Bank crisis keeps bankruptcy pros up at night
NEW YORK (Reuters) - A wave of corporate bankruptcies will keep restructuring advisors and distressed investors busy in coming months, but even the best in the business are unnerved by the speed of the U.S. financial meltdown and its impact on ordinary citizens.
Worries about the ripple effect of government aid to struggling financial companies and the possibility of widespread recession are keeping bankruptcy professionals awake at night, according to attendees at the Reuters Restructuring Summit.
"Am I excited about what we are going to do for our investors during this (economic downturn) cycle? Of course I am," said Michael Psaros, co-founder and managing partner at firm KPS Capital Partners, who spoke at the Reuters Restructuring Summit. "What worries me is that this one is so extreme, and I'm speaking as a husband, as a son, as a brother and as a father. I worry for this country."
Restructuring professionals who spoke at the Reuters Summit predicted a wave of corporate debt defaults and bankruptcies over the next few years as higher energy and food prices and tightened credit standards slam the door on company growth prospects.
But even those pros, who have followed the rise of corporate defaults, bankruptcies and other warning signs, say they were stunned by the speed at which financial firms have unraveled.
Over just a few days, investment bank Lehman Brothers Holdings Inc (LEHMQ.PK) filed for bankruptcy protection, American International Group (AIG.N) received $85 billion to help avoid a collapse and investment bank Merrill Lynch MER.N agreed to be taken over.
"It was the scariest thing I've ever seen," said Psaros. "It's like open-heart surgery where the heart stopped beating."
WHAT'S NEXT?
With the constantly shifting ground, even professionals who follow distressed companies can wake up and find the landscape has changed.
"If I make the mistake and check my BlackBerry, I can get very worried in the middle of the night," said Diane Vazza, head of Standard & Poor's global fixed-income research group. "It's typically a headline. It's making sure that we have all our bases covered, that we continue to huddle and revise what our thinking is on an ongoing basis."
As U.S. lawmakers weigh a massive financial bailout plan, investors and advisors say they worry about the long-term implications.
"I'm disturbed about the slippery slope that we've gotten into, where if you're stupid but really big the government will bail you out; if you're stupid but medium-sized, you die," said Wilbur Ross, chairman and founder of turnaround firm WL Ross & Co. "That's going to encourage very bad behavior by very big institutions."
The concern that lawmakers will rewrite existing bankruptcy laws also worries many.
"I'm very concerned about government intervention, because you never know what the new rule is going to be," said Michael Fineman, a portfolio manager at Third Avenue Management. Changes in existing laws could hurt distressed investors since they made their bets based on current laws that reward creditors in particular ways.
HURRY
Above all, bankruptcy pros fear that the current credit crisis will spread.
"The thing that keeps me up is this liquidity situation," said Robert McMahon, managing director for restructuring at GE corporate lending. "We need to get to a point in time, quickly, where liquidity is restored, not just to the world or the restructuring community, but to the corporate finance community in general."
(Editing by Phil Berlowitz)
