Citi Says ‘Messier’ Default Rate Overstates Risk for Investors

(Bloomberg) – According to research analysts in Citi, the rates of assumed bonds and leveraged loans become difficult as they restructure more companies’ debts. This makes it difficult for investors to correctly evaluate the risk in the market.

Analysts Michael Anderson and Steph Choe wrote in the Friday note Michael Anderson and Steph Choe, Analysts Michael Anderson and Steph Choe. As a result, distressed changes inflated the default rates, which is more complicated and less reflected in the risk appetite in recent years, ”he added. Traditional assumed activities include a missed coupon or main payment or bankruptcy filing.

CITI analysts found that Bloomberg highly efficient index and rating firm Moody’s ratings were largely united until the end of 2024. Until the end of July this year, Moody’s default rate rose to 3.9%, while the index rate remained constant at 2.6%. CITI analysts see the default rate of the Bloomberg Index as more indicators of market performance.

Regardless of, creditors are preparing for losses in some important restructuring transactions this year. In case of a debt exchange of the struggling retailer sax global Enterprises, the creditors will receive different securities based on their participation in the agreement. Participants’ debts are expected to fall to the bottom of the capital structure of the company and are expected to lose creditor measures. Meanwhile, Tropicana Brands Group’s agreement allowed the company to block companies that did not participate in selling their debts and provided a new financing of $ 400 million in exchange for a better mix of higher ranking paper.

Although such maneuvers have become more common, some such as HPS Investment Partners’ Purnima Puri said that such troubled stock exchanges damage the creditors and could not keep the company standing frequently.

(Updates to add context in the second paragraph.)

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