2016 proved to be another challenging year for the restructuring community, mostly as a result of a continued slim pipeline of workouts and distressed opportunities. Hedge fund returns remained well off the pace of their previous years, although bets on commodities, especially oil & gas, paid out handsomely, enabling many funds who had jumped in too early the prior year to make good their previous losses.
The oil & gas sector, especially suppliers and services providers, was the main driver of workouts in Europe last year. While many names have rallied as oil prices came off their lows and stabilised, many companies remain at risk until exploration investment picks up meaningfully.
In 2017, we believe that restructuring activity should pick up. According to our research, with Trump and Brexit both confounding pollsters against all odds, investors are a lot warier over further geopolitical shocks as several looming key European elections pose potential pitfalls this year. After many false dawns, we may start to see interest rates come off their multi-year lows, which would also push some tottering credits into workouts.
Distressed investors are fairly pessimistic over Brexit, with a majority expecting a recession this year and many funds planning to scale back investments in the UK. However, private equity (PE) respondents are more bullish and aim to take advantage of any downturn.
Sterling has slumped as the UK increasingly looks likely to pursue a hard exit and quit the single market, which should boost exports but will hit some sectors hard. Retailers risk getting caught between weaker consumer spending coupled with surging purchasing costs.
Brexit is also set to alter the legal restructuring landscape, threatening to end COMI shifts to the UK by European issuers seeking to implement workouts via scheme of arrangement, as European courts will likely no longer recognise UK judgements. With a number of European jurisdictions reforming their insolvency frameworks, a challenger to London could emerge.
Banks, especially Italian lenders, provided plenty of opportunities for distressed investors in 2016, and will likely continue to do so as the ECB gets tough on swelling NPL mountains and forces the sector to get these millstones off its neck. That, together with a flatlining economy and modest insolvency regime reforms, suggests Italy could be one of the hotspots in restructuring this year.
For the past ten years, our annual European Restructuring Forum has profiled the key themes for distressed investors. Therefore, it’s a fitting close to Debtwire Week that Restructuring Day will provide the platform for ideas exchange, developing contacts and expert opinion.
I look forward to hearing from you as the programme develops.
<< Back to Restructuring Day
Written by
Robert Schach
Managing Editor - Europe
Debtwire
Rob manages the editorial team in London, overseeing the leveraged loan, high yield, restructuring and mid-market desks. He joined Debtwire in 2007 as a high yield reporter covering primary markets, going on to head the desk and ramping up its secondary market coverage. He became deputy editor at the start of 2011 and took over as managing editor mid 2012.
Prior to joining Debtwire, Rob reported for two years on the European securitization market at EuroWeek, where he covered new ABS asset classes such as catastrophe bonds, as well as the development and subsequent collapse of the sub-prime RMBS market.
He began his career as a chemical engineer, initially working as a research technician for ICI Explosives in South Africa, before moving to Europe taking up a technical sales role in the European industrial water treatment sector.
