A New Year Brings New Challenges

by Greenberg Glusker Fields Claman & Machtinger LLP
Contact

A new year always brings new and unexpected challenges.  Turnaround professionals make careers out of expecting the unexpected and helping their clients turn challenges into opportunities.

We asked several turnaround professionals to let us know, in a few words, what they see coming in 2014, and here are their comments:

Robert-Riiska-225x300[1]“For 2014, I see continued emphasis on out-of-court restructurings and refinancings when company management and ownership commit early on to obtaining appropriate professional restructuring consulting and insolvency legal advice.  I’m expecting that lenders in these instances will provide a reasonable length of time for credible turnaround or other exit strategies to play out, provided there are specific action plans and timelines in place.”

Robert Riiska, Senior Managing Director and Head of Western US Practice, Focus Management Group USA, Inc. 

John-H-240x300“2013 ended as being one of the slowest years for ‘Traditional Restructuring Work.’  This was a direct result of two primary factors:  first, the continuation of a historically low interest rate environment allowed companies that are barely making loan covenants to continue to be compliant, and, secondly, large amounts of new capital was available in the market.  As a result, as companies became distressed, lenders simply sold off their positions to other lenders or stakeholders instead of going through a traditional work-out or loan restructuring.  This, of course, does not address underlying business issues or operating problems – it merely defers the issue to a later date.

As far as 2014 looks, we expect more of the same to be in place at least through the first half of the year. When interest rates begin to tick up – and they will have to sometime soon as the Federal Reserve cuts back on its stimulus – companies and lenders will have to ‘face the music’ for the first time in a long time.  A return to more normal levels of restructuring activity appears to finally be on the horizon, with the exact timing the only remaining question.”

John F. Hedge, Principal, Scouler & Company, Los Angeles, CA 

Hiramatsu Small“The focus of my work is on lower middle market businesses (revenues less than $100 million) which are underperforming or financially distressed.  Many of these businesses tend to have operational and financial issues, regardless of macro-economic issues.  For 2014, industries which will continue to experience challenges include those that have been or will be directly or indirectly impacted by federal government budget cuts.  Retail chains and their suppliers will continue to face pressure on margins as the new normal for consumers is to be more frugal and to price shop more extensively on-line before committing to larger purchases.  Some stakeholders in this marketplace are now becoming more proactive with their clients and referring in turnaround professionals earlier than in the past, which allows more time for a successful turnaround of a client.  With the top line of clients’ income statements gradually increasing, there are more opportunities to be creative to restructure a business.  For 2014, I am cautiously optimistic that the trend for turnaround and restructuring work will continue to improve.”

Bette Hiramatsu, MBA, CIRA, President, Hiramatsu & Associates, Inc.

Ellen Gordon“The decision by the Fed during its final meeting of 2013 to begin winding down the stimulus purchasing program signals that the Fed has confidence that the economy will continue to grow, although the pace of growth is expected to remain sluggish.  While the turnaround industry is generally thought to be counter-cyclical, meaning there are more opportunities for turnaround professionals when the economy is in trouble, we expect that as interest rates begin to rise amidst a slowly improving economy, there will be opportunities for turnaround professionals to improve the performance of struggling businesses and keep them out of bankruptcy.  However, we also expect continuing challenges for businesses in the consumer products industry, particularly those distributing through ‘brick and mortar’ stores, as consumers are impacted by a weak labor market, lower wage levels, government regulation, and economic uncertainty.”

Ellen K. Gordon, Senior Director, Avant Advisory Group

ncook borderless“2013 saw a large amount of equity capital chasing a limited number of available transactions, resulting in many highly competitive transaction processes often financed by highly leveraged, low interest rate, covenant-lite loans.  Additionally, default rates remained near historic lows.  Further, the restructurings that did take place were often pre-arranged (or pre-packaged) and/or transactional in nature.  As we begin 2014, there is little that causes me to believe that we’ll see a huge turnaround in this trend in the near term.  Due to the covenant-lite nature of the recent lending market and continued low interest rates, absent true liquidity crises, there will be few triggers to bring companies and their lenders to the table this year.  I would expect to see this trend start to turn in late 2014, but more likely in 2015 and beyond.”

Nathan J. Cook, Managing Director, AlixPartners 

Terry Small[1]“Companies will want to continue and/or improve their financial, analytical, cash, credit, and business management as the macro-economic factors unleashed by the Federal Reserve’s ‘quantitative easing’ play out.  Those looking to exit their business must ensure that they provide sufficient time to create a marketable company, that they have structured a sound tax plan, and that they monitor the number of businesses moving to market.  Banks and investors will continue to scour for deals to purchase/fund on an extremely selective basis.  Companies and government agencies with strong balance sheets and an ability to react quickly to changing environments will weather potential storms better and/or improve their positions regardless of the economic environment, placing them in a position to avoid having others dictate their futures, or, even better, to acquire market share strategically.”

Terry Shope, Principal, MPL Consulting, Inc. 

Yorkison“The overall marketplace remains slow in terms of chapter 11 filings and distressed transactions.  There appear to be some actions being taken by secured lenders and creditors in terms of exploring resolutions to ‘tired’ credits, including distressed transactions.  While there is some activity in this segment, again, the number of new matters is relatively low.

On the other side of the equation, distressed (private equity) funds are flush with capital and aggressively looking for transactions.  This creates a great transaction marketplace opportunity for distressed or bankrupt companies exploring sale options.  Distressed funds move through the transaction process relatively quickly, which means reduced administrative costs in bankruptcy or reduction of ongoing losses and risk for distressed companies through out-of-court restructurings.”

Gregg Yorkison, Managing Director, C.Y.G

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Greenberg Glusker Fields Claman & Machtinger LLP | Attorney Advertising

Written by:

Greenberg Glusker Fields Claman & Machtinger LLP
Contact
more
less

Greenberg Glusker Fields Claman & Machtinger LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.