Less corporate stress but a long way from health
LONDON/NEW YORK (Reuters) - Two years after Lehman Brothers imploded and sparked trillions of dollars in bailouts, restructuring experts face a situation few dared predict: a glut of cash and less pressure on companies to restructure.
The number of companies unable to make debt payments has tumbled and vulture funds that seek out bargains in the corporate scrap heap are finding thin pickings. Some restructuring executives have more leisure time than they might have wished for.
"It's much quieter than most bankruptcy professionals would have predicted ... if you asked them a year ago," said Richard Hahn, a bankruptcy attorney at Debevoise & Plimpton in New York.
"Still I think there are a lot of problems lurking out there that will have to be dealt with eventually. There's a large amount of debt that has to be refinanced in some way."
Top restructuring experts, bankruptcy attorneys and distressed investors will address the outlook for struggling companies at the Reuters Restructuring Summit in New York and London this week. The specialists will examine which industries might be next in line and what steps can be taken to shore up weakened firms, as well what might be attractive investments.
For distressed U.S. companies the outlook has brightened dramatically over the past year. The amount of U.S. distressed debt tumbled to $65 billion as of last month, having peaked at $398 billion in December 2008, according to Standard & Poor's, as a roaring bond market drives down yields.
The biggest bankruptcy of 2010, Corus Bankshares Inc, would not have cracked the top 15 of 2009 which included huge filings by General Motors GM.UL, CIT and General Growth Properties.
However, professionals caution that a decline in financial stress should not be taken as a sign of a corporate recovery.
"The lack of yields ... which flows from the zero interest rate policy has permitted still-undeserving companies to access capital," said Peter Kaufman of the Gordian Group.
That easy money has helped lower the "wall of maturities" -- the hundreds of billions of loans and debts due in the next few years. Analysts have been warning that unless addressed soon, corporate America faces mass defaults.
A large numbers of companies also have benefitted from the practice of "amend and pretend" -- altering credit agreements as default deadlines approach while hoping for a pickup in demand to rescue the ailing company.
Still, structural problems remain: frugal U.S. consumers, high joblessness and a badly hobbled housing market. Companies may be able to refinance and get a year or two of breathing room, but unless growth picks up, problems loom.
Outside the United States, even refinancing prospects are less certain.
"Underperforming businesses have not yet been caught out, partly because some of them don't have covenants or have very loose ones, and these will hit a wall," said Scott Pinfield, managing director at Alvarez & Marsal in London.
These pressures have yet to fully materialize, however, while even the scarce mandates available across the wider EMEA region, like the blockbuster one for Dubai World DBWLD.UL, are drying up.
A fresh wave of economic anxiety across western Europe, meanwhile, has until now triggered scant work for the advisory boutiques which sprang up when the financial crisis gripped.
Even the uphill struggle faced by the likes of Ireland to restructure its banks has generated little work for restructuring experts, with few roles available in what has become a government-dominated exercise.
"There are some interesting times coming up in the UK with the spending review (on October 20)," said Pinfield. "It is likely to have a knock-on impact on suppliers in the public sector, and the supply chain of companies related to them."
Despite bank lenders' reluctance to let go troubled debt, investors are also hoping to start picking up good deals again.
"We're moving into another phase in the next two to three years," said Robin Doumar of Park Square Capital in London. "Companies which can't outgrow their debt structures will start running out of time."
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