March 2009 Monitor  

Market Overview

 

Welcome back to 1997.  Tiger Woods won his first green jacket at the Masters at age 21, Steve Jobs returned to the corner office at Apple, and the Dow Jones industrial average closed above 7,000 for the first time.  But that was then, this is now.   Last Thursday, Tiger was eliminated in the second round of the Accenture Match Play Championship, and on Monday the Dow closed at 6763.29, its lowest close since April 2007.  

 

Given that comparisons to 1937 have been more common in the media of late, there seems to be no shortage of bad news… but here is some good news:  the Commerce Department announced that personal savings jumped to 5% of disposable income in January, the highest level in 14 years.  Ironically, consumer spending in January actually increased by 0.4%, the first increase in seven months, having fallen by 4% in the second half of 2008.


On the other hand, the American Bankruptcy Institute (ABI) announced in a press release this week that U.S. consumer bankruptcy filings increased by 11% in February (up 29.2% from the same period a year ago) relying on data from the National Bankruptcy Research Center.  The ABI expects at least 1.4 million bankruptcies this year, even more if Congress changes the law to permit residential home mortgages to be modified in chapter 13. 

Manufacturing activity, which has been on the wane since September, continued its slide in February. The Institute for Supply Management reported declines last month in all 18 of the industries it tracks, while employment in those industries fell to a new low. This last bit of news follows other job-market indicators such as record-high claims for unemployment benefits, suggesting job losses in February could be the highest yet of the current recession. The Labor Department will report February job losses on Friday, and analysts expect the current unemployment rate of 7.6% to rise still further.



Recovery rates on defaulted debt  are  heading  south.  As a consequence, Moody's  Investor  Service has announced that it has revised its assumptions relative to both anticipated default rates and expectations for recovery on defaulted debt (measured in a % of par value of the loan).  Moody’s will increase its assumed likelihood of default by 30% for corporate credits in certain collateralized debt obligations (CDOs).  This is a significant move as Moody’s had already projected a high default rate of 15.3% on sub-investment grade debt for 2009.  Moody's also announced that recovery rates on leveraged loans in recent bankruptcies have been less than 25 percent, well below the historical average.  One significant contributing factor to this trend is the loan-only structures that became common in the 2005-2007 period.  Whereas in the late 1980’s, a significant portion of leveraged capital structures came from junk bonds, the proliferation of  syndicated loans in recent years made such issues less common.  This has reduced (and in some cases eliminated) the traditional cushion of subordinated debt that would absorb losses first. According to Moody's, about 60 percent of all U.S. issuers that have rated loans, and one-third of all U.S. speculative-grade issuers have a loan-only capital structure.








Founded in 1987, Mirus Capital Advisors is a middle-market investment bank that specializes in merger advisory, capital-raising services, fairness opinions and valuations to entrepreneurs, corporations and professional investors. By combining a proven process, industry and transactional expertise, and personalized service, Mirus has completed hundreds of transactions for both public and private companies. 

Our affiliate Mirus Securities, Inc. is a registered broker-dealer and FINRA/SIPC member.

For any questions about the Middle Market Monitor or Mirus Capital Advisors, please contact Miurs Capital Advisors at 781-418-5900 or visit www.merger.com.  You can also contact our senior bankers directly at:

 

°  Jamie Grant at grant@merger.com, telephone number 781-418-5928

°  David Hoffer at hoffer@merger.com, telephone number 781-418-5922

°  Peter Alternative at alternative@merger.com, telephone number 781-418-5943

°  Laura Kevghas at kevghas@merger.com, telephone number 781-418-5944

 
Sources: CapitalIQ and Mirus analysis. Copyright 2009, Mirus Capital Advisors, Inc.  All rights reserved. Mirus Capital Advisors does not assume any liability for errors or omissions.


 
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