It's the corporate debt market's turn to ignore the real economy
17 July 2020
The corporate debt market is beginning to follow the public equity market's lead in decoupling from the real economy.
Why it matters: Private equity and its lenders spent 2009 staring into the abyss. In 2020, they're just pretending it doesn't exist.
Driving the news: KKR reportedly is prepping a $2.75 billion dividend recap for Epicor Software, a portfolio company it tried and failed to sell last year. It would be the first such deal since before the pandemic began.
- The argument for this deal is that KKR has cut Epicor's leverage load since acquiring it from Apax Partners in 2016, and that it has strong recurring revenue and cash flow.
- The argument against this deal is that Epicor is selling enterprise software in the midst of a severe recession, with a particular focus on retail, manufacturing and distribution. It's one thing to keep the ship steady, it's quite another to encumber it with new debt.
The big picture: Overall credit conditions have steadily improved since March, thanks in large part to Fed backstops.
- Private equity execs tell me that high equity prices, not debt availability or terms, is their stumbling block for new deals. As one explained: "The banks obviously know there's a pandemic, but you wouldn't know it when you talk to them about financing a new deal."
- Defaults and bankruptcies have steadily increased since March, but much of that has been siloed in particularly hard-hit industries (retail, hospitality/leisure) or for companies that were already struggling.
- Overall, the percentage of corporate bonds trading at distressed rates has fallen from more than 30% in March to 12.7% in June.
- Within the leveraged loan market specifically, the current default rate is at less than one-third of its 2009 financial crisis peak.
Transcripts show George Floyd told police "I can't breathe" over 20 times
Section2Newly released transcripts of bodycam footage from the Minneapolis Police Department show that George Floyd told officers he could not breathe more than 20 times in the moments leading up to his death.
Why it matters: Floyd's killing sparked a national wave of Black Lives Matter protests and an ongoing reckoning over systemic racism in the United States. The transcripts "offer one the most thorough and dramatic accounts" before Floyd's death, The New York Times writes.
The state of play: The transcripts were released as former officer Thomas Lane seeks to have the charges that he aided in Floyd's death thrown out in court, per the Times. He is one of four officers who have been charged.
- The filings also include a 60-page transcript of an interview with Lane. He said he "felt maybe that something was going on" when asked if he believed that Floyd was having a medical emergency at the time.
What the transcripts say:
- Floyd told the officers he was claustrophobic as they tried to get him into the squad car.
- The transcripts also show Floyd saying, "Momma, I love you. Tell my kids I love them. I'm dead."
- Former officer Derek Chauvin, who had his knee on Floyd's neck for over eight minutes, told Floyd, "Then stop talking, stop yelling, it takes a heck of a lot of oxygen to talk."
Read the transcripts via DocumentCloud.