The Examiners: Lisa Donahue on the Outlook for Corporate Restructuri...

Interest rates that remain near zero and debt maturities that have been pushed out to 2017 and 2018 have helped drive Chapter 11 filings to historic lows. Has this difficult environment put corporate restructuring on life support?

To paraphrase Mark Twain, rumors of the death of corporate restructurings are premature.

For starters, despite the abundant liquidity and lenient lending practices available to companies over the last several years, there have still been a fair number of restructurings (and, importantly, turnarounds) going on. While there haven’t been as many “big names” as in past eras, Kodak and American Airlines notwithstanding, many companies—especially middle-market ones, which often don’t have the same access to funding sources as larger companies—have had to recalibrate themselves to compete in today’s fitful economy. In fact, AlixPartners saw its Americas turnaround-and-restructuring revenues increase by double digits last year, and we’re seeing an uptick in engagements so far this year—in industries as diverse as maritime and health care, energy and restaurant chains, not to mention growing work in Latin America.

Some of our work is post-Chapter 11 operational restructurings—helping companies improve their P&Ls after their balance sheets have been “fixed” via fast, prepackaged bankruptcies. We love the work (operations are our specialty), but I think many companies would be better off if their operations were addressed up front, at the same time as their financials. In fact, between operations often not being fixed at all (which has produced a lot of “Chapter 22s,” companies that go into Chapter 11 a second time) and the broader “amend-and-extend” trend supported by high liquidity and low interest rates, it’s hard not to worry that we may be creating an “underperforming-company bubble” to rival the housing bubble of the past.

However, with the Fed now tapering quantitative easing in earnest, don’t bet on interest rates remaining low forever. So, forget “life support.” 2014 might well be a tipping-point year—for the turnaround-and-restructuring industry and for corporate America.

Lisa Donahue is global leader of the turnaround and restructuring services group at business-advisory firm AlixPartners LLP and is based in New York.