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Nine months into the credit crunch, and there's still no light at the end of the tunnel, according to the consensus opinion of a panel that examined the state of the market at DealFlow Media Inc.'s Distressed Debt Conference 2008 on Wednesday.
"I think the [current market conditions] are going to be a long process, and I don't think it gets better until the consumer stops being exhausted," said John Fitzsimons of American Securities. David Peress of Crystal Capital agreed, saying, "Our central banker has become addicted to the consumer as the main economic engine, and the consumer is exhausted." Citing the many years that Japan held its interest rates at virtually zero, he went on to say that continued interest rate cuts don't address the root problem of the current credit crisis -- a lack of buyers. "There's so much money sitting on the sidelines now, and I don't see people coming off the sidelines very quickly," he continued. When the discussion turned to workouts and bankruptcy filings, Sheryl Seigel of Lang Michener LLP commented, "It used to be there was a borrower and a lender; you sat down in a room and talked and worked things out. Now you need a huge room to fit [all the different parties in]." Scott Rutsky of Proskauer Rose LLP added that "with the crowded credit structures, what you're seeing now is that it's more expensive and more difficult especially for middle-market companies to do a restructuring." Rutsky feels that "it's too expensive. Lenders don't want to lend, the laws have made it more difficult," so it's even more important that companies going through the process know what they plan to do early. "You can't go into a [bankruptcy] filing looking for a plan; you have to have one." Complicating the situation is the lack of workout units within the banks. "There are no more workout departments left at the banks; " said Fitzsimons, "but the hedge funds are hiring the workout guys that used to work for the banks. I think the workouts will be a shorter process [in the future] though." In spite of all the bad news, Seigel added that the current situation does have its upside. "With the credit crunch, there will be opportunities for those that are willing and have money [to make deals]." - George White Categories Deal Video
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