Corporate Restructuring Activity Is Set to Increase

In this article, originally published in the American Bankruptcy Institute Journal, Michael Eisenband (Global Co-Leader of CF&R) looks at corporate restructuring activity with a light on when we might see an increase.

This article from the American Bankruptcy Institute was published in August 2022. The entire publication is available at: https://www.abi.org/abi-journal/corporate-restructuring-activity-is-set-to-increase-how-much-and-how-soon-is-debatable

“The slump in bankruptcy filings and other restructuring activity for over a year is hardly a secret within the restructuring-advisory profession, but the extent of the falloff tends to be underappreciated. Plummeting bankruptcy filings are a phenomenon across all business enterprises, with commercial filings (regardless of size) falling 43 percent last year compared to 2019 and another 20 percent to date this year. The COVID-related corporate default cycle of 2020 effectively peaked in August 2020, just five months after COVID-19 lockdowns began, after which restructuring activity has consistently subsided, running counter to widespread expectations at the time as well as historical precedent. It was an abrupt end that caught many restructuring professionals by surprise. Nearly two years later, there is nowhere to go but up for restructuring activity, but its trajectory is unclear.

Filings steadily declined throughout 2021, with the number of large corporate bankruptcies (greater than $50 million of liabilities at filing) falling by 45 percent (YOY) last year and ending the year with the lowest annual filing total since 2015, while S&P’s speculative-grade default rate fell to a sevenyear low of 1.5 percent from 6.7 percent at the end of 2020. Filing activity from the third quarter of 2021 through the first quarter of 2022 was particularly anemic, touching some monthly lows not seen since 2013-14, when the U.S. economy finally broke free of the last remnants of the Great Recession. Annualized threeand six-month filing totals still lag the trailing 12-month total, meaning that current filing trends remain depressed (see Exhibit 1). Not only were there many fewer filings in 2021, they were considerably smaller in size, too.”