FRONT STORY UK MARKET
Brexit tests restructurings
Corporate insolvencies in Q1 2019 were the highest for five years
Uncertainty is deterring investors from buying up distressed debt
The uncertainty surrounding Brexit is
MAKINGûITûMOREûDIFlCULTûFORû5+ûBUSINESSESû
TOûRESTRUCTUREûTHEIRûDEBTûASûINVESTORSûAREû
shying away from distressed situations,
LEADINGûTOûANûINCREASEûINûTHEûNUMBERûOFû
INSOLVENCIES ûACCORDINGûTOûRESTRUCTURINGû
SPECIALISTS
4HEû)NSOLVENCYû3ERVICE ûAû5+ûGOVERNMENTû
AGENCY ûREPORTEDûAûûRISEûINûCORPORATEû
INSOLVENCIESûINûTHEûlRSTûQUARTERûCOMPAREDûTOû
THEûSAMEûPERIODûLASTûYEAR ûANDûTHEûNUMBERû
REACHEDûITSûHIGHESTûlRST
QUARTERûlGUREûFORû
lVEûYEARS
)NûTHEûlRSTûQUARTERûTHEREûWEREûALSOûû
ADMINISTRATIONS ûûHIGHERûTHANûTHEû
FOURTHûQUARTERûOFûûANDûTHEûHIGHESTû
NUMBERûSINCEûTHEûlRSTûQUARTERûOFûû
#OMPANYûVOLUNTARYûARRANGEMENTSûWEREûALSOû
UPûAûMASSIVEûûINûTHEûlRSTûQUARTERûWHENû
COMPAREDûWITHûTHEûPREVIOUSûTHREEûMONTHS
h"USINESSESûHAVEûFACEDûUNCERTAINTYû
AROUNDû"REXITûANDûTHEûFUTUREûOFûTHEû5+Sû
TRADINGûRELATIONSHIPûWITHûTHEû%5û4HISûWASû
PARTICULARLYûACUTEûINûTHEûlRSTûQUARTERûOFûTHISû
YEARûASûWEûAPPROACHEDûTHEûORIGINALû@"REXITû
$AYûONûû-ARCH vûSAIDû3TUARTû&RITH û
PRESIDENTûOFûINSOLVENCYûANDûRESTRUCTURINGû
TRADEûBODYû2
h.O
DEALûPREPARATIONSûPUTûPRESSUREûONû
BUSINESSESûTOûSTOCKPILEûGOODSûANDûMATERIALS û
INûTURNûPUTTINGûPRESSUREûONûTHEIRûCASHmOWû
-EANWHILE ûBUSINESSESûRELIANTûONû%5ûTRADEû
SAWûORDERSûANDûINVESTMENTûSTALL vûHEûSAID
)NûTHEûLATESTû"ANKûOFû%NGLANDû$ECISIONû
-AKERû0ANELû3URVEY ûûOFûBUSINESSESû
REPORTEDûTHATû"REXITûISûCURRENTLYûONEûOFûTHEû
top three sources of uncertainty for them,
ANûINCREASEûFROMûJUSTûBELOWûûINûTHEûlRSTû
HALFûOFû
h)TSûCLEAR ûFROMûDIRECTûCONVERSATIONûANDû
FROMûMOREûFORMALûSURVEYS ûTHATûMANYû
BUSINESSESûAREûAPPREHENSIVEûABOUTû"REXIT vû
SAIDû"ENû"ROADBENT ûDEPUTYûGOVERNORû
MONETARYûPOLICYûATûTHEû"/%
4HISûUNCERTAINTYûISûNOWûBEGINNINGûTOûDETERû
INVESTORSûFROMûBUYINGûUPûDISTRESSEDûDEBTûINû
the secondary markets and/or from putting
NEWûMONEYûINTOûBUSINESSûWITHûLIQUIDITYû
PROBLEMS ûRESTRUCTURINGûADVISERSûSAY
“Brexit is affecting restructurings getting
DONEû)FûTHEREûISûLESSûCERTAINTYûONûHOWûAû
BUSINESSûMIGHTûTRADEûGOINGûFORWARDû
INVESTORSûAREûLESSûCONlDENTûANDûMOREûCAREFULû
ABOUTûBUYINGûINTOûSECONDARYûDEBTvûSAIDûONEû
RESTRUCTURINGûLAWYER
h,ENDERSûWILLûGETûSTUCKû7EûAREûMODELLINGû
INûMOREûINSOLVENCYûTYPEûSCENARIOSûINTOûOURû
product offering) as sometimes now this is
THEûONLYûOPTIONv
!NOTHERûRESTRUCTURINGûLAWYERûAGREEDû
h#ERTAINûINVESTORSûAREûNOTûQUITEûSOûREADYûTOû
GETûINTOûDISTRESSEDûDEBTûWHENûTHEYûDONTû
know how things are going to go post
RESTRUCTURINGv
4HISûDIFlCULTûSITUATIONûISûEXACERBATEDûBYû
THEûREDUCTIONûOFûCOVENANTSûINûLENDERû
DOCUMENTATIONûMEANINGûTHATûLIQUIDITYû
PROBLEMSûAREûOFTENûLEFTûUNDETECTEDûUNTILûTHEû
COMPANYûREACHESûCRISISûWITHûLITTLEûTIMEûLEFTû
TOûlNDûTHEûNEWûMONEYû)TûISûFURTHERû
COMPLICATEDûBYûTHEûFACTûTHATûMANYûLENDERSû
ALSOûINCLUDEûCLAUSESûINûTHEûDOCUMENTATIONû
THATûDOûNOTûALLOWûFORûNEWûMONEYûINJECTIONSû
