U.S. companies in the Telecom, Media and Technology (TMT) sectors that defaulted over the last five years have reorganized with less value than the corporate average, according to Fitch Ratings. First-lien recoveries outshined their “lackluster” junior debt counterparts and TMT companies got through bankruptcies quicker.
The median multiple of reorganized enterprise value-to-Ebitda ratio for the Telecom, Media and Technology sector bankruptcy case studies was 5.6 times, according to Fitch, this was lower than the cross-sector median of 6.0 times for Fitch’s study of U.S. bankruptcies. The range of TMT multiples was wide with values between 2.6 times and 18.9 times, more than two-thirds of the TMS sample were completed in the 4 times to 7 times range.
Of the 46 companies Fitch sampled in its study, 22 of them or 48 percent of the first-lien TMT sector debt claims had strong recoveries of at least 91 percent, compared with the cross-sector average of 76 percent. However, 29 percent of first-lien TMT claims had recoveries of less than 50 percent and the three weakest were in the 11 percent to 30 percent range. Junior debt fared worse with median recovery rates of 32 percent, 17 percent and 1 percent for second-lien, unsecured and subordinated debt, respectively.
Most of the 42 bankruptcies filed in the study — 42 or 60 percent — were filed in 2009 or 2010. Bankruptcy filings were largely attributed to cyclical and secular forces. Broadcasting and advertising company defaults came from weak cash flow caused by a drop in advertising prices and volume. More permanent secular declines in businesses such as yellow pages, newspapers commercial printers and certain technology companies were what led to more bankruptcy filings.
TMT companies restructured at a faster pace than the sector-wide average. The average time between a bankruptcy filing to restructuring plan confirmation was seven months for companies in the TMT sectors. That average time was 11 months for a broad cross-sector group studied by Fitch.
While all the TMT bankruptcy cases in the study exited Chapter 11 protection as a going concern, a third of the defaulters sold some or substantially all of their assets in bankruptcy. Two-thirds had no asset sales.