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Chris Haffenden

I am acutely aware this is the time of the year for reflection and examining the accuracy of past predictions, as well as making new divinations and resolutions. So, it was with some trepidation in the preparation of the first Friday Workout of 2022, that I tentatively peeked at my look-forward in a missive published on 8 January 2021:

“We ended the year with HY bonds in positive territory, with plentiful liquidity to refinance stressed credits as most stressed/distressed bonds trade above 95. Borrowers are touting their ability to ride out the storm with significant liquidity buffers and with vaccines rollout they hope activity will return in the second quarter, with most businesses aiming to hit 2019 profitability by end 2021/early 2022.”

Scarily, If you add-on a year to the dates above, most of my quote remains relevant for 2022. 

“With existing HY debt seemingly priced close to perfection – it is hard to see even in a perfect world more than 4-5% returns for 2021 – asset managers need to be adept at avoiding blow-ups while they earn their carry. Can it make sense to clip coupons on the latest Carnival bonds at 5.5% yield?”

I was not that far off on the first prediction. In near perfect conditions for risk assets European HY (after a strong 0.8% rise in December) returned 3.4% in local currency terms for 2021 (source: ICE BofA European Currency High Yield Constrained Index). However, the high beta Carnival bonds outperformed in a red-hot market, but after hitting a 4.25% low in November, its 2026 Euros are now yielding 5.125% as Omicron worries hit the travel sector. 

NB many companies did not see their profitability return to 2019 levels, with notably stronger headwinds (more later) than a year ago, the risk/reward for 2022 is arguably even more skewed to the downside. 

Restructuring activity was more muted than many had expected in 2021. As our Distressed/Restructuring review – That was the year that wasn’t outlined after a busy first third, overall activity was subdued, with only the Chinese Property Blow-up and German Real Estate fears keeping funds and advisors interested. 


As risk appetite waned slightly and with Q3/Q4 performance was affected by input inflation and supply chain issues a few more names such as Boparan and Standard Profil did appear on watchlists. In addition, some stressed refinancing flipped into restructurings, as back-up Plan B options became Plan A – such as Haya Real Estate and Lowen Play. 


Despite the slight pick-up in restructuring activity in the final quarter, few large deals are being carried into 2022. Most advisors consulted by 9fin are not expecting a big pick-up in deal flow.

Personally, I think restructuring activity will be stronger than advisors expect, as supply chain and labour issues, coupled with a potential energy crisis flow through into company financials. In the medium-term I am more bullish with plenty of 2021 vintage HY deals carrying significant add-backs and dubious assumptions, meaning they were too over-leveraged and more vulnerable from the get-go. Conversely, loose docs, record sponsor dry powder and expanding valuation multiples may partly mitigate or delay the inevitable.

The ICE BofA EHY Index currently yields around 2.9%. Amid a rising interest rate environment, and even stressed names trading in the mid-to-high 90s, what are the chances of positive returns in 2022, let alone providing enough performance to deliver your 2 and 20?

Defaults might remain low in 2022, but surely your mark-to-market risk is elevated for deals trading at or above par, or those at or near to call prices. Where do you go for returns?

Stressed refinancing and high beta names were best performers in 2021 but surely it will be tough to repeat their strong run in 2022. For the brave, is it worth investing in names at a discount such as Matalan and Raffinerie Heide hoping that they can get their refi’s away? If you don’t think there are any imminent triggers, is it a better strategy to invest in beaten-up names where most of the risk is already priced in? 

Betting on IPO candidates such as Very Group is another strategy being mentioned by some HY analysts, as is looking for rising stars amid the upper BBs aspiring for IG status. For the more defensive minded, parking money in deals trading to call, expecting that borrowers will bring forward their refinancing amid elevated rate fears is another popular strategy. 

However, JPMorgan’s Ben Thompson thinks that HY volumes will be below 2021 levels with M&A being the main driver, not refinancing. Could tailwinds turn into headwinds in 2022?

Regular readers know my views on rates, inflation, and actions (and inactions) of central banks. In late November, we said that Powell had turned from a Dove into a Hawk and was getting much more serious about inflation and normalising rates. But this and the emergence of the more transmissible but seemingly less deadly Omicron variant was easily shrugged-off by markets, with many risk-assets trading close to their highs/tights early this week. 

