Restructuring boutiques are recruiting in anticipation of a surge in credit defaults.
High oil prices and rising interest rates may be bad news for most of the U.S. economy, but they're music to the ears of the restructuring experts who specialize in parcelling up the debts of ailing companies. Little surprise then, that restructuring houses are on the lookout for staff.
Gary Goldstein, chief executive of financial services search firm The Whitney Group, says the restructuring market has seen a spate of hiring activity: "We've been doing a lot of work with restructuring boutiques. There's a distinct feeling that the loose credit environment of the past few years is going to come to bite and firms are looking to build their capabilities."
Restructuring boutiques like Chicago-based AEG Partners, and New York-based Evercore Partners are among those hiring. In July, AEG added two managing directors to its restructuring team. Last week, Evercore hired two well-known Wall Street bankruptcy bankers, Bill Repko and David Ying, as co-heads of its restructuring unit.
Ying predicts more hires to come: "We currently have around ten people in our restructuring group and it's likely a few more will be added this year."
Hiring will be driven by rising defaults on high yield debt, forecasts Ying. "It's unlikely we're going to continue to operate at a 1.5% default rate on high yield indefinitely," he says, "Over a long period of time, the average default rate has been 3.5% or 4%, and at times it's been into double digits. Even if the default rate reverts back to its long term average, growth in the high yield and leveraged debt market means restructuring work has the potential to increase considerably."
Law Change Adds Impetus
In the short term, the first change in the bankruptcy laws for over a decade is spurring restructuring activity. On October 17th, changes passed by Congress in April will come into effect, making it more difficult for companies to write off debts and start with a clean slate. Delta Air Lines filed for bankruptcy last month, ahead of the new deadline, and there's speculation that others such as Delphi, the auto parts manufacturer could soon follow.
The changes to the bankruptcy laws could also bring investment banks to the restructuring table. From October 17th, the definition of interested parties that can help companies through the restructuring process will be amended. Interested parties are currently defined as anyone who has underwritten securities in a company over the past three years. Under the new law, this clause will be lifted. "It opens the opportunity for investment banks to participate," says Ying.
Jim Geiger, a consultant at New York-based Analytic Recruiting, says banks are already eager to hire credit risk analysts to assess the likelihood of future defaults. "Banks need credit and market risk expertise with a high yield or distressed debt background," he says.
He adds that people with a background in risky debt can expect to earn a 25% premium over those without.