Location: Fairfax
Author: Shari Bedker
Date: Wednesday, October 15, 2008
100% of Experts Surveyed Expect Impact by Year’s End; Two-thirds Believe Credit Crisis to Stretch Beyond 2009
Literally 100% of restructuring experts polled recently say the recent financial meltdown on Wall Street will impact the health of companies in the US before the end of 2008. That’s according to a survey of leading lawyers, crisis managers, financial advisors and distressed debt managers conducted by the International Women’s Insolvency & Restructuring Confederation (IWIRC), whose members, both men and women, comprise more than 850 restructuring experts globally.
Further, 65% of those surveyed believe the current credit crunch enveloping the US, and now much of Europe and Asia as well, will last beyond the end of next year. No one polled said it would be over by the end of this year or in early 2009. Meantime, 61% said the liquidity crunch will drive the US banking industry back to a more traditional model, including stricter loan covenants and more government regulation.
When asked to identify which industries are likely to feel the most pain over the next 12 months, 25% picked retail as one of their top three choices, 19% picked construction or real estate and 19% said companies in the financial industry. Other industries mentioned in this category included automotive and healthcare.
With respect to how distressed companies will resolve their issues, 70% of the experts forecast that the credit crunch will lead to quicker sales of companies, or their assets, versus a full-scale restructuring of debt and operations. Fifty-nine percent said financial restructuring skills will be most in demand in the coming year, while 37% said operational restructuring will be most needed.
“When the credit markets are in turmoil as they are today and will be into the foreseeable future, every company should be taking a long, hard look at how it can ‘self-finance,’” said Debra Kuptz, chair of IWIRC and a managing director with AlixPartners LLP, a leading restructuring firm globally. “Smart management of working capital, good communication with constituents and early action to restructure will be the secrets to surviving this credit freeze.
“Further,” she continued, “because so many women occupy many senior positions in the restructuring industry—more so, I believe, than in almost any other major industry—these findings are all the more significant. In short, they’re representative of opinions and insights of the US restructuring industry as a whole, male as well as female practitioners. Ask any restructuring practitioner today for advice about how to handle this current crisis, and the short answer is likely to be the same: Act now, before you’re acted upon.”
In terms of the challenges facing restructuring professionals, 40% of respondents cited the lack of liquidity as the major issue they will have to deal with in turning around troubled companies. Other challenges cited included the restrictions imposed by changes made to the US bankruptcy law in 2005 and a potential over-reaction by Congress to today’s financial crisis resulting in regulations that could have the unintended consequence of inhibiting corporate turnarounds.
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