Retail and automotive sectors dominate defaults

A significant number of private equity-backed problem companies operate in the retail and automotive sectors, according to research undertaken by information service Debtwire for PEO.

Debtwire listed a sample of 44 private equity-backed businesses that have defaulted on loan repayments since the beginning of 2009, of which 12 – or 27 percent – are retail sector investments.

Anchor Blue Retail Group, owned by Florida-based turnaround specialist Sun Capital Partners, defaulted this year. The company, which Sun acquired in 2003, had seen profits hit by recession in its key market of

Retail: the first to go

central California.

Other defaulting businesses include two sporting goods retailers: Sportsman's Warehouse, a Utah-based store backed by private equity firm Seidler Equity Partners, and GI Joe’s Holding Corp, an Oregonian retailer owned by US mid-market firm Gryphon Investors.

Retailers serving the luxury end of the market have also been hit. Handbag maker Lambertson Truex and jewellery and furniture retailer Fortunoff – backed by CVC Capital Partners and NRDC Equity Partners respectively – both defaulted on payments this year.

The automotive sector has also suffered in the downturn. Companies that service the automotive industry account for six of the 44 defaulting businesses – 14 percent – and include the likes of Plastal, a supplier of

Automotive sector:   'free fall'

plastic interiors to the automotive sector, backed by European buyout firm Nordic Capital. When Plastal filed for bankruptcy in March this year Nordic Capital director Andrew Bennett described the automotive sector as being in “free fall”.

Other automotive sector businesses to default include Specialty Motors Group, Fluid Routing Solutions and Big 10 Tire Stores: all US-based companies backed by Sun Capital.

Gareth Davies, a managing director of Close Brothers Corporate Finance's restructuring team based in London, is not surprised these “front-end” industries have constituted a large portion of defaulting companies. “As consumers' spending habits shift, it will filter through to the mid-cycle sectors,” said Davies, who pointed to restaurants and other leisure sector businesses, which have held up reasonably well, as being the next to suffer.

In related news, Close Brother Corporate Finance is currently in the process of expanding its restructuring practice across Europe. It recently hired the former head of Deutsche Bank's European work-out team, Sven Guckelberger, as managing director to head the Frankfurt-based restructuring team.