“There’s certainly more to come,” he said, though he added that he expects it to be contained enough that the performance of the broader high-yield market won’t be imperiled.
Much of the distress tracked by Bloomberg since the pandemic’s spread to the U.S. has come from assisted-living centers and continuing-care retirement communities, both of which are dealing with both the public health and financial challenges of Covid-19.
But the stress has expanded to other sectors, too. A novel sector of the health-care industry focused on cancer has struggled from patients putting off treatments because of the pandemic. So-called proton-therapy centers have sold about $1.5 billion of municipal debt since 2014, about $900 million of which is now considered distressed, according to data compiled by Bloomberg. Among them is one in Maryland that sold debt in 2018 and last month had to draw down a reserve fund to pay bondholders.
The pandemic has stung some speculative projects already struggling to get up and running. Columbia Pulp I, which has borrowed about $200 million since 2017 for a waste-to-pulp plant that has struggled with delays, suspended operations in March due to Covid-19 and is negotiating on a forbearance plan as pulp prices decline.
The hit to tourism and shutdowns of mass gatherings have also taken a toll. In Memphis, Tennessee, there’s been fewer tourists showing up at Graceland, the museum in Elvis Presley’s former home that borrowed in 2017 for an expansion. The agency that sold the debt had to tap reserves when debt payments were due in July and the securities were cut to junk this month by S&P Global Ratings.
In Riverside County, California, a horse and soccer complex called SilverLakes that raised money in the municipal market three times since 2015 was already struggling before the pandemic, with revenue just 30% of projections when it sold securities in 2018.
Balboa Management Group, the developer of the complex, in July skipped a debt payment, and future payments to investors will be deferred under an agreement with creditors lasting until 2021, according to a securities filing. Richard J. Brandes, who formed Balboa and provided a personal guaranty on the bonds, did not respond to requests for comment.
Other big projects are being closely watched by investors. The still-closed American Dream mall and entertainment complex in New Jersey, financed with $1.1 billion in debt, has seen bond prices sink to about 87 cents on the dollar in early July amid doubts about whether it will draw crowds in the wake of the pandemic.
Washburn, the analyst with Municipal Market Analytics, said she’s expecting the stress to continue to pile up.
“Going into 2021, you’ll probably see even more pressure on more safe sector credits,” she said.