My working title for this week’s Workout was Omi-gone, with returnees emboldened by the lack of severe restrictions which appeared a betting certainty just before Christmas. But Wednesday’s ugly price action may suggest the level of inherent complacency amongst market players was even higher than I thought. Perhaps Omicron had blindsided them. 

The trigger was the release of the FOMC minutes from December. Chairman Jerome Powell was quoted as saying that inflation was a big threat – the word elevated was used in conjunction five times - with Quantitative Tightening (QT) already being discussed amongst Fed members. The prevailing view was that the unwinding of the Fed balance sheet should happen sooner (balance sheet runoff was mentioned 10 times) rather than later and hinted it would happen shortly after a hike in the fed funds rate, hinted to occur in March. 

The FOMC minutes also suggest that the pace of rate rises could be mitigated by a faster QT which would help to elevate long-term rates. This will be bad news for large tech and growth stocks which heavily rely on risk-free rates for their inflated terminal values and for longer-duration HY debt. Even the systemic risk and inflation hedge Bitcoin got crushed (nasty head and shoulders pattern on the charts btw). Cathie’s ship is also on the rocks. 

Jim Reid from Deutsche in his morning comment from yesterday says: “Real rates have been the clear driver given the shift in monetary policy, with the 10yr real rate up another +11.2bps yesterday, the biggest one day climb since October, to its highest level since late-June at -0.86%. That said, they’re still some way beneath their closing peak of the last 12 months, having hit 0.585% in March 2021, when the ‘reflation’ trade was at its height.”

On an absolute level – 10-year Treasury yields have risen sharply and are close to a key resistance point at 1.72% (1.74% was 2021 high, was 1.34% at Xmas). My gut feel is that yields will be well into the 2s by the end of the first half of 2022.


If that wasn’t enough for holiday returnees, we’ve seen another sharp rise in energy prices this week, albeit after a sharp pullback in spot Natural gas prices in December after going exponential in October/November. Oil, after whipsawing in the 70s, looks set for a potential breakout to the upside. An excellent report from BofA - Europe’s energy price surge: How big, how long, who wins, who loses? - landed in my inbox this week, and it made for sobering reading. (Apologies for the lack of humour so far in the workout - I am having a drier January). 

“Wholesale European gas and electricity prices pushed higher in late Dec from already elevated levels: gas for 2022 delivery is now up over 400% vs. Jan'21 and European electricity prices, which are driven by gas, are up 300% on average, driven by cold weather, nuclear outages in France and lower gas flow from Russia exacerbating already-very low seasonal storage levels.” 

This is likely to lead to around €650 annual increase in energy costs for European households (€1200 average currently) in 2022, with the UK and Italy the hardest affected. They estimate that government support measures announced so far will only offset about a quarter of this. 

For industrial customers the impact is even bigger: “We estimate a typical European industrial consumer has already seen a c.20% increase in electricity and c15% increase in gas prices in 2021, and we estimate current forward curves imply a 70% increase in electricity and 100% increase in gas costs in 2022.”

Similar to normalised interest rates and non-transitory inflation, there are few out there who can remember what a full-blown energy crisis looks like. Even I'm not old enough to remember the oil crisis of 1973, the three-day week and rolling blackouts in the UK. The impacts on the economy and the potential for political unrest (witness events this week in Kazakhstan) could be enough to derail any hopes for further post-Covid recovery as we hopefully shift from the virus as a pandemic to being endemic. 


Time for workout professionals to wade through financials for high-energy use industries and businesses. 9fin has tools which can help, non-subscribers please contact us for more info.


Amigo said that its current unrestricted cash balance (prior to redemption of the notes) is over £280m. The early redemption will save £28.1m in interest costs and will form part of the increased cash contribution to the proposed Scheme of arrangement to deal with customer compensation claims. 

On 6 December, Amigo outlined details of the New Business Scheme. It is proposing initial cash contributions of £97m (from internally generated resources) alongside a further contribution of £15m (from new equity and capital raise) to meet compensation claims. Last May, it failed with its first attempt at a Scheme, with Justice Miles saying the directors should continue to explore and promote a restructuring which fairly allocates the benefits and losses among the various efforts to promote a suitable restructuring.” 

For more details, our updated Restructuring QT is available to clients here or you can request a copy here.

