January 06, 2016
AlixPartners, the global advisory firm, today released its 10th Annual North American Restructuring Experts Survey. This year’s survey, which represents the opinions of 185 senior-level corporate restructuring experts, suggests that after several years of steady declines, 2016 may see an uptick in restructurings and corporate bankruptcy filings.
In this year’s survey, 95% of respondents cite “low interest rates and the ability for companies to get additional financing” as the top reason why the number of overall Chapter 11 filings continued to decrease last year.
Pre-packaged and pre-negotiated bankruptcies continued to rise, and this is a trend experts expect to continue: 98% say they expect pre-packaged or pre-negotiated bankruptcies to increase or remain the same in 2016.
China’s Impact on the US Market
When asked about the effect of China’s economic slowdown on the US market, three out of four survey respondents said China’s slowdown has a “significant” or “moderate” effect on US restructurings, pointing to the potential ripple effect the Chinese economy has around the globe.
“China’s economic slowdown has contributed to the global imbalance in supply and demand which has driven down commodity prices. Companies in the oil and gas and mining industries, for example, are suffering from these lower prices.” said Jim Mesterharm, Managing Director at AlixPartners and co-head of the firm’s Turnaround & Restructuring Services practice for the Americas. “Steel and aluminum are two examples of industries that have pressure on their capital structures because even though the costs of their raw materials have declined, in some cases the prices of their finished products have declined more.”
When it comes to the energy market, oversupply around the world and diminished demand from many emerging markets continues to weigh on the industry, pointing to more possible distress in the year ahead. Bankruptcy is the most likely outcome for energy companies in distress, according to 41% of respondents, while 31% suggest out-of-court restructurings will be the most common action. Twenty-six percent said distressed energy companies will be most likely to liquidate through asset sales.
“Low natural gas prices are also negatively impacting power and energy, solar, and renewables as the economic choice for clean energy is currently less compelling,” said Lisa Donahue, Managing Director at AlixPartners and global leader of the firm’s Turnaround & Restructuring Services practice.
Industries in Distress in 2016
In the US, respondents say energy (86%), retail (46%), healthcare and medical (24%), education (22%), and municipalities (18%) are the sectors most likely to face distress in 2016.
Looking globally, respondents say energy (86%), sovereign debt (39%), maritime (30%), and retail (23%) will be the most distressed sectors.
When asked which regions outside the U.S. would have the most restructuring opportunities in 2016, the most common response was Brazil, cited by 37% of respondents.
“Brazil’s economy faces many restructuring challenges as it sorts out the effects of its dramatic 2015 decline. That decline was marked by plunging prices for its principal commodity exports, including oil, metals and sugar,” said Donahue. “Brazil’s post-boom economy, coupled with a sharp drop of the Brazilian real against the US dollar, means bright spots are scarce, and that virtually every sector of the economy will be under pressure.”
About the North American Restructuring Experts Survey
AlixPartners 10th Annual Restructuring Experts Survey reflects the opinions of 185 senior-level North American-based corporate restructuring experts. The survey, which was conducted online in November 2015, highlights the evolving state of the restructuring industry and forecasts developments over the next 12 months. The survey polled senior attorneys, investment bankers, lenders, fund managers and other restructuring professionals across the United States.
AlixPartners is a leading global business advisory firm of results-oriented professionals who specialize in creating value and restoring performance at every stage of the business life cycle. We thrive on our ability to make a difference in high-impact situations and to deliver sustainable, bottom-line results. The firm’s expertise covers a wide range of businesses and industries whether they are healthy, challenged or distressed. Since 1981, we have taken a unique, small-team, action-oriented approach to helping corporate boards and management, law firms, investment banks, and investors to respond to crucial business issues. For more information, visit www.alixpartners.com.