The podcast discusses companies that benefited from the pandemic borrowing money, paying dividends, and going public. It also examines the potential trouble these companies and their lenders may face when consumer behavior reverts to pre-pandemic levels.
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Quick takeaways
Certain companies took advantage of the pandemic by borrowing money, paying dividends to owners, and going public.
As consumer behavior returns to normal, companies that benefited from the pandemic may face financial challenges due to increased leverage.
Deep dives
Judge Swain approves Promessa DS to six-dimensional plan
Judge Laura Taylor-Swain has approved the Pareso Oversight Board's disclosure statement to the Sixth Amendment plan of adjustment for the Commonwealth, the ERS, and the PBA Title III debtors. The hearing discussed the oversight board's alternatives in case the Commonwealth fails to enact required legislation, which was criticized as uncertain and potentially expensive. The approval of the DS is a milestone in Puerto Rico's restructuring efforts, allowing for the debtors to prepare for planned confirmation in November.
CEDRILE files plan of reorganization and backstop commitment letter
The CEDRILE limited debtors filed their plan of reorganization, incorporating a settlement agreement and a new backstop commitment letter. The plan aims to raise $350 million in new financing and reduce the debtor's liabilities by over $4.9 billion. It includes a plan confirmation milestone in November and contemplates emergence from Chapter 11 in early January 2022. While the plan is supported by holders of about 57.8% of senior secured loans, it does not have the support of all the debtor's lenders.
Newly public companies face challenges as consumer behavior normalizes
The podcast episode explores newly public companies that executed dividend recaps before going public. Many of these companies enjoyed covenant flexibility in their credit agreements and benefited from COVID-19 related changes in consumer behavior. However, there are concerns that as consumer behavior normalizes, their balance sheets may face challenges due to increased leverage. The companies examined include Academy Sports, Hayward Holdings, Latham Group, and Krispy Kreme among others. While these companies have flexibility to incur debt and pay dividends now, reversion to pre-pandemic levels may impact their financial health.
On this week’s podcast the Americas Core Credit by Reorg team discusses highlights from this week as well as a look ahead at the upcoming week, plus this week our podcast features a discussion on (a) how certain companies that actually benefited from the pandemic (grill companies, pool companies, home improvement businesses) took advantage of the recent spike in performance by borrowing money, using the proceeds to pay their owners a dividend, and then taking the company public and (b) how these companies and their lenders could be in trouble once consumer behavior reverts to pre-pandemic levels.
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