Survey: Small Rate Increases Could Fuel More Restructurings

Corporate restructurings might be rarer these days, but professionals think a small increase in interest rates could change that dramatically, according to a new survey reviewed by Bankruptcy Beat.

In its 2014 Outlook Survey of restructuring experts, advisory firm AlixPartners said half of the professionals questioned think a two-point or less increase in interest rates would trigger a “significant” increase in restructurings.

About 56% of those professionals said they expect the Federal Reserve to taper its “quantitative easing” during 2014, something the Fed itself has hinted at.

In terms of what types of businesses might face issues this year, retail was the clear winner. Of the 104 senior attorneys, investment bankers, fund managers and other restructuring professionals who answered the survey, 57% picked retail in their top three of industries facing restructuring. Nearly half ranked energy resources in their top three, not a surprise considering the expected 2014 bankruptcy filing for Energy Future Holdings Corp. In the 2013 survey, just over one-third of the respondents named those industries.

With public companies still finding abundant access to cash, 58% of the restructuring professionals said they expect more distressed situations in private companies than public companies, up slightly from last year.

As has been the case in recent years, professionals are bracing for more municipal bankruptcies. More than 70% of those who responded to the survey said two or more major municipalities will file for bankruptcy this year. Lisa Donahue, AlixPartners’ global leader of turnaround and restructuring services, told Bankruptcy Beat that many financially strapped municipalities are watching Detroit as a blueprint for their own possible restructurings.

“As [Detroit] navigates its way through the process, how it comes out will become helpful to other municipalities,” Ms. Donahue said.

In terms of non-U.S. restructuring, 39% said they are most looking for opportunities in Western Europe, while 28% said Latin America. Ms. Donahue said that with more hedge funds opening up offices overseas and in Latin America, those numbers weren’t surprising.

Write to Joseph Checkler at [email protected]. Follow him on Twitter at @JoeCheckler.