The number of companies that have sunk into the lowest five ranks of Moody’s credit rating system, or are just one step above, has virtually doubled that of the Great Recession, from 213 in 2008 to 412 now.
The 21-level ratings system ranges from Aaa to C, the lower grade meaning a company has defaulted on its debts with few prospects for paying back either principal or interest.
Many of today’s troubled companies are in the service and hospitality sectors, which have been savaged by the economic lockdown. Many more of the low-rated firms, however, tumbled as the result of aggressive leveraged buyouts, said Chris Padgett, Moody’s chief of leveraged finance.
The majority of companies in the lowest ranks – 273 – are owned in whole or part by private equity companies.
Aggressive buyouts left scores of businesses burdened by outsized debt compared to their operating profits even before the economic lockdown crushed them.
The unlucky companies include Envision, a medical staffing company involved with equity firm KKR; beauty business Anastasia Beverly Hills, backed by TPG Capital; and Party City, which equity investor Thomas H. Lee left last November.
“They didn’t have the right balance sheet going into the crisis,” Padgett noted.
