Carlyle’s Credit Head Monitoring Which Firms ‘Actually Solvent’

(Bloomberg) -- The pandemic should have presented the chance of a lifetime for distressed-credit investors. Then the Federal Reserve got in the way.

With the central bank taking numerous actions to limit Covid-19’s economic damage, opportunities to invest in discounted debt dried up quickly across Wall Street. Mark Jenkins, the global head of credit at Carlyle Group Inc. is scouring the market for signs of distress.

“We’ve now got companies who have solved their liquidity issue, and the question is, are they actually solvent?” he said in a Bloomberg Television interview Tuesday. “Is their going-concern value going to outweigh the amount of indebtedness that they have?”

Investors are worried that firms that borrowed heavily during the pandemic are running out of money quickly, leaving them weighed down with debt they can’t cover. Delta Air Lines Inc. and Royal Caribbean Cruises Ltd. are among junk-rated firms burning through funds, and the number of so-called zombie firms, which aren’t earning enough to cover their interest expenses, is expanding.

“It’s an opportunity to some extent, but it’s also a threat,” with Carlyle seeking to provide transitional funds to companies that will survive the pandemic, Jenkins said.

It’s too early to tell whether new distressed opportunities will arise, Jenkins said, adding that he doesn’t expect a huge number of firms to collapse given how much funding is available to them. “When we get to the other side of this pandemic, will those capital structures support the new world of growth?”

©2020 Bloomberg L.P.