After a cool few months, the phones are heating up again for restructuring advisors. 

Michael Kramer, head of restructuring at Perella Weinberg Partners, told the Reuters Restructuring Summit that the calls he gets from possible clients aren’t quite as panicked as early this year. 

“I think the new inquiries are picking up today — not nearly the way they were at the beginning of the year, and the emotion behind the inquiry is a little bit different.

“At the beginning of the year, it was desperation. We are in real trouble. We have to do this. How are we going to deal with this? We are going to have problems next week. We are running out of capital.” 

“Today it’s much more, ‘We think we’re going to have a problem in the future and how do we deal with that?’” 

Some distressed companies looking for buyers may want to take solace in the fact that it looks to Kramer like there might be some interested buyers out there now.

He says they’ve been calling to, saying “We’re fine, we’re healthy, but we want to take advantage of the overall situation.”

(Reporting by Caroline Humer)

In zombie films, the dead walk the earth and slowly annihilate the living. Such a frightening prospect may be in store for Europe, the Reuters Restructuring Summit was told.

Banks are one of the big problems, speakers said, as they are unwilling to take the size of write-downs necessary to cut firms’ debts down to a manageable size.

Firms owned by private equity, particularly the number two or three in their sector, are particularly at risk of becoming zombie companies because of their high debt levels and the lack of interest in such firms from equity investors, Simon Parry-Wingfield of Morgan Stanley said.

This may offer opportunities for distressed M&A, he said.

“The corporate world is beginning to see an opportunity … to pick up middle-market companies or sponsored companies which are stuck in a zombie world because of their balance sheets,” he said.

Those firms unable to attract new buyers or investors will be forced back into restructuring talks with lenders, he said, but their long-term future may not be bright.

“People are putting off the problem and the longer it takes to address operational issues, the harder and more expensive it is to fix them,” he said.

What have Liverpool Football Club, French building materials firm Materis and German forklift truck maker Kion got in common?

They have all been beneficiaries of European banks’ preference to tinker with company balance sheets rather than fundamentally restructure indebted businesses, one speaker said at this week’s restructuring summit.

However, such easy conditions — primarily because banks are reluctant to take big hits on their balance sheets — will not last long if banks’ balance sheets continue to strengthen, speakers said.

“Come the new year there will be a new spate of companies being allowed to go to the wall,” Blackstone’s Simon Davies said.

Tony Lomas, who heads the business recovery services group at PricewaterhouseCoopers, said many companies would need to go back to their banks for restructuring.

“I cannot see an upturn in the UK, Europe or the world that will be quick enough or healthy enough to sort these problems out,” he said.

Veteran insolvency expert Nick Hood gave the restructuring summit a sobering reminder of the shortcomings of corporate finance.

“Every time we have a recession I sit down with the head of workout for bank clients and ask what banks are going to learn,” said Hood, who first qualified as an accountant in 1970.

“Absolutely nothing” was their response when asked during the last recession in the early 1990s, Hood said.

“Within three years, they said, there will be high loan to value (ratios) on commercial property, covenants will be loosened and lo and behold it happened … the odds are against any learning,” he said.

He explained: “What happens is when the cycle turns, everybody’s gone — they are rich, retired and gone.”

To make things worse, Hood told the summit, there is a global shortage of turnaround specialists.

The U.S. recession and global credit crisis pulled a stunning array of corporate giants into bankruptcy court this year. Automakers General Motors and Chrysler, real estate company General Growth, and chemicals maker Lyondell all sought protection from their creditors after being brought down by rapidly changing economics and customer demands. 

While the sudden shift in fortunes for some of the world’s biggest companies wiped out the savings of some equity investors, the changes have paved the way for new and interesting investment or takeover opportunities for other investors. 
    

The restructuring professionals who help rebuild failed businesses are also learning on the fly–designing dramatically new ways of reorganizing companies and taking note of groundbreaking bankruptcy cases like Chrysler. 
   

Some of the most influential people in the restructuring sector will discuss these and related issues at the Reuters Restructuring Summit on Sept. 28-Oct 1 in New York and London. The Summit will generate exclusive interviews and investable insights from our team of expert reporters, as well as online videos and blog postings. 

Enough with the view that the current credit crisis will drag the U.S. into a “lost decade” similar to the one that Japan suffered in the 1990s, says Gary Talarico, managing director of Sun Capital Partners. 
 
Talarico lived in Japan for 12 years and worked with Ripplewood Holdings as an adviser on the hugely profitable Shinsei Bank rescue deal. He says the U.S. is much more willing to take the pain of the crisis and emerge much stronger because of it. 
 
Japan’s strategy to cope with their crisis leaned more to the left, Talarico told the Reuters Restructuring Summit in New York. And because of that, the Japanese economy stagnated for years.
 
As for what is happening in the U.S. right now? 
 
“Creative destruction is a good way to describe it,” Talarico said in reference to the failure of Lehman Brothers, the buyout of Merrill Lynch and the government takeover of AIG. 
 
“These things have to happen. I’m very sad about Lehman. I worked there for 15 years and I absolutely loved the firm. It’s a possibility that if the government moved faster, they might still be alive today. A lot of things might be different. Unfortunately, it is very hard to see the future.
 
But things have to fail, he said.
 
“There is no doubt that reckless things were done. Reckless people have to take their pain. But what we can’t afford is a systemic meltdown. It has global implications as well. So, unfortunately, tax payers have to carry some of that burden.”
 
To hear Talarico’s view on why the U.S. is not headed for a Japan-style slowdown, click here

Martin Fridson — known as the “Dean of the high yield bond market” — is concerned about what we don’t know when it comes to consequences of the U.S. federal government’s $700 billion bailout to help move toxic mortgage debt off their balance sheet.
 
Fridson, the Chief Executive of Fridson Investment Advisors,  told the Reuters Summit on Tuesday that beyond the unforeseen consequences that scare him most, moral hazard and inflationary pressures from the historic government action top his list of concerns. 
To listen to Fridson’s comments, click here

“Bankruptcies, they fall out of the sky, as we’ve all seen in the last two or three weeks,” Rob McMahon, managing director for restructuring at GE corporate lending, told the Reuters Restructuring Summit in New York this week.
    
The credit crunch has triggered Lehman’s bankruptcy and the $85 billion U.S. government rescue of American International Group.
    
At the Reuters Restructuring Summit, journalists at Reuters offices in New York and London are talking to bankruptcy industry insiders about who will be the next to fall.
    
What do YOU think is the next sector, or company, at risk for going bankrupt, and why?

The worst financial crisis since the Great Depression has everyone looking for a fall guy, especially when the U.S. tax payer has to foot the bill. 
 
While Main Street loves to blame fat cat executives asleep at the wheel as they collected multimillion-dollar bonuses, or lax regulation by government officials, turnaround specialist Wilbur Ross suggests we all look in the mirror. And oh yeah — don’t count on the history-making bailout plan to be a magic pill.
 
In fact, Ross warns that none of the moves announced by the U.S. Federal government — from the rescue of insurer AIG and mortgage giants Fannie Mae and Freddie Mac to the $700 billion financial bailout proposed to aid the mortgage market – actually address the true problem on Main Street:  It’s no easier now to for Middle America to meet their mortgage payments. And the failure to pay housing bills is what caused this whole crisis to begin with.  
 
It all paints a rather dire forecast for the rest of this year and well into 2009. For his part, Ross said he sees a current recession in the U.S. lasting through 2009. If you’re willing to stomach more bad news and find out just how we got here — click on here