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Retail Defaults Are Expected to Rise

S&P Global Ratings recently announced that of the companies they cover, they expect more defaults in the retail sector this year than the 11 recorded defaults and 75 retail downgrades from 2017. So far in 2018, S&P has downgraded 11 retailers and an additional 34% have negative outlooks. Who are the most at risk for potential default? Household names include Eddie Bauer, J Crew, Academy Sports and Outdoors, PetSmart, David's Bridal, Neiman Marcus, and Guitar Center to name a few.

S&P's prognostication on the retail debt increase is worse. An estimated $5.6 billion in retail debt is coming due this year. While this year's debt is arguably manageable, their forecast shows that $13 billion is coming due in 2019 followed by an additional $18 billion in 2020.

Consider this: A common denominator surfacing for most struggling retailers is too much debt from leveraged buyouts or share buybacks. As these retailers likely go through restructurings, and if interest rates continue to rise, high-yield debt alternatives may become too expensive of an option for some to be able to afford. Liquidation may become the only alternative.

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