Default Jump Curbs Bankruptcy Lending as Recoveries Sink to a 19-Year Low

[marmar]

Default Increase Curbs Bankruptcy Lending as Recoveries Dwindle
By Richard Bravo


July 31 (Bloomberg) -- Companies on the verge of bankruptcy are finding it harder and more expensive than ever to get loans to help nurse them back to health.

With corporate defaults at a six-year high, so-called debtor-in-possession financings dropped to about 23 percent of businesses failing to make debt payments so far this year, the lowest since at least 2003, according to a strategist at Bank of America Merrill Lynch. Lenders are charging those entering Chapter 11 reorganization a record 7.25 percentage points over benchmark interest rates, on average, even with borrowing costs for issuers of junk-rated bonds the cheapest since September.

DIP loans provide funds to continue operating normally while in Chapter 11. Less available financing will give fewer companies this option and drive more into liquidation, said Darin Schmalz, a director on the Fitch Ratings leveraged finance team in Chicago.

“The playbook is changing,” said Steven Smith, global head of leveraged finance and restructuring at UBS AG in New York. “Very little new capital is flowing into restructuring and Chapter 11 reorganization right now, which is potentially a huge problem. It’s very hard to reorganize companies without new capital.”

The number of businesses filing for liquidation under Chapter 7 of the bankruptcy code rose 60 percent to 30,035 last year, the most since at least 2000, according to the U.S. Courts Web site. ..............(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601109&sid=aBmBls_HJ15E

[HysteryDiagnosis]

1. A European view... interesting site.

http://www.eurointelligence.com/

24.07.2009

By: Satyajit Das

There is now faith-based reliance on Governments’ ability to rescue the economy. Intervention has helped stabilise economic activity and the financial system but it improbable that government actions alone can prevent the necessary adjustment in debt levels and growth rates.