WHICHûWOULDûDILUTEûTHEIRûSECURITY
h)FûTHEYûHAVEûNOûLIQUIDITYûANDûTHEYûCANTû
GETûANYûNEWûMONEYûTHENûSIMPLYûTHEYûHAVEû
TOûlLEvûSAIDûONEûRESTRUCTURINGûADVISER
A BRITISH PROBLEM
BRITISH STEEL, tour operator THOMAS COOK and
car manufacturer JAGUARûHAVEûALLûREPORTEDû
lNANCIALûPROBLEMSûINûRECENTûMONTHSûSOMEû
OFûWHICHûCANûBEûDIRECTLYûATTRIBUTEDûTOûTHEû
"REXITûEFFECT
"RITISHû3TEELûTHEû5+SûSECONDûLARGESTûSTEELû
PRODUCERûWASûPUTûINTOûCOMPULSORYû
LIQUIDATIONûONû-AYûû)TûWASûUNABLEûTOûMEETû
ANû!PRILûûDEADLINEûTOûCOMPLYûWITHûTHEû
%UROPEANû5NIONSû%MISSIONSû4RADINGû3YSTEMû
DUEûTOûTHEûABSENCEûOFûûFREEûPERMITSûTHATû
WEREûNOTûISSUEDûDUEûTOû"REXITûNEGOTIATIONS
h4HEYûWEREûTREATEDûDIFFERENTLYûINû%UROPEû
AFTERû"REXITvûSAIDûTHEûlRSTûRESTRUCTURINGû
LAWYER
4OURûOPERATORû4HOMASû#OOKûHASûALSOûHITû
TROUBLEûANDûISûLOOKINGûTOûSELLûOFFûASSETSûTOûPAYû
DOWNûDEBTûTOûAVOIDûAûDEBTûRESTRUCTURINGûORû
POSSIBLYûLIQUIDATIONû4HEûCOMPANYûHASû
AROUNDû53BNûOFûOUTSTANDINGûLOANSû
ACCORDINGûTOû,0#ûDATA
h"REXITûWASûBOUNDûTOûHAVEûANûEFFECTûONûAû
COMPANYûLIKEû4HOMASû#OOKû0EOPLEûDONTû
KNOWûWHATûTOûEXPECTûFROMû"REXIT ûSOûTHEYû
ARENTûBOOKINGû%UROPEANûHOLIDAYSûANDûNOWû
AFTERûNEWSûABOUTûDEBTûPROBLEMS ûWHOûISû
GOINGûTOûBUYûAûHOLIDAYûFROMûTHEMvûSAIDûTHEû
lRSTûRESTRUCTURINGûLAWYER
h4HEYûMIGHTûBEûABLEûTOûGETûNEWûMONEYû
BUTûLENDERSûHAVENTûFORMEDûGROUPSûFORûAû
DEBTûRESTRUCTURING û)ûTHINKûITûISûEITHERûSELLû
THEûBUSINESSûORûINSOLVENCYv
4HEûSITUATIONûISûFURTHERûCOMPOUNDEDûBYû
BANKSûINCREASINGûRELUCTANCEûTOûLENDûINTOû
CERTAINûSECTORSûSUCHûASûRETAILûANDûCONSTRUCTIONû
ANDûNOWûTOûBUSINESSESûTHATûTHEYûFEELûWILLûBEû
DIRECTLYûIMPACTEDûBYû"REXITûACCORDINGûTOû
INFORMATIONûGATHEREDûFROMûATûLEASTûû
BUSINESSESûACROSSûTHEû5+ûBYûTHEû"/%
h4HEREûWEREûSOMEûREPORTSûOFûBANKSû
APPLYINGûTIGHTERûLENDINGûCRITERIAûTOûLOANû
APPLICATIONSûFROMûCOMPANIESûEXPOSEDûTOû
"REXITûUNCERTAINTYû,ARGEûCOMPANIESûû
WHICHûUSUALLYûHAVEûEASIERûACCESSûTOûCREDITû
ûHAVEûALSOûSIGNALEDûTHATûCREDITûCONDITIONSû
HAVEûBECOMEûSOMEWHATûLESSûFAVOURABLEûINû
RECENTûMONTHSû&ORûEXAMPLEûSOMEûBELIEVEDû
THATûRAISINGûBONDûlNANCEûMIGHTûBEûMOREû
EXPENSIVEûATûPRESENTûDUEûTOû"REXITû
UNCERTAINTYvûTHEûREPORTûSAID
4HEûPROBLEMSûFACINGûMANYû5+ûBUSINESSESû
INûDISTRESSûAREûNOTûPURELYû"REXITûRELATEDû
(IGHûSTREETûBUSINESSESûAREûFACINGûISSUESû
INCLUDINGûHIGHûRENTSûANDûONLINEû
competition; the construction sector is
DOMINATEDûBYûOVERûSUPPLYûANDûRESULTINGû
POORûPROlTABILITYûANDûTHEûAUTOMOTIVEûSECTORû
ISûSTRUGGLINGûWITHûFALLINGûDEMANDûANDû
ENVIRONMENTALûCHALLENGESû(OWEVERû"REXITû
ISûINûSOMEûCASESûPROVIDINGûTHEûlNALûELEMENTû
to create a perfect storm that is pushing
SOMEû5+ûBUSINESSESûOVERûTHEûEDGE
h7EûAREûFACINGûAûUNIQUEûSETûOFû
circumstances and it is hard to predict how
ITûWILLûPANûOUTvûSAIDûONEûINSOLVENCYû
PRACTITIONER
Sandrine Bradley
“We are facing a unique set of
circumstances and it is hard to
predict how it will pan out”
LOANS
China Hong Kong 62 India Japan Belgium Germany Russia South Africa û
UAE 66 UK 66 United States Leveraged Loans