Distressed U.S. companies are increasingly resorting to debt restructurings to avoid expensive bankruptcy proceedings, but many borrowers ultimately end up in court anyway — with their deals amounting to little more than “can-kicking” exercises, the Financial Times reported. Almost three-quarters of U.S. corporate debt defaults last year were out-of-court “distressed exchanges,” where a company offers creditors assets worth less than their original bonds or loans, according to a report by Moody’s this month. That is up from roughly half in 2020, the rating agency said. Moody’s predicts that far-reaching private-equity ownership of companies with very weak ratings will further fuel the growth of distressed exchanges because this type of restructuring can protect such backers’ investments. However, many businesses default again following such restructurings. The “re-default” rate monitored by Moody’s currently stands at 47 percent. Some companies are “just kicking the can” with distressed exchanges and merely delaying an inevitable bankruptcy, said Sinjin Bowron, head of high-yield and leveraged loans at Beach Point Capital Management.
