By Shankar Ramakrishnan
(Reuters) -Debt restructuring by financially stressed U.S. companies rose nearly 60% in April, data from JPMorgan showed on Tuesday, as businesses faced pressure from rising tariffs, inflation and capital markets volatility.
These operations are called distressed exchanges or liability management exercises and occur when companies in distress renegotiate or restructure their debt rather than filing for bankruptcy.
BY THE NUMBERS
There were $3.5 billion distressed exchanges in April compared to $2.2 billion in March and $1.6 billion in February, JPMorgan said. The first-quarter total was $8.4 billion.
The volume of bonds trading with yields of more than 1,000 basis points over U.S. Treasuries rose by $18.4 billion in April over the prior month to $94.6 billion, JPMorgan said. That was a 10-month high and represented 7.2% of junk bonds, up from 6.6% a year earlier.
WHY ITS IMPORTANT
The data reflects deteriorating fundamentals that have forced companies to seek alternatives to bankruptcy.
KEY QUOTES
Winnie Cisar, global head of strategy at CreditSights, said, “A big catalyst for continued LME is optimism that after a period of turbulence, a company’s operations will turn around or events causing the uncertainty may end up in a resolution. This optimism could be misplaced in many cases.”
Ian Feng, senior covenant analyst at research firm Covenant Review, expected the pace of these operations to remain brisk “particularly if macro-economic factors including looming trade wars and various hotspots of regional instability continue to foment chaos across economic markets.”
Edward Best, co-head of capital markets group at Willkie Farr & Gallagher, said LMEs typically give companies one to two years to fix their underlying problems.
(Reporting by Shankar Ramakrishnan; Editing by Cynthia Osterman)
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