Reported in the Financial Times:
Nearly one-third of the companies that completed distressed exchanges during the financial crisis, such as casino operator Harrah’s Entertainment and media company Clear Channel Communications, are at high risk of defaulting again in the next one to five years, Moody’s Investors Service said on Tuesday.
Without the ability to refinance or raise money to reorganise in bankruptcy, companies convinced creditors to exchange existing debt for new debt or a package of securities, cash and assets that amounted to less than what they were owed...
A quarter of the companies were able to improve finances enough to have higher ratings. Most notably Ford Motor retired about $10bn of debt with a distressed exchange in April of 2009 and Moody’s has upgraded the carmaker several times since.
“While distressed exchanges clearly put some companies on steady ground, for many others they were a temporary fix that only postponed the need to address excessive leverage, weak liquidity or other difficulties,” Moody’s said.