The loan paid 10.25 percent interest which would go up if a benchmark rose. The borrower was Trident USA Health Services, a growing company which provided bedside medical testing in nursing and assisted living centers.Trident was buying similar companies across the country targeting cost savings from consolidation. Trident filed for bankruptcy last month. It had taken on too much debt to cope with reduced Medicare and Medicaid payments, equipment upgrades and other issues.
“We think credit losses will rise,” said Matt Carroll, a credit analyst at S&P Global Ratings. His reasons: A lot of money has flowed into private credit, pushing down lending standards in a benign economy.Some US$900 billion in non-bank loans to mid-sized companies sit alongside another US$1.1 trillion of speculative-grade loans that have been made by bank syndicates to larger companies and mostly resold to institutional investors.
In 2013, for example, one such investor called THL Credit Inc made loans, starting at 9 percent, for Charming Charlie, a retailer of women's fashion accessories arranged by color in as many as 26 different hues. The founder used the loans to buy shares of the business from a private equity firm and add more stores, according to S&P Global. But the company went too far in stocking the stores with items of different colors and got stuck with unsold merchandise.