Corporate Debt Bubble Has Burst Amid Coronavirus | Fox Business News Mornings with Maria

Corporate Debt Tightens. No Easy Money Anymore

Fox Business’ Maria Bartiromo and Gordian Group President, Peter S. Kaufman, discussed the impact the coronovirus is having on the corporate debt market, US based companies and distressed debt investor opportunities.

Below is a timestamped breakdown of the interview and a full transcript.

00:00 | $1.8 trillion in corporate debt rolls over in 2020-21 and Moody’s has cut outlook on corporate debt from stable to negative. What’s the outlook on corporate debt and the state of the U.S. credit market?

01:29 | What happens now? Are companies overlevered and has the credit bubble burst? Will there be corporate bankruptcies, restructurings by highly leveraged US companies? 

02:46 | Is this a distressed debt investors dream and how much money is there for US companies seeking to restructure?  Can companies come out stronger after restructuring? 

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Full Transcript

Maria Bartiromo  (00:02):

Coming up in credit markets in a pandemic, the outlook on corporate debt as the coronavirus worsens, what does that mean for you and the market stay with us.

Maria Bartiromo (00:17):

Welcome back. The state of the U S credit market. Moody’s cutting its outlook on corporate debt from stable to negative on Monday as high levered companies face turmoil in the spread of coronavirus despite the stimulus package giving U.S. businesses access to money and the federal reserve announcing its own plans to purchase highly rated corporate debt. The fate of many balance sheets is up in the air. Joining us right now to talk more about that as the President and Head of Restructuring and distressed M&A at Gordian group. Peter Kaufman. Peter, it’s good to have you on the program here. Thanks very much for being here. We’ve been talking about the fact that a lot of debt rolls over. I believe it’s $850 billion this year and another trillion dollars next year. This is a concern.

Peter Kaufman (00:58):

Absolutely. Nice to be back. Maria. Hope you’re well. There’s been a flight to quality, no real surprise. I think the real takeaway here is that the credit bubble has burst. For a long time, eight or nine, maybe 10 years, a lot of cheap, low covenant refinancing money has been extended to companies that really didn’t deserve it and were able to, refinance, kick the can down the road and that game is over. And I don’t see that coming back anytime soon.

Maria Bartiromo (01:29):

So, so what happens now? This is something that Stephanie Palmboy from MacroMavens has talked about literally for more than a year, that we’ve got so much leverage in the corporate sector and the bubble is gonna burst.

Peter Kaufman (01:45):

Well, the bubble has burst. I think you’re going to see a slew of financial restructurings sometimes out of bankruptcy courts, sometimes in bankruptcy court. I think the bankruptcy courts are going to be inundated. I think they’re going to need to add more judges. But the Piper is going to be paid now because there is no more easy money for a lot of companies, and that’s why you’re seeing a flight to quality on the corporate side, a lot of high quality corporates have been able to raise debt financing very recently, but the spreads have widened. And the widening spreads simply put means that the bond market is not a believer and a turnaround here is not a believer that we’re coming out of a recession anytime soon and  it should be a great concern in the marketplace.

Maria Bartiromo (02:38):

Let me get the panel here, Michael Lee, jump in here because this has an impact on equities as well.

Michael Lee (02:46):

My question is this seems like a distressed investors dream. How much cash would you estimate is on the sideline to step into these restructurings on the other side of this?

Peter Kaufman (02:59):

Untold amounts. It’s also a restructuring advisers dream of like us. Sad but true. We’ve been inundated with corporate boards and private equity firms asking us to assess the damage and help them triage. We never represent financial creditors, only boards looking out for shareholders, but we sure know how lenders think. And a lot of lenders don’t know what to do. Some lenders are going to be cooperative, a lot of lenders are not. And that’s why you’re going to see either a lot of money coming in from the outside to take out those lenders or companies being forced to restructure or potentially be sold when they don’t want to be.

Michael Lee  (03:41):

So you could make the argument that a lot of companies come out much stronger through this restructuring process. Correct?

Peter Kaufman (03:47):

Well, you often see a domino effect in a given industry when there’s an overlevered industry and an important player or two goes through a restructuring, sheds debt, recapitalizes that puts a lot more pressure on their competitors to do the same thing.

Maria Bartiromo (04:04):

Yeah. Really important. A subject. Peter, thanks very much for weighing in here. It’s good to see you again. Come back soon. Peter Kaufman joining us. The Gordian group.