The positive economic climate seen around much of the world is a mixed blessing for restructuring and turnaround professionals. We continue to see signs of growth from investment in infrastructure and energy, consumer spending, job creation, and asset value appreciation, all without the inflation and interest rate increases that typically accompany this climate. Sectors such as retail are facing continued challenges from disruption to their business models, but in general distressed companies of late have arisen from more isolated issues or unfortunate events than from systemic, sector-wide causes.
This has generally translated into fewer restructuring cases across our markets. But on the positive side, this has meant that companies and their advisors have had more tools available to them to address issues when they do arise. The liquidity available in the market, from traditional lenders and alternative investors alike, provides more options for bankable businesses. Companies are being given the opportunity to pursue operational turnaround strategies and manage their recovery rather than leaving it to lenders to pick up the pieces.
One consequence of this economic environment has been a shift by lenders in their risk tolerance and expectations. These changes could affect how companies, creditors, and turnaround advisors will need to engage in the next wave of restructurings as the market turns. Among other things, the resurgence of covenant-light loans has taken away many of the traditional early warning signs for lenders, so options may be narrowed unless both companies and creditors are actively engaged in seeing solutions early.
Professionals will need to remain nimble as the economy moves forward, particularly given the widely touted risks of rising interest rates and ongoing political and trade uncertainty. The articles in this JCR illustrate the importance of responding to differing economic and legal climates in restructuring proceedings and provide tried-and-true guidance for working through turnaround situations in this environment.
Linc Rogers and Aryo Shalviri of Blake, Cassels & Graydon discuss recent retail insolvency proceedings seen in Canada and, in particular, on the role of foreign parent companies on the process. The parent-subsidiary relationship understandably gives rise to jurisdictional and corporate governance issues at the outset of formal proceedings, but the existence of intercompany debt, shared services agreements, and other transactions going across borders has created some interesting challenges in recent cases.
Daniel F. Dooley, CTP, and Todd A. Zoha, CTP, of MorrisAnderson highlight the disruptive trends affecting casual dining restaurants. As market changes have chipped away at the drivers for existing business models, Dooley and Zoha identify essential actions for restaurateurs to remain competitive.
Ken Naglewski, CTP, of The One Eighty Consulting Group presents a clear vision for restructuring professionals on the six things to consider in managing a turnaround. He goes beyond technical considerations to focus on the effective soft skills and management style points that drive change in the turnaround process.
Caitlin Fell of Brauti Thorning Zibarras and Ken Rosenstein of Aird & Berlis offer views on the use of roll-ups in DIP financing in Canadian restructuring proceedings. Notwithstanding its frequent use in U.S. proceedings, the practice has been debated in Canada since amendments to insolvency legislation were implemented in 2009.
Steffen Kroner and Bob Rajan of Alvarez & Marsal share their keys to success for buying distressed assets in German insolvency proceedings. Several unique aspects of the German process make it important for potential buyers to treat these opportunities differently than those in other countries.
Daniel Lowenthal of Patterson Belknap Webb & Tyler gives a preview of what to expect as the debt crisis in Venezuela continues to evolve. Venezuela’s challenges emanate from significant debt raised while oil prices were strong. Now, in the face of a continued downturn in oil, U.S. sanctions, and an upcoming election, the country may seek new partners and creative ideas to avoid default.