This year has proved to be one of changing dynamics and declining deal flow in the world of restructuring. Credit markets and high-yield bond issuance began to come back in 2010, giving companies the chance to refinance their way out of trouble. Very few actually ran out of cash – it was sovereign or quasi-sovereign troubles that dominated the headlines.
Whereas liquidity-driven restructuring crises defined the beginning of the cycle in 2007/08 – when many restructuring candidates were simply patched up with “amend and extend” balance sheet sticking plasters – deals since 2009/10 have been more concerned with debt reduction and identifying fundamental value beneath over-leveraged balance sheets, along with any associated business plan adjustments and new money requirements.
But with a slight change in economic tides, rising values have also complicated some restructurings, as new creditors have come into play at higher levels of capital structures. Forum-shopping and multi-jurisdictional restructurings remain an evolving feature of the European market, as do the convergence of public and private finance, and the protection of government interests.
Going forward into 2011 and beyond, corporate deal flow is expected to be slow and steady. As a sector, real estate is expected to provide a rich source of deals across Europe, driven by refinancing triggers and doubts over the capacity of capital markets, absent so much CLO money, to pick up the refi tab.
However, one adviser says that CMBS structures are so complex that the problems can only at best be managed, as opposed to being restructured. Banks – German banks in particular – are not out of the woods yet and, in order to continue deleveraging and meet increasingly stringent capital adequacy regulations, they are expected to make strategic decisions over which books of business they might exit, and in which they might have to hold more equity.