Corporate financing: Too big to survive?
The difficulties in trying to marshal large numbers of disparate creditors will push more corporates into bankruptcy.
If you are going to borrow large amounts of money, you are going to need a lot of people to lend it to you. So the jumbo deals of the recent boom have left behind companies with creditor groups that run into the hundreds: for example, UK petrochemicals company Ineos, which has just agreed new debt terms, had to negotiate with its 230 lenders to get there. But large creditor groups are not new – for example the lender group to UK building firm Beazer in the early 1990s included 98 banks (some of which even went out of business as that restructuring dragged on). But the key difference this time around is that creditors are not all banks – they are a multitude of entities with very different appetites and capacities to lend. And many of these lenders might also hold CDS protection on the corporate – which could make agreement impossible if they would rather see a default trigger their CDS protection than save the company.
Getting hundreds of different parties to agree on anything is fiendishly difficult and time-consuming. But in some cases company and lenders alike need to recognize earlier rather than later that their attempts are futile.