The Examiners: Philip C. Dublin on the Outlook for Corporate Restruc...

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 current corporate restructuring climate is analogous to a patient in a drug-induced coma who will, in due course, emerge from that coma, as opposed to being on life support. My view is consistent with that of a number of professionals in the restructuring world with whom I have spoken, many of whom are more concerned about the near-term health of the industry than its long-term prospects. Corporate restructuring is cyclical—interest rates will eventually increase, corporate indebtedness will eventually mature and certain companies will be unable to satisfy their debts for various other reasons. When corporate restructuring regains its health, however, it likely will not be the same robust industry that characterized the period following Lehman Brothers’ bankruptcy filing. Indeed, I believe that true “mega” Chapter 11 filings will be fewer and farther between in the near term based on, among other things, the amount of capital that traditional lenders are willing to put at play in the distressed market at relatively low interest rates.

There will, of course, be exceptions. And there will be industries that struggle regardless of capital availability, such as quick-service restaurants and retailers that continue to lose their battle with online shopping alternatives. One variable that could impact future bankruptcy filings is the extent to which hedge funds will continue to provide new capital to distressed companies. While many hedge funds have substantial liquid assets that must be put to work—leaving many to believe that there is an abundance of rescue financing available from sources other than traditional lenders—it has also become a difficult time for hedge funds to raise new capital. Hedge funds may therefore be more cautious about throwing good money after bad in a distressed situation, a strategic decision that could wake the patient more quickly.

Philip C. Dublin is a partner at Akin Gump Strauss Hauer & Feld LLP in New York, where he concentrates on creditors’ rights, corporate restructurings and bankruptcy law.