Restructuring wave seen set to continue
LONDON (Reuters) - The push to cut debts will drive a high number of corporate restructurings in the next year, with banks taking more write-downs and businesses running out of cash, experts told the Reuters Restructuring Summit on Monday.
Tony Lomas, chairman of PricewaterhouseCoopers business recovery services, said temporary solutions to company problems will need to be replaced.
"What we ... will see in the next year is the sticking plaster (adhesive bandage) coming off a lot of these situations," said Lomas.
Nick Hood, a senior partner at insolvency specialist Begbies Traynor, said lenders have so far been keen to avoid losses.
"European banks will do almost anything to prevent a high profile leveraged company default," he said.
Hood pointed to Liverpool Football Club, building materials firm Materis and forklift truck company Kion [ID:nLH606160] as beneficiaries of this refinancing climate.
TINKERING
Simon Davies, a restructuring adviser at Blackstone Group (BX.N), said banks have preferred to "tinker" with companies' balance sheets rather than push for a deeper restructuring.
"The businesses that are properly being restructured are the ones that are physically running out of money," Davies said.
Greek telecom company Wind Hellas WINVTH.UL was forced into restructuring talks last month after running out of cash to cover a 67 million euro ($98.2 million) October 15 interest payment.
Davies said banks' weak balance sheets gave them strong incentives not to recognize all their losses at once, as doing so might cause another financial crisis.
"Leverage is something that is in the system that we try to gradually reduce so that everything does not go bust," he said.
Boosted by cheap central bank funding, banks are seeking to grow back into profitability and use the cash generated to absorb losses, leading to a smoothing out of write-downs.
"We eased into the crisis and we are likely to ease out it," Davies said.
EQUITY SOLUTIONS
As an alternative to persuading lenders to take a loss, companies have tapped the equity market to fix their balance sheets.
Directories company Yell (YELL.L) asked equity investors for 500 million pounds ($794 million) as part of its refinancing of its near 4 billion pounds of debt.
"When faced with a value-destructive alternative, the public equity markets have been supportive of many companies," Davies said.
PwC's Lomas said companies unable to find enough equity to fix their debt problems will need to go back to their banks for another round of restructuring.
"I cannot see an upturn in the UK, Europe or the world that will be quick enough or healthy enough to sort these problems out," he said.
Davies, whose previous restructuring deals include Eurotunnel and Northern Rock, agreed another round of companies going into restructuring was likely in the new year.
Businesses struggling with their finances may seek new liquidity from their lenders in January and February, and banks will have more room to take losses, Davies said.
"Come the new year there will be a new spate of companies being allowed to go to the wall," Davies said.
The focus on reducing debt levels across the system means financial products designed to take advantage of leverage will take a long time to return to the market, Davies said.
Securitization, structured investment vehicles and leveraged loans are all unlikely to return in any volume soon, he said.
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(Reporting by Tom Freke; Editing by Rupert Winchester, Gary Hill)
