Drowning in Debt? JPMorgan Wants to Talk

(Bloomberg) -- Reviving indebted firms as they struggle in a slowing economy may be a top engine of growth for JPMorgan Chase & Co. next year, according to a co-head of its European leveraged-debt business.

The bank expects more distressed situations among junk-rated firms and is planning to get in early to provide advice and financing, said Daniel Rudnicki Schlumberger, who jointly runs Leveraged Finance Origination for Europe, the Middle East and Africa.

“What they have in common are challenging capital structures or looming maturities and pressures on covenants, and we’re already working on a few names to develop solutions,” he said in an interview.

European growth is set to fall to as low as 1% in 2020, according to a Bloomberg poll of economists. That may mean more companies downgraded to junk and increases in default rates, fueling demand for rescue finance and restructuring expertise.

Weak consumer demand has already contributed to a number of high-profile names running into trouble in Europe, such as iconic British travel agent Thomas Cook Group Plc which collapsed in September.

JPMorgan participated in one of the most prominent turnarounds of 2019, helping arrange the 3.8 billion-euro ($4.2 billion) refinancing plan for French supermarket chain Casino Guichard-Perrachon SA in November.

“Solutions can be found and we definitely think we can find the right package for borrowers and debt holders,” Rudnicki Schlumberger said. “In some cases, it may require some more creative thinking than the last few years have called for.”

See also: Ratings Firms See Steady to Rising Defaults in Europe Next Year

The number of distressed companies rose in the first half of 2019 for the first time in more than two years, according to Moody’s Investors Service. Meanwhile, the tally of companies rated B-, six levels into junk territory, or lower and with a negative outlook has reached the highest level since 2009, S&P Global Ratings said in a report.

A mild recession could drive the number of companies hit by downgrades or defaults to levels higher than those of the global financial crisis, Moody’s said in a report last month.

Participating in turnarounds can involve providing new money to refinance maturing debt, renegotiating covenants -- conditions attached to existing finance -- or raising equity capital, Rudnicki Schlumberger said.

But while an increase in distressed situations may be a growing business, he acknowledges it’s an area that requires acceptance of risk.

“For our part, we aim to be risk smart and not risk shy,” Rudnicki Schlumberger said.

©2019 Bloomberg L.P.

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