JPMorgan Offers Firms an Exit From State Covid Bailouts

(Bloomberg) -- JPMorgan Chase & Co. is working with about 10 stressed or distressed borrowers in Europe hoping to lower the cost of government bailout loans in the debt market, according to senior bankers.

Most of the companies are trying to offload loans made last year to help them survive the pandemic and lock in lower rates, Daniel Rudnicki Schlumberger, the bank’s co-head of EMEA leveraged finance said in an interview with Bloomberg News.

Interest costs for state-backed rescue packages typically rise over time, making them increasingly expensive. Meanwhile, central bank stimulus measures and investor demand have driven borrowing costs close to all-time lows. The deals are also part of JPMorgan’s strategy to boost lending to companies needing near-term liquidity as the pandemic fuels interest in rescue financing.

“We’re focusing more on stressed and dislocated credits this year that are seeking balance sheet shake-outs due to the impact of the pandemic,” Rudnicki Schlumberger said.

The potential surge in repayment-linked issuance for stressed and distressed borrowers compares with 10 deals rated CCC+ or below for the whole of last year and eight in 2019, data compiled by Bloomberg show. There’s been a flurry of sales from the low end of the junk spectrum in recent weeks, with more than 2 billion euros ($2.43 billion) of triple C-rated debt launched so far this year.

German airline Deutsche Lufthansa AG secured a coupon of 2.875% for a 750 million-euro bond this month to partly repay a 9 billion-euro state-aid package. That compares with trading levels of about 6% in March, according to data compiled by Bloomberg.

Appetite for distressed and special situations is also growing from private credit funds seeking higher returns. The private credit market for performing credits, which offer average yields of 6-9%, swelled to about $850 billion from $315 billion in 2010.

“We’re seeing more credit buyers seeking higher-yielding assets, and they’re willing to stretch on credits to achieve these goals,” said Ben Thompson, co-head of EMEA leveraged finance at JPMorgan. “There are deep and growing pockets of credit capital.”

JPMorgan, which topped the 2020 league tables for global high-yield bond sales, started beefing up its involvement in distressed companies last year, when ailing demand for retail stores and national lockdowns pushed scores of high-profile names into bankruptcy or restructuring.

It’s seeking out more challenged businesses after driving some of last year’s most prominent turnaround stories and rescue financings. The bank acted as global coordinator for cruise operator Carnival Corp, luxury carmaker Aston Martin Lagonda Global Holdings Plc and French supermarket chain Casino Guichard-Perrachon SA.

“We were able to help by using the many tools in the kit such as options to issue a high-yield bond, second-lien, payment-in-kind notes and equity,” said Rudnicki Schlumberger, referring to Aston Martin.

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