One hundred companies were forced to undertake debt exchanges last year. Given the scale of the bank liquidity crisis, and the doom-laden default predictions that were made at the end of 2008, that figure might seem to be relatively low. Indeed, although distressed exchanges accounted for roughly 35% of total global defaults in 2009 most of them took place in the first half of the year. The sharp improvement in sentiment in mid-2009 enabled the pace of exchanges to slow dramatically. In the fourth quarter of 2009 there were just 18 corporate distressed debt exchanges and in the first quarter this year just eight. The scene should therefore be set for distressed exchanges to return to their pre-crisis levels of roughly 10% of corporate defaults.
But things might not work out that way this time around. And the problem is yet again the sheer size of the debt burden that many corporates took on before 2007. In a recent research note on the subject Moody’s points out that many corporates that have undertaken debt exchanges are still on extremely shaky ground.
The research shows that of the six largest distressed debt exchanges that took place in 2009, four of the corporates remain rated at triple-C and one has filed for bankruptcy.