After filing for Chapter 11 on 19 December, Nordic Aviation Capital’s first day hearing on 21 December may indicate potential difficulties in securing unanimous consensus to its restructuring plan. NAC currently has support from 73% of creditors for its $6.3bn of debt, but a 20-strong lender group representing $900m of claims still voiced their concerns to Judge Kevin Hunennekens at the US Bankruptcy Court for the Eastern District of Virginia. One of the lenders, the New York Life Insurance Company, stated they were ‘incredibly frustrated’ by negotiations ‘over the past few days.’  The company says it hopes to secure over 90% of lender consents by the time that the plan is submitted. 

As expected, lenders to Ireland-based aircraft leasing company’s NAC 33 and NAC 34 ($529.8m) facilities, led by BNP Paribas and MUFG, are seeking a consensual separation from NAC with a $100m investment from a third-party conditional on this happening. As 9fin reported, rather than participate in a group deal, some lenders had preferred to take some of the stronger collateral such as the Embraer 190 and the Airbus 220 (it owns just seven, with another 20 ordered). At the first day hearing the NAC 33/34 group reserved their rights but did not object to the interim relief being sought.

NAC has provided a website with all Chapter 11 materials accessible via this link. The next hearing is scheduled for 13 January (was originally 6 January). 

For those who want to get up to speed on the Restructuring and find links to previous coverage, our Restructuring QT is the right destination. If you are not a client you can request a copy here. 

Emmet McNally, 9fin’s residential expert on Aggregate Holdings was on leave when the troubled German Real Estate developer provided a surprise Q3 update on 16 December. I stepped into the breach to provide a timely report on the main points raised on the call.

On his return, and with more time to digest, he posted Our Take on 23 December – many of you may have missed it given the seasonal holidays. Here are the bullets from his report:

The S IMMO stake sale will not generate expected proceeds given repayment of associated debt 

Seemingly liquid assets appear to have been restated as long-term assets; valuations of such assets are due scrutiny

Next twelve months liquidity coverage of 1.5x looks over-stated; we view liquidity as ~€60m short of requirements in the NTM period 

No apparent downside factored into cost assumptions for the Build & Hold and Build & Sell debt funding projections

The €250m 5.5% 2024s issued by Aggregate in May are proving tough for Vivion to offload; Aggregate could be on the hook

LTV ratios at the Fürst development look alarmingly high without an ambitious value upside being achieved; current LTV is near 100%

Reported Q3 21 proforma LTV of 53.9% infers interesting moves in consolidated cash, assets and liabilities

The year-end LTV projection raises concerns about a maintenance covenant breach

A reiteration of a medium-term LTV target below 50% looks out-of-touch with reality

We believe the VIC Properties May 2022 convertibles refinancing cannot be entirely funded with debt, leaving one ostensible option 

Our coverage has generated a lot of interest, with some good points being raised in follow-up conversations. Given the complexity of the situation and the confusion surrounding some of the company’s actions and statements, your perspectives and questions are very welcome. 

It is a truism that Emerging Market restructurings can drag on for years. Difficult legal jurisdictions and sponsors less concerned about their future relationships with western funds and bankers are often cited. By our count, there have been 27 extensions of forbearance agreements for Nostrum Oil & Gas, since they were first entered into in October 2020.

My former Debtwire colleague David Graves (now at REDD) in 2018 and 2019 wrote extensively about the Kazakhstan-based E&P company’s operational troubles. Its oil production was severely affected after discovering water in its producing wells. Difficulties in securing gas for its Gas Treatment Unit 3 (GTU3) unit scuppered what it saw as its future upside with Goldman Sachs eventually appointed in June 2020 to explore options.

Finally, some relief for long suffering advisors (let's hope they were being paid a monthly retainer) as on 23 December Nostrum announced details of a lock-up and restructuring terms. $400m of 7% Feb 2025 SUNs and $725m of 8% July 2022 SUNs will be partially reinstated into $250m SSNs and $300m SUNs - both due in June 2026. Holders of the existing notes will own 88.89% of the post restructured equity. The deal still requires approval from shareholders at a general meeting, and with 54% and 55% of the two bonds locked-up, there is more to do to get the 75% approval threshold to use a UK process to implement the restructuring. 

Haya Real Estate bonds were under pressure this week, dropping into the high 70’s after Cinco Dias reported that bondholders have proposed to exchange €400m of debt in return for a minority stake of around 40% based on a €1bn valuation. Cerberus, the PE owner, would remain in control, but bondholder advisors PJT Partners and Latham & Watkins are pushing the sponsor, a significant player in Spanish real estate portfolios, to push more servicing business its way. Everest Research also put out a report questioning the business model which also added to the selling pressure. 

