Distressed Debt Risk Grows Amid Liability Management, Fitch Says

As credit markets get tougher, risky companies could opt to do more liability management that reduces recoveries for debt investors, according to Fitch Ratings.

“Weaker corporates face a challenging primary market when debt maturities approach or liquidity deteriorates, which may push them to execute liability management transactions that allow them to raise higher-ranking debt to address or postpone refinancing or liquidity risks,” said Fitch in the note on US and European leveraged finance published July 20.

The ratings agency specifically calls out uptiering — in which a company gets financing that gives some lenders first priority for repayment — ...