The podcast discusses the need for an updated edition of a book on restructuring, highlighting the changing landscape of the industry. It also explores the impact of rate hikes on bankruptcies and the corporate landscape, emphasizing concerns about new entrants and the lack of focus on underlying problems. Additionally, the podcast examines how bankruptcies have become faster and more urgent in recent years due to increased players and the need for quick reactions.
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Quick takeaways
New money lenders are becoming more aggressive in structuring credit agreements, leading to watered-down credit agreements and increased distress in the market.
Rising interest rates combined with high levels of debt are likely to result in more restructuring and bankruptcies in highly leveraged companies.
Deep dives
Introduction to FTI's New Book on Restructuring
In this podcast episode, Jeff Burrows interviews Michael Eisenban about FTI Consulting's new book on restructuring. Michael served as the consultant editor for the second edition of "Navigating Today's Environment: The Directors and Officers Guide to Restructuring." The book is intended for senior executives and directors dealing with business distress. It serves as a manual on how to handle various aspects of business distress and offers relevant chapters as a reference guide. The second edition was updated to reflect the changing landscape of restructuring over the past decade.
Continued Trends of Aggressive Credit Terms and Distressed Traders
One of the key points discussed in the podcast is the continuation of aggressive credit terms and the influence of distressed traders. Michael highlights how new money lenders, including private equity firms, have become more aggressive in structuring credit agreements and making it easier to carve out assets. This trend is exemplified in cases like J.Crew and Neiman Marcus, where new lenders have caused senior lenders to lose collateral due to the specific credit agreements they agreed to. Michael predicts that this trend will continue, leading to more watered-down credit agreements and increased distress in the market.
The Impact of Rising Interest Rates on Restructuring and Bankruptcies
The podcast also explores the impact of rising interest rates on the restructuring and bankruptcy landscape. While there is still ample liquidity in the market, Michael emphasizes that as interest rates go up, highly leveraged companies will face a liquidity crunch due to increased debt servicing costs. He notes that even a small increase in interest rates can have a significant impact, and foresees more distress in companies with large amounts of debt. The higher debt servicing costs combined with poor credit decisions and poor operating decisions will likely contribute to an increase in restructuring and bankruptcies.
Effect of New Entrants in the Market on Restructuring Processes
Lastly, the podcast discusses the influence of new entrants, such as BDCs, private credit funds, and direct lenders, on the restructuring landscape. Michael acknowledges that these new players have brought in substantial liquidity, resulting in shorter bankruptcy cases overall. While cases have become more complex, the influx of money and aggressive players has accelerated the pace of restructurings. However, Michael also points out that some cases still remain complex and cannot be fast-tracked. He expects this trend of new players entering the market to continue, potentially leading to even more complexity in future restructuring processes.
More than 10 years after the first edition of FTI Consulting’s Navigating Today’s Environment | The Directors’ and Officers’ Guide to Restructuring, Michael Eisenband, the firm’s Global Co-Leader of Corporate Finance & Restructuring and Consulting Editor for the new edition, discusses what has changed over the past decade in restructuring, how the recent Silicon Valley Bank collapse alters the Fed’s likely path and what may lie ahead for the restructuring practice.
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#leveragedfinance #highyieldbonds #restructuring #debtrestructuring #distresseddebt #performingcredit #leveragedloans #highyield
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