The Deal's senior writer Matt Miller moderated a panel that gathered some of the top private equity, hedge fund and other alternative investment investors in distressed assets. Discussing the factors that will be key in the coming wave of restructuring, the panelists -- Michael E. Heisley of Stony Lane Partners, Mark K. Holdsworth of Tennenbaum Capital Markets, Mark J. Leder of Sun Capital Partners, David Matlin of Matlin Patterson and Michael A. Psaros of KPS Capital Partners LP -- focused on the importance of not only creativity amongst the owners, but also of management.
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The entire group agreed that the new economic environment held huge opportunities for distressed investing specialists. Heisley of Stony Lane Partners' commented that "almost $100 billion has already been set aside to do restructuring already; in the last cycle around 2001, it was only about $6 billion. There's going to be quite a bit of price competition for deals."
"There's a ton of capital out there," said Matlin, "but a lot of it is mismanaged."
It was a sentiment that Holdsworth agreed with, saying, "Distressed debt investing used to be almost like a cottage industry; today its much more mainstream. There's been a lot of money raised that's sitting on the sidelines [for making] deals, but to be differentiated in this business you have to be ready to own and operate the business. One of the most important factors is going to picking management, which is very intangible. You don't know [how they'll do] until they get in there."
Heisley added that "de-levering a company, especially in the middle market, tends to destroy the operations of the company, so the most important ingredient is how many people you can bring to bear to turn the company around. For those companies that have to be restructured, the ingredient that's going to be hard to get is the people, and not just the CEO. It has to be the VPs, middle managers, etc., to go in there and make the hard decisions under a lot of pressure to really get the company turned around."
Finally, Heisley stressed that "the first thing is whether people have the creativity to put deals together, and in [the case of unhealthy companies] the second thing is getting people that get in there with the mindset of 'what are we going to do with this piece of trash?' " and turn the company around. - George White
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