The Examiners: Marc Leder on the Outlook for Corporate Restructuring

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?

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?

It’s important to remember that Chapter 11 bankruptcy filings represent just one mechanism for restructuring the operational capabilities and balance sheet of a company. While these often garner outsized public attention, the truth is there is a constant flow of restructuring throughout all markets.

Though there may be less incentive for large companies right now to pursue a Chapter 11 filing given access to the capital markets and the robust debt market, this is just one piece of the restructuring puzzle. Regardless of economic conditions, companies run into significant challenges that may require restructuring, such as running out of liquidity, a failed acquisition or ongoing operational inefficiencies. The fact that “cash is king” cannot be understated, as running out of liquidity remains the biggest driver of Chapter 11 bankruptcy filings.

Fortunately, there are a number of alternatives for an underperforming business to begin a restructuring-fueled turnaround without having to seek Chapter 11 protection. In many cases, these alternative restructuring paths can be achieved more quickly and more cost-effectively.

Every month at Sun Capital, we examine the operations and finances of nearly 70 companies that are for sale and need restructuring to improve performance. For investors who are willing to roll up their sleeves and do the work to improve the company’s operations, there is ample opportunity to purchase companies at reasonable prices, work with management to fix the problems and then access the capital markets to fund the companies’ growth.

Marc Leder, co-chief executive officer of Sun Capital Partners Inc. of Boca Raton, Fla., has been engaged in leveraged buyouts, investment banking, and business operations for more than 25 years.