Summary

Stan introduced Independent Credit Research - ICR describing how they provide an in-depth buyside quality Away from Energy, Stan discussed the sharp turnaround in travel companies such as Avis, Carnival Cruises, Hertz, Airlines that were performing well before Covid. However, markets seem to be ignoring the high levels of debt they have taken on and how long it could take to get back to pre-Covid sales levels. Although they wouldn’t be shorting these companies due to equity market hysteria they are focusing on companies that were not performing well before Covid and have not participated in these market rallies. They highlight Frontier Communications, American Tire Distributors, Pyxis International and GTT Communications. Frontier, one of the largest US Telco providers, through their recent bankruptcy will be able to emerge with $11 billion of unsecured debt stripped out; trading in high 40s it will be worth 75 / 80 cents through the new companies’ equity. Investors should receive at least 80% in less than a year. American Tire Distributors has been through bankruptcy and Covid turmoil, but they have been able to replace lost business with new customers, so both term loans are very attractive and should be refinanced shortly and with private equity trading at $30 this should be at least $65 to $70. In ICR’s universe only 10% to 15% of bonds are in fundamentally healthy well managed businesses. Most of the bonds are in poorly operating businesses that are in structurally declining industries. Exela Technologies for example with 1.4 billion of debt trading at 30 cents on the dollar is a poor company, but whose bonds should do well after they file for bankruptcy and have new management; their bonds should be worth at least 50 cents. In terms of the macro, Stan believes that for 2021 the Fed and other Central Banks will continue pushing low interest rate policy so there is going to be asset price inflation. Markets are rich, spreads are tight and one day the bubble will burst. Covid recovery is already priced in most markets - although there are opportunities, for example in the Energy space, which has massively underperformed other commodity markets in 2020 and the beginning of 2021. Stan discussed the Energy names they find most attractive: McDermott International, post reorg; Californian Resources with an upside of 30 bucks trading at 23; FTS International, a fracking company, out of bankruptcy, with upside of 40 dollars trading at 16. ProPetro and Liberty Oilfield are other attractive fracking stocks. Recently published research on Weatherford with buy recommendations on both bonds; this is a company hated by most investors. Calfrac, post-bankruptcy, where they find the balance sheet to be very strong and have similar views on Nabors. ICR suggest buying equities of companies without debt if there are significant opportunities. research product and investors should consider them as an outsourced analysis team covering stressed and distressed assets. ICR returned over 20% in 2020 with winners including Fresh Market Notes, American Tire Distributors, Avaya, Gamestop, Cengage, Houghton Mifflin, McGraw-Hill, CNG, Enova, Curo Group, and Nabors Industries.

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