The Examiners: Paul Leake 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?

The recent availability of cheap credit and the ability of companies to extend their debt maturities have undoubtedly contributed to reduced Chapter 11 filings.  Total Chapter 11 filings have dropped significantly since the financial crisis (from more than 15,000 in 2009 to roughly 9,500 in 2013), as have filings by companies with publicly traded debt or stock (from 211 to 71 during the same period). That said, it would be a dramatic over-statement to say that these circumstances have put corporate restructuring on life support.

To the contrary, we continue to see significant restructuring activity, though much less in the form of traditional, standalone Chapter 11 restructurings, and more in the context of refinancings, out-of-court deals, and preparations for prepackaged Chapter 11 plans and “quick sales” under Section 363 of the Bankruptcy Code.  We are also more involved in other types of restructurings.  We are seeing more cross-border restructurings than ever before, and municipal restructurings under Chapter 9 are becoming a significant component of restructuring activity for the first time—see, for example, the city of Detroit (which Jones Day represents).

The need for corporate restructuring services will always exist because restructuring is less about macroeconomic distress specifically than about change generally. Macroeconomic distress is just one obvious form of change that may result in the need for restructuring; others include technological and social change (e.g., traditional retail companies are under pressure due to the migration to online shopping) and legislative change (e.g., the Affordable Care Act will undoubtedly lead to dislocation for segments of the healthcare industry unable to adapt). Even apparent economic boom causes distress—fracking for oil and natural gas is a tremendous economic opportunity, but there have been severe supply-and-demand imbalances and market displacements along the way. Corporate restructuring is not going away.

Paul Leake is a partner in Jones Day’s New York office and the global practice leader of the firm’s business restructuring and reorganization practice.