If This Is a Great Economy, We’ll Take Some More of It
Restructuring Activity Nears 2016 Highs While S&P 500 Surges to New Record
Once upon a time, restructuring professionals inhabited a feast-or-famine business environment that was highly dependent on the economic cycle, experiencing lean times in periods of robust economic expansion and boom times in and around recessions. Perhaps that is no longer the template. What should have been one of those lean years for our profession has turned out to be a fairly bountiful one for restructuring activity; meanwhile, equity markets continue their relentless march higher despite some lingering economic uncertainties.
Large Chapter 11 filings through October are tracking 28% higher than a year ago and have a reasonable chance to top the decade-high 150 filings of 2016. Already there have been 23 filings of more than $1 billion (liabilities at filing) through October compared to 19 in all of 2018. Moreover, the proportion of prepackaged filings is down notably this year, while the number of Chapter 22 filings has reached levels not seen since the recession. Similarly, the number of S&P rated debt defaults (which includes distressed debt exchanges) surpassed its 2018 total in early October.
All of these totals are not recession-like numbers by any stretch but are solidly above typical levels of restructuring activity in a year of economic expansion. While energy filings dominated restructuring activity in 2016, accounting for one-third of all filings, they account for only 18% of filings in 2019 — meaning that the distribution of bankruptcy filings across industry sectors has begun to broaden.