Staying with Real Estate, Evergrande will reportedly seek a six-month delay in repayments and interest in a meeting with bondholders this week, Reuters reported. Fellow Chinese developer Guangzhou R&F said that it is struggling to find sufficient funds to partially repay a note due on 13 January. More positively for bondholders is a story from REDD which says that Chinese policymakers will exclude debt accrued by property developers in their debt compliance ratios when buying distressed assets from weaker peers.

Last year saw a lot of you couldn’t make it up levels of craziness within finance– such as the use of SPACs by the very stable genius and Monkey NFTs. PETITION this week asked “how long before bankruptcy professionals encounter the crypto bros?"

The most likely confluence could come from investments by Decentralised Autonomous Organisations (DAOs). The corporate version of blockchain brings unconnected individuals together to invest in and run corporate entities in a digital democracy without need for managers or bureaucracy. A DAO has already bought a one-of-a-kind Wu-Tang Clan album via a bankruptcy sale but another DAO failed to buy a rare copy of the US Constitution (losing out to Ken Griffin). Those funding that bid may have an upset constitution as they now face large losses – apparently due to large Ethereum gas fees as they seek to recover their original investment. But this hasn’t stopped the frenzy for other DAO’s being set up to buy anything from NBA teams to Michael Jordan’s house. Now they are turning their attention to bankrupt assets with Blockbuster – yes, and you thought Gamestop was nuts – in their sights.  

Regulators are struggling to keep up with this technology and the pace of innovation. For Investment DAOs “federal implications and limitations nevertheless apply,” exposing investors to significant liabilities. PETITION goes on to say, “good luck collecting any judgments from foreign members who are, aside from being potentially anonymous and identifiable only by virtue of their crypto wallet address, jurisdictionally insulated from the long-arm of US law.”

I’m also looking forward to how the bros will handle the almost inevitable default by El Salvador on its Bitcoin bonds, also known as Volcano bonds. The central American republic is already shut out of the international bond markets, and as Matt Levine has already opined, why would you buy the new 6.5% bonds backed by Bitcoin – surely it is better to invest the same amount of money buying El Salvador dollar bonds which trade at 30-40 points discount to par, and use the rest to buy bitcoin futures.

But as we know, relative value isn’t the main investment issue for the bros. The President is going full Kendall Roy in bigging up El Salvador’s digital transformation and embrace of all things Crypto:


So, what are they going to do with the money – repay some of that pesky debt held by old school institutional investors - and avoid defaulting on their looming 2023 bonds? Err, no. 

Half of the $1bn raised will go towards building Bitcoin City - an Alexander the Great inspired venture, close to a volcano for geothermal bitcoin mining and a central square in the shape of a bitcoin token - borrowing an idea directly from Microstrategy it will invest the rest in Bitcoin. Could this be the biggest vanity project default since Blue City in Oman? I’m loving the white suit btw.


China has adopted a zero-Covid policy ahead of the Winter Olympics. But as Nikkei Asia reports, the drastic measures could come with a heavy cost. Ningo, the World’s third-largest container port, is struggling to avoid infections after roadblocks were set up in the local area, after another outbreak. This raises yet more concerns about global supply chains. Outside of Shanghai and Ningbo-Zhoushan, figures from Lloyd’s List Intelligence show that 120 ships comprising 613,713 teu are still at anchor off the two ports on January 4. That is higher than the levels seen in mid-August when a major terminal in Ningbo’s Meishan Island was shut down for several weeks because of a dockworker contracting coronavirus. 


China is already struggling to contain the fallout from Evergrande – Sun Yu and Tom Mitchell from the FT have penned an excellent long read on what is happening behind the scenes. 

Closer to home, while Omicron might be less severe, the record level of infections is creating severe disruption for companies such as Iceland, which has 11% of staff self-isolating. We all may have become amateur virologists and epidemiologists, but despite the well-publicised lower deaths and hospitalisations are we missing the point here? John Burn-Murdoch’s long twitter thread is a must read

Quartz picks four wildcards that might derail the economy in 2022 – I think at least three are plausible and could easily happen – I leave you to guess which three. 

The FT writers outline their predictions for 2022. You can submit yours here.

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