Summit Notebook

from DealZone:

Diamonds in the rough

Somewhere out there are ailing companies in need of a turnaround specialist. These experts -- also known as company doctors -- parachute into troubled businesses to turn their business around.

Funds, such as Oaktree Capital, HIG Capital and Apollo Management, specialise in buying up companies in distress (either through buying equity or debt) and turning them round.

And this should be a great time for these investors -- banks are loaded with stakes in troubled companies and unwieldy corporates may want to spin off unwanted businesses.

But banks are not playing ball. They want to wait until the economy recovers and sale values rise. So few companies are up for sale. But the funds want bank sales of stakes to accelerate otherwise it might be too late to turn these companies around.

Private equity certainly has the appetite for new deals. As Reuters reported yesterday, the private equity industry -- which may have up to $1 trillion in 'dry powder' -- is looking to the next restructuring wave for opportunities.

"Sponsors want new proprietary deals to show their limited partners they are not just churning portfolios," a top investment banker told the Reuters Restructuring Summit.

Restructuring calls heat up

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.”

Zombie companies

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.

from Funds Hub:

A “remote, silent whirlwind”?

We may have just lived through the biggest financial crisis in 80 years, but its impact may still not have been big enough for people to learn the right lessons for next time.

Philip Wood, special global counsel at Allen & Overy, told today's Reuters Restructuring Summit in London's Canary Wharf that the effects on the Western world's populace of the credit crisis, while large, have simply not reached the proportions of 80 years ago.

"Do people remember (the lessons from a crisis)? Sometimes they do."

It took 140 years for the British to get over the South Sea Bubble of 1720 and introduce the Companies Act in 1862, he said.

"German inflation of the 1920s still casts a shadow over the German folk memory," he added.

"(But) I'm not too sure people will remember much about this one. Apart from a few unpopular people losing their jobs, it's not hit the population in the same way the Great Depression has, where people were hungry... it was catastrophic.

"We've lost a year's GDP, but for most people it's been a remote, silent whirlwind."

from Funds Hub:

The morgue after Christmas

He said at the Reuters Restructuring Summit in London that by the end of the year banks will issue "in patient", "out patient" or "morgue" judgements as they go about the business to decide who gets much needed loans and who does not.