001 to 2002.

Source: Reuters

 

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