Surge in Corporate Restructurings to Boost Demand for Talent
Industry experts see no shortage of restructuring work on the horizon. The Federal Reserve says the percentage of banks reporting tighter lending standards is near historic highs for nearly all loan categories. Now, as credit conditions tighten, corporate insolvencies and workouts are expected to increase. The nation’s leading experts anticipate a “big spike” in corporate restructurings in the coming months, according to a new study conducted by global business advisory firm, AlixPartners. In response to the findings, the AP quotes Mark Zandi, Chief Economist at Moody’s Economy.com as saying, “This survey reflects the high level of angst among banks involving the erosion of credit quality, rising delinquencies, foreclosures and defaults.”
Amid the continued turmoil in the credit markets, executive search firm, A.E. Feldman, reports that finance jobs, accounting jobs and corporate attorney jobs are opening up as need for experts in corporate workouts and restructurings escalates. Candidates with expertise in underwriting, restructuring, valuation and workouts are hot commodities. Executives with corporate operational experience, in particular, are in growing demand. A. E. Feldman says firms want people who can evaluate companies in various stages of disrepair, assess what the issues are, determine how to proceed and implement those strategies. One industry veteran working with A.E. Feldman adds, “The most highly sought after candidates are executives who have the knowledge, imagination and the ability to roll up their sleeves, get down in the trenches and make it happen.”
The tightening of credit conditions is expected to lead to an increase in corporate workouts. Both Moody’s Investor Services and Standard & Poor’s are forecasting a significant increase in U.S. corporate defaults this year.
A survey of bankruptcy lawyers, bankers, fund managers and other experts conducted by AlixPartners also shows that 98% of those polled predict a “big spike in corporate restructurings is on its way.” More than half, 65%, of respondents anticipate the wave of restructurings to hit this winter.
“Clearly, the credit crunch has exacerbated problems that many companies in this country were already facing,” said Peter Fitzsimmons, co-president of AlixPartners and also co-lead of the firm’s corporate turnaround practice. “It seems inevitable that corporate defaults are going to rise this year, the only questions being how high, for how long and which companies in which industries. In this environment, the smart companies will be those that take preventive measures, not those that wait until trouble has already struck.”
The AlixPartners survey goes on to identify the industries expected to face the “most distress” over the next 12 months. While few industries appear to be immune to the effects of the credit crunch, 23% of respondents say retail will face the most trouble in the year ahead. Trailing behind, 15% say financial institutions and 12% say transportation (including airlines) will be hardest hit.
Typical corporate loans are sold into structured investment vehicles. The loans are then securitized into collateralized loan obligations (CLOs) and sold. In today’s tough economic climate, however, troubled debt instruments are being mopped up by distressed investors as the borrower’s credit condition deteriorates. These complexities add to the difficulty of engineering traditional debt restructurings. One industry expert working with A.E. Feldman notes that corporate workouts and restructurings is a trauma business – not unlike an emergency room. There is a growing need for experts to accurately assess the situation, decide what can be saved and how.
