S&P recently downgraded J.C. Penney – the iconic retailer – and now Fitch has joined suit. In this case, the rating for the company has dropped to “junk” status or CCC+ from B-. The reasons given are just what you’d expect. For our prior three articles on Penney’s, click here.
As we’ve explained previously, BDC exposure is modest and whatever happens will have little impact on the three non-listed FS-KKR BDCs involved, which are in the process of going public as a combined FS-KKR II. Also in there is TPG Specialty (TSLX), but with its asset-based status is not expected to lose any money under most possible scenarios.
Of course, Penney is just one example of the retail sector “apocalypse” that’s been going on for years in a long running burn of companies of all kinds. Currently we’ve identified 20 retail-related companies that are under-performing, with a cost of investments of $1.27bn. That’s probably not everyone caught up in this seismic change in how consumers and businesses shop, but captures all the names you’d expect and a few more. The BDC sector has taken a hit, and will continue to do so, but the damage has been spread out over more than two dozen BDCs (roughly a quarter of the listed and non listed players) and over several years, mitigating the blow. Junk bond investors and other forms of lenders have taken more of a body blow f rom this once-in-a-lifetime shift in American commerce.