79% of Restructuring Experts Predict Increased Corporate Debt Defaults, According to Survey
SOUTHFIELD, Mich., (June 1, 2007) — No less than 79 percent of leading restructuring experts predict increased defaults on high-yield corporate debt in the next 18 months, according to a new survey by AlixPartners LLP. The survey, called the AlixPartners Risk Factor Index, was conducted in May with select bankers, lawyers, fund managers and other industry experts in the U.S., with 34 responding in detail. The remaining 21 percent of the respondents said they expect the level of debt defaults to remain the same over the next year and a half, while none said the level will decrease.
When asked to rate which of five key industries is most likely to experience the need for turnarounds, 59 percent picked manufacturing, followed by financial services (24 percent), retail and consumer products (21 percent), and healthcare and pharmaceutical (19 percent). Of note, in addition to these “most-likely” votes, all five industries received several votes each for “second-most likely” and “third-most likely.” The fifth industry in question was energy and utilities.
Why are debt defaults expected to increase? Thirty-five percent of those polled predicted the trigger will be some sort of a shock to the economy, with events ranging from a big bank meltdown to, the unthinkable, a terrorist attack listed as possibilities. An additional 35 percent said that today’s unprecedented debt levels alone might be the trigger, as more and more companies stagger under the weight of today’s crushing debt loads. By contrast, only 16 percent said they thought that a full-blown recession would be necessary to drive an expansion in debt defaults.
However, of note, 31 percent said that increased government regulation of hedge funds, in the U.S. or internationally, would lead to less liquidity in the market—which many experts believe could itself bring on a recession.
“This survey helps explain why so many investment banks, law firms and restructuring firms have been gearing up and adding new people of late,” said Peter Fitzsimmons, co-president of AlixPartners and also co-lead of the firm’s restructuring practice. “A lot of us, as they say, ‘have seen this movie before.’ That’s why corporate managements, boards and investors should be aggressive in preparing their companies not to be among the road kill when default rates start climbing again. As history has shown, those who wait for ‘the first signs of trouble’ have usually waited too long already.”
Because so many companies today know no national boundaries, the experts also were asked to predict the future of cross-border restructurings, a top topic in Europe in particular. A resounding 71 percent said they believe the number cross-border restructurings will increase in the next year and a half, with only 3 percent expecting them to decrease.
These results mirror those from a survey AlixPartners gave earlier this month to restructuring experts in Europe, where 70 percent predicted the number of cross-border restructurings to increase in the same timeframe. In that same survey, 85 percent of the Europeans surveyed predicted increasing debt defaults over the next 18 months.
About AlixPartners
AlixPartners is a global restructuring, consulting and financial advisory firm. The firm has offices in Chicago, Dallas, Detroit, Düsseldorf, London, Los Angeles, Milan, Munich, New York, Paris, San Francisco, Shanghai and Tokyo. It is on the Web at www.alixpartners.com. |