Junk Bond Buyers Fear Borrowers Are Keeping Them in the Dark
2020-05-07 10:47:01.740 GMT

By Katie Linsell
(Bloomberg) — Canceled conference calls and delayed
financial disclosures by junk-rated companies are straining
relations with creditors desperate for information on how badly
the coronavirus has hit their borrowers’ businesses.
Vending machine firm Selecta and takeaway chain Telepizza
are among companies that recently scrapped expected calls where
management take questions from bondholders. Paper maker Lecta
postponed its full-year earnings conference call last week on
the day it was due to be held.
Other borrowers, such as Amsterdam-based retailer Hema,
have pushed back results announcements. While companies may not
be obligated to report on schedule, the lack of information is
unsettling some investors.
“Responsible management should be holding investor calls
right now,” said Senan Kiran, senior credit research analyst at
Muzinich & Co. in London which oversees $32 billion in assets
including high-yield debt. “We need the information now to
assess the situation and to make investment decisions.”
A spokeswoman for Selecta declined to comment while
representatives for Telepizza and Lecta didn’t respond to
requests for comment. A Hema spokeswoman said: “we disagree with
the assumption that we are not transparent.”
Disclosure has long been a bugbear of investors in European
high-yield debt because many of the borrowers are private and
are only obliged to follow the reporting requirements laid out
in their bond documents. They are often not required to hold
conference calls and it’s not unheard of for companies to skip
them.
But a risk for companies that cancel investor calls is that
bondholders may assume there’s bad news they don’t want to
reveal.
A group of lenders in the leveraged finance market said
last month that companies should be ready to explain how the
crisis is affecting operations, outline their plans to take on
more debt and provide clarity on covenants. The European
Leveraged Finance Association, which authored the guidelines,
represents more than 30 institutional fixed income managers.
Read more: Europe’s Junk Debt Investors Push for Answers
Amid Covid Threat
To be sure, lockdowns mean that many companies are
struggling with unprecedented pressure on their businesses. Even
publicly-listed companies have been granted some slack, with the
Financial Conduct Authority suggesting they delay earnings to
assess a rapidly changing environment.
Selecta, owned by private-equity firm KKR & Co., didn’t
hold a conference call with investors when it reported earnings
last week, saying that management was focusing its full
attention on managing its operations. The vending machine
operator said it fully drew down its liquidity line and
revolving credit facility. The bonds slumped 24 cents to a
record low 32 cents that day. They have since rebounded a bit to
trade at 37 cents.
“The fact management didn’t hold a call likely contributed
to the bond decline,” said Joan Sehim, an analyst at Spread
Research in Lyon, France. “We fear the lack of communication
from management hides a horrific operational situation.”
Other firms have delayed encounters with bondholders.
Telepizza, also owned by KKR, postponed its conference call with
investors at the end of March and delayed publishing results
until the first half of April. The company has yet to hold the
call.
Meanwhile, Hema told bondholders in March that answering
questions from investors was not a priority and also difficult
to manage given its other concerns.
The company postponed an investor day and publication of
its full-year results to the end of May. On April 17, Hema did
publish an update on the impact of the pandemic, saying store
sales in the Netherlands were improving and online sales had
tripled.
It’s generally a negative for investors when companies
cancel earnings calls, said George Curtis, a credit analyst at
TwentyFour Asset Management in London with about 16 billion
pounds ($20 billion) of assets including high-yield debt.
“It may be a sign that a company is struggling,” he said.