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Insolvent companies: Pulling the strings

The new stakeholders in insolvent companies, and the rise of a rescue culture, mean the next wave of restructurings will be radically different from the last

(This article appears courtesy of International Financial Law Review, sign up for a free trial on their site

The cast of contributors to the restructuring process has transformed over the last five years. In the next wave of restructuring, whenever it comes, practitioners will be dealing with a truly changed market place.

The range of participants is now huge, including hedge funds along with distressed and high yield investors. As a result the direct, bilateral relationship between corporates and their lending banks has – at least in the UK, the US and increasingly in western Europe – not just changed, but disappeared.

As if that wasn't enough, the new stakeholders all have different agendas. This will lead to more aggressive strategies on both sides, as the stakes are raised for all involved.

When will it come?

Last year was unexpectedly strong for even the riskiest corporate debt issuers. Relatively low interest rates, tight corporate-bond yield spreads, abundant liquidity and robust debt issuance all helped defaults stay near record lows in 2006.

In speculative-grade debt, Moody's global default rate fell from 1.8% in 2005 to 1.57% in 2006, marking the fifth consecutive annual decline and the lowest year-end level in over two decades.

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