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Given this level of support, the distressed
transaction market began to recover in
mid-2009. Government interventions
like the Troubled Asset Relief Program
(TARP) in the United States and similar
programs around the world helped
shore up commercial banks and forced
them to deal with their troubled loans.
The distressed sale floodgates opened
in 2010 and distressed M&A came
back strong, with close to 90 percent
of deals booked as sale assignments.
Credit markets remained compressed
but special situation investors were
flush, so distress-focused M&A
activity was robust. Commercial
banks, bankruptcy attorneys, and
institutional junior capital providers
remained strong referral sources.
In the last two years, the restructuring
industry has continued to transform.
Similar to previous cycles, private
placement deal flow is currently favored
over M&A transactions due to the
significantly higher level of liquidity in
the capital markets. Creative senior
debt alternatives are readily available
from more than 50 publicly traded and
non-traded BDCs representing over
$55 billion in assets, as well as commercial
finance lenders, hedge funds, and
middle market lending arms of
commercial banks. This liquidity creates
fierce competition among traditional
lenders that are regulated and alternative
lenders that are obligated to deploy
capital or face returns/redemptions.
The tremendous liquidity in the capital
markets has significantly contributed
to a well-documented decline in
Chapter 11 business bankruptcies.
Even for businesses that can’t attract
liquidity in the marketplace, Chapter 11
is rarely viewed as the favored path
due to the cost involved. Other
insolvency strategies, such as state
court receiverships and assignments
for the benefit of creditors (ABCs),
have become go-to options for many
lenders with troubled borrowers.
Today, deal flow continues to originate
from attorneys, alternative lenders,
and private equity and hedge fund
investors, as well as mezzanine firms.
As history has shown, the current
landscape is just part of the ever-changing restructuring market.
Although previous cycles can provide
some guidance, it’s impossible to tell
what the future will hold and when
the cycle will turn. However, so long
as the credit markets remain open
and robust, it’s likely that private
placements will remain a strong
preference for companies facing a
special situation. A catalyst that drives
either a global or an industry-specific
downturn will be required to push the
markets to favor alternative solutions,
and the cycle will begin anew. J
Mark E. Chesen (top photo) is a founding partner
and managing director of SSG Capital Advisors.
He has more than 25 years of experience
advising businesses facing operational or
financial challenges, including bankruptcy
proceedings, and he has completed more
than 100 investment banking transactions
involving the sale, private placement, or financial
restructuring of middle market companies in
the North America and Europe. Chesen holds a
bachelor’s degree from the University of Texas.
Taylor E. Will is an analyst with SSG Capital
Advisors. He is responsible for creating valuation
models, performing financial analyses in support
of capital structure strategy, conducting market
and buyer research, and preparing transaction
progress reports. He works closely with SSG
senior bankers advising clients on M&A, private
placements, financial restructuring, and
valuation engagements. Will holds a bachelor’s
degree from the University of Pittsburgh.