Creditor Corner

The ultimate weekly source for great financial and restructuring news affecting creditor rights specifically curated for you

Weekly News – June 14

Prepa ruling surprise, no more coach seats, SCOTUS nixes fee reimbursement, pluralSight drop-down blues, tax-man cometh for SVB, something fishy in Red Lobster, and much, much more... ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­  

Creditor Corner

Father's Day Edition

for the week ended March June 14, 2024

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Prepa ruling surprise, no more coach seats, SCOTUS nixes fee reimbursement, pluralSight drop-down blues, tax-man cometh for SVB, something fishy in Red Lobster, and much, much more...

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Bruce Richards on the Markets:

~70% of GDP is Driven by Consumer Consumption  

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Judge Swain comes out as the biggestloser  here... appearing to be a pandering debtor friendly judge in the face of an all-too-obvious result out of the First Circuit.

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No more seats left in coach

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Is there any justice in this world??!?

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tax-man cometh...

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something fishy going on here?

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~70% of GDP is Driven by Consumer Consumption  

Consumer spending is a significant driver of the U.S. economy. It’s the largest component of GDP with personal consumption expenditures comprising nearly 70%. As a result, consumer spending drives the direction of our economy. While the consumer consumption is strong overall, there are many struggling consumer businesses.

The corporate consumer sector (U.S.) has experienced high default rates, representing 20% of all BK filings in May, according to S&P Global Intelligence. Many consumer companies struggled to adapt to the impact of Covid, failed to pass on rising costs amid surging inflation, or faced shifting consumer behaviors that reduced profit margins. Additionally, high debt levels became unsustainable as interest expenses increased. Food & Beverage, consumer products (both durable and non-durable) retailers, consumer services are particularly vulnerable as inflation has hurt consumers in general, particularly the working-class middle class as housing, food & fuel and healthcare costs take more of gross income over the past 3 years. Job gains collectively have net-net been beneficial, however these job gains have occurred at the lower end of the wage spectrum, with the biggest net add coming from immigration.  

FICO scores from the U.S. consumer have declined over the last year as the consumer has drawn down savings and taken on additional debt.  This cohort of consumers have begun to tighten their budget, particularly with respect to discretionary spending. As purchasing power wanes for low-FICO score consumers, apparel retail stores feel the pinch, unable to pass thru higher costs. Generic and off-brand labels may benefit at the expense of private labels (both food and clothing). While hotel occupancy and hospitality revenues have enjoyed a resurgence, consumer services are generally lower. Home improvement soared during Covid and has been softening since, while discretionary spending (jewelry to electronics) also is expected to slow. As a result, we have seen a firming trend in DQ rates for low-FICO score credit card borrowers and sub-prime auto loans. The savings rate which was above 6% during Covid has fallen 50% since. Household debt has risen $3T since Covid (currently $17.5T), led by auto loans, student loans and credit card debt. Younger borrowers (18 – 29 years) have proven to be the most troubled cohort of borrowers, according to a recent Moody’s Report.  Consumer sector high yield issuers are reporting the lowest revenue and EBITDA growth rates of all major sector.

Creditors must always evaluate and re-evaluate the drivers and quality of earnings. We are seeing an increase in maturity extensions, covenant holidays, missed interest payments, distressed exchanges, and bankruptcy filings.  Here is the list of defaults in the consumer sector since the start of 2023; stay tuned, much more to come.

To follow Bruce's thoughts on the markets, investing and more, follow @bruce_markets

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positive signs on inflation front...

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but too little too late.... 

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consumers feeling the blues

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