Are the shoots really so green? Not for distressed companies.
Restructuring is still tough for mid-sized companies, even as confidence about the economy has improved, according to a report by investment banking firm Morgan Joseph & Co Inc.
“Direct lending by hedge funds has virtually dried up as they are focused now on trading existing paper, with the result that new financing remains very expensive,” said James Decker, head of the restructuring group, in the report.
Debtor-in-possession financing has become prohibitively expensive. About 35 percent of the fifteen most recent DIP facilities analyzed by Morgan Joseph had actual or implied spreads to LIBOR of 1000 basis points or higher.
In contrast, the average DIP loan in 2009 was priced at a spread to LIBOR of almost 800 basis points. In 2008, spreads averaged in the 500 basis points range, according to the report.
“Though the financing markets have certainly improved, one should remain skeptical of those that proclaim the capital markets will quickly return to levels experienced just prior to the financial crisis,” the report said.