Despite the past year’s spike in corporate bankruptcies, The Blackstone Group’s Timothy Coleman implied that the number has actually been kept down by companies finding new alternatives. Coleman, who is the firm’s Co-Head of Restructuring and Reorganization Advisory, said he’s seen a shift in the nature of the restructuring process over the last year.
The comments were made at this morning’s Reuters Private Equity and Hedge Fund Summit in New York.
“We’ve seen an increase in the number of out-of-court deals,” he said. “People realize that just going into Chapter 11 isn’t the only way to go.”
Coleman cited the example of C-BASS, a New York-based residential mortgage asset issuer that retained Blackstone Group’s restructuring group in 2007. He said the firm worked out a long term restructuring plan that TKKTKs for the next 25 years. “It’s a great example of a deal that before, we would have thrown the company into Chapter 11.”
The increase in tender offers and exchange offers, most recently from companies like Apollo Management and TPG-backed Harrah’s, for example, are other ways companies are attempting to circumvent the costly Chapter 11 process.
Coleman said, “There is more of a willingness by companies to do something practical.”
On the lending side, Coleman said banks are more than willing to help troubled companies avoid Chapter 11. “Most banks are not looking to push a company into Chapter 11 or own the company. They’re hoping to keep a calm world,” he said. That equals to willingness to do more amendments and allow for simpler, looser covenants, he said.
The other new development in the restructuring world, Coleman said, is the emergence of strategic buyers of distressed companies. My opinion is that if large, slow–moving, cumbersome public corporations (peHUB’s parent company included) can figure out how to turn around troubled companies, what use is there for private equity? The entire thesis behind the buyout industry, aside from their access to capital and freedom from public market scrutiny, is its ability to implement fast and effective improvements on a company. If public companies learn to do this with any aplomb, buyout firms might be just that much less relevant.
Then again, it could end disastrously. Either way, Coleman said the attraction lies in the pricing. Investment grade strategic buyers can borrow at the lowest levels they’ve seen in decades, and they can purchase a distressed company for next to nothing with little competition.