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More Firms Edge into Restructuring

The number of companies whose debt has fallen from investment to speculative grade is outpacing the number of firms whose debt ratings are improving, says Standard & Poor's. And though some say no overt signs of weakness are evident in the market, a number of firms seem to be positioning themselves for a downturn.

Dealbook points to the acquisition of restructuring advisor Kramer Capital Partners by Perella Weinberg, and creditor advisor Chanin Capital by Duff & Phelps, as signs demand will grow for bankruptcy and restructuring expertise.

Banks like Goldman Sachs have been building their restructuring practices since the summer. In July, Roger Ehrenberg, former chief executive Deutsche Bank Advisors, pointed out that economic downturns may dampen M&A activity, but they can also "turbocharge" restructuring activity.

The trend toward lower credit and more leverage "may cause problems if lenders and purchasers of bonds become less willing to hold speculative-grade debt," observes Dealbook. "The result could be a rash of defaults, which seems to be just what firms such as Perella Weinberg are bracing for."

It would be logical to think that such a shift would lead to an increased demand for restructuring specialists. However, that might not be the case. For example, says one recruiter, hedge funds won't be analyzing deals if there are no deals to be made. And the And, points out CFO magazine, overall credit quality has remained strong, and the signs of a shift are, at least so far, subtle.

AUTHORAnonymous Insider Comment

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