The Examiners: Sharon Levine on the Outlook for Corporate Restructur...

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?

Despite the slowdown in total Chapter 11 filings in 2013, our law practice and many others remained fairly busy throughout 2013 and into the first quarter of 2014 through a combination of new filings by middle-market companies, out-of-court restructurings and residual workload from existing cases. The recent confirmations of restructuring plans in large bankruptcy cases like Cengage and Residential Capital, the closing of the American Airlines-US Airways merger and the absence of any new mega-cases will definitely be felt throughout the industry in early 2014.

However, although the flurry of “amend-and-extend” activity and out-of-court restructurings over the past few years definitely prevented a lot of anticipated bankruptcy filings, the reality is that the can just got kicked down the road to a period when the Federal Reserve’s gradual pullback in quantitative easing and the resulting upward creep of interest rates will make that approach harder to repeat. In addition, there appears to be a pipeline of potential retail filings forthcoming throughout 2014. A spate of large retail bankruptcies will not happen in isolation but will put cash-flow pressure on upstream sectors such as commercial real estate, logistics and manufacturing, potentially resulting in a modest resurgence in new Chapter 11 filings in those sectors by mid-2016. Additionally, we see a fair amount of out-of-court restructurings continuing through this year.

We believe that this is a phase, and it is not the first time that corporate filings have been light. As long as there is volatility (either up or down), restructuring professionals will find opportunities to add value. Perhaps interest rates are near all-time lows, but it appears that this will not last long term. As volatility returns, so will the restructuring opportunities.

Sharon Levine is vice chair of Lowenstein Sandler LLP’s national bankruptcy, financial reorganization and creditors’ rights practice.