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The 2024 Distressed Investing Conference
After all, more business is won by framing advisory as “we have some ideas that will allow you to reconstitute your balance sheet with willing participants” as opposed to “hire us because we are the best at helping you hand the keys to creditors.”
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Welcome to the 108th Pari Passu newsletter,
Today, I have a very special edition for you—a recap of the 31st Annual Distressed Investing Conference.
Featuring star-studded panels and covering topics ranging from private credit and liability management to cross-border restructuring developments, this conference was a survey of the past, present, and future of restructuring from diverse—and sometimes clashing— perspectives of the lawyers, bankers, investors, and judges who lead this industry.
The ticket to attend to the conference cost over $1,000 so a special thank you to all of you for reading and to our sponsors that enable us to share this amazing content for free!
Table of Contents
Liability Management Overview
Liability management (LM), also referred to as liability management exercises and liability management transactions (LME or LMT) was a constant thread throughout many of the panel discussions below. It is worth defining before we move on to conference content.
Despite being frequently used in an out-of-court context, LME is a broad term that includes out-of-court and in-court solutions for distressed companies to address near-term debt maturities or reduce their debt load. On one side of the spectrum, companies can pursue less aggressive, consensual out-of-court restructurings such as debt repurchases, equitization, amending terms and extending maturity dates, exchange offers, and asset sales. Unable to boost profitability even with cost-cutting, companies like WeWork first explored out-of-court solutions to reduce $1.5bn of debt, raise $1bn of new capital, and push back maturity walls. Yet even with these efforts, WeWork’s inability to negotiate their $13.3bn lease liabilities forced them to file Chapter 11. While out-of-court solutions are prioritized for most borrowers to avoid hefty costs, in-court solutions still bring considerable value for certain capital structures and business models – a big topic for one of the panels.
However, in the low interest-rate environment, credit docs have become loose enough for borrowers and sponsors to push for aggressive LMEs to deleverage and raise extra capital. Usually, these come at the cost of pitting creditors against each other to fight for limited recoveries. Ever since J.Crew launched its famous asset drop-down in 2017, the market has seen different variations: uptier exchanges as seen in Envision and Serta Simmons, double-dips as seen in At Home, and pari-plus financings as seen in Trinseo. Not surprisingly, as borrowers continue to suffer from low liquidity, companies like Spirit Airlines have even explored triple-dips, which still have open-ended questions on how they will be executed and treated in-court. As credit docs are still loose while borrowers and sponsors are still willing to find creative approaches to address highly leveraged capital structures, the conversation around LMEs continues.
Restructuring Roundtable - Health Of The Industry
David Griffiths, Partner, Weil, Gotshal & Manges LLP (Moderator) - View Bio
John E. Luth, Chm., Pres. & CEO, Seabury Capital Group LLC - View Bio
Angelo Rufino, Partner, Bain Capital, LP - View Bio
Michael Turkel, Assistant General Counsel, Elliott - View Bio
Eric W. Kaup, Executive Vice President, Co-Chief Commercial Officer & Special Counsel, Hilco Global - View Bio
Representing different special situations funds, this investor-heavy panel touched on sectors with the most attractive opportunities in distress: tech, aviation, real estate, EV, and telecom. More restructuring solutions have shifted from in-court to out-of-court LMEs, encouraging creditors to participate early in cooperation agreements, which we’ve covered here. Middle-market companies have also found it more costly to file for Chapter 11, making LMEs the more economical option. Interestingly, a company’s capital structure post-LME would look much more complicated than post-reorg – if a 1L tranche is split into four smaller tranches, where would each piece trade?
However, distressed opportunities are still found across different industries, specifically legacy business models. From Bain’s perspective, their approach to distressed investing has been more sporadic as the distressed companies represent only ~15% of their special situations portfolio. Ideally, Bain wants to invest in high-quality businesses in sectors with long-term growth during a cyclical downturn, like airlines during COVID-19. With more distressed deals done in locked-up drawdown structures where investors can access capital whenever they need, investors can follow through a company’s lifecycle and shift across the industry value chain. Since LMEs can turn hostile and time-consuming, Bain has also preferred interacting with other creditors, including CLOs involved in restructuring (stay tuned for a future write-up on this), so that they can add operational value for a potential turnaround.
A main theme was how the ‘tranching’ within distressed has created clear winners and losers. Competition among investors for returns has been the most common in capital structures of companies backed by high-quality assets. The problem is too many lenders are offering cheap capital to companies that simply do not even read the term sheets, driving down returns. However, Elliot views that getting deeper into messier situations can reward investors with higher returns, whether that be securing a first-in tranche before cooperation agreements or taking advantage of cooperation agreements. There is no singular playbook -- even investing in lower-quality businesses can generate significant returns. For example, Latin American airlines are high-risk businesses subject to economic growth and labor unions with ~30% of the cost structure tied to natural resources like oil. If investors find the right entry point as the industry rebounds and the business reduces leverage, they’ll be able to absorb much of the remaining cash flows.
But even in a competitive industry, firms like Hilco with a debt financing business have found their niche in offering businesses ABL loans, which are safer for investors as they are backed by inventory and receivables. As a liquidator, they’ve also retained control over Pitney Bowe’s e-commerce subsidiary which was generating negative profits. A speedy wind-down of the subsidiary in Chapter 11 from selling key assets minimized disruptions and boosted the stock up by 40%.
Private Credit Restructuring - Joining The Club
Pluralsight, the restructuring deal of the year, left many open-ended yet critical questions: will LMEs enter private credit deals in the future? Will private credit lenders request stricter covenants to prevent another Pluralsight?
The panel kicked off by highlighting the significant growth trajectory of the private credit market, projected to expand from $1.7 trillion today to eventually $40 trillion. As a quick recap of the popularity of private credit, the asset class has been replacing traditional bank lending as banks shifted away from middle-market to large corporate borrