Corporate debt restructuring wave requires creative solutions

The current corporate debt restructuring wave, which is likely to be prolonged, puts pressure on market participants to seek amend-and-extend solutions, according to the participants of Debtwire Restructuring Forum Europe 2023 which took place last week.

CDR attended the event and took the following takeaways:

The panellists debated whether we were going into another 2008-like crisis and highlighted the difference between then and now. Whilst they agreed that the current crisis is different in nature from the GFC, they also forecasted that the current downturn cycle was going to be the biggest and longest one since 2008.

Inflation and rising interest rates were clearly front of mind as corporate borrowers across the globe urgently reassess the sustainability of their debt funding and evaluate the best refinancing and restructuring options.

Debtwire conducted an online survey ahead of the conference and many of the findings were in line with the consensus at the event. In particular, 86% of survey respondents thought that debt restructuring activity was likely to increase in Europe in 2023 compared to the previous year whilst 52% of respondents believed rising interest rates to be one of the top three macroeconomic factors most likely to drive that restructuring activity this year.

Interestingly, the UK and Italy topped the list of countries that were likely to see the biggest uptick in year-on-year restructuring activity in 2023. In terms of sectors, financial services and consumer featured among the most attractive to distressed debt investors in Europe in the next 12 months. In the Middle East, construction and real estate topped the list (58%) whilst in Africa – energy was the top pick (63%).

The evolving regulatory environment was also discussed with mention of the EU Directive of Restructuring and Insolvency impact on local legislations. It was mentioned that Germany, France, Spain and the Netherlands had already updated their restructuring regimes. Interestingly 96% of respondents in the UK and Ireland favoured further harmonisation of restructuring and insolvency law in the EU, a higher proportion than in any other region, despite Brexit.

Not surprisingly ESG remains a prominent topic among debt professionals. 84% agreed that companies without positive ESG records would find it challenging to attract funding when restructuring compared to companies with solid ESG records.

Given this challenging outlook, opportunities for distressed debt participants and restructuring are highly likely to increase and companies who need to refinance will benefit from the advice of a bench of senior advisers, like CDR, who are experienced in protecting their clients’ reputation through the most complex macro-economic cycles.