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TDE Middle Market: Advisers Expect Spike in Restructurings

Published: July 30th, 2020
Restructuring advisers said during The Deal Economy: Middle Market Week that many companies may not recover until 2022.

Restructuring advisers expect a significant increase in businesses seeking out-of-court and in-court solutions in the third and fourth quarters, with many companies not recovering until 2022.

As long as people are restricted from travel and are required to social distance because of the Covid-19 pandemic, many industries will continue to struggle and require restructuring, Grant Thornton LLP principal Ryan Maupin said during a distressed investing session moderated by The Deal’s Steve Gelsi on Wednesday, July 29, as part of The Deal Economy: Middle Market Week.

“I think it depends on how long people are not able to travel,” Maupin said. “So many companies rely on people traveling — hotels, restaurants, retail, airlines, rental cars. As long as people are restricted from moving around, it will exacerbate the situation.”

Maupin said his firm, like many others, has been busy in the third quarter signing client engagement letters, which he expects to spill over into the fourth quarter. He noted his firm had begun getting busy with restructuring engagements six months before the Covid-19 pandemic hit.

Some companies that tapped Paycheck Protection Program loans under the CARES Act will be able to push out inevitable restructurings by one or two quarters, said Vin Batra, managing director at investment bank Configure Partners LLC.

“It will take companies that restructure about a year to come back,” Batra said.

He agreed with Maupin that many consumer and service-oriented businesses have been hit hard by the Covid-19 pandemic. A few industries, however, have not been affected heavily for the most part, including technology, healthcare and certain industrial businesses.

Batra said the good news is that a lot of liquidity is available and banks have a lot of cash on hand to lend.

Maupin said challenges going forward include businesses trying to determine what the “new normal” is for a business plan. Adding to the economic challenges for businesses is the uncertainty from PPP money running out and federal unemployment checks ending for potential consumers.

He noted one challenge that restructuring firms are facing is a shortage of bankruptcy and restructuring professionals who have experience with economic downturns, since the last financial crisis ended over 10 years ago.

“The restructuring industry has a lack of volume on distressed experience,” Maupin said. “Companies need someone who has seen a financial crisis. The lender community is similar in experience. We’re all going to struggle with volume pickup in the next two quarters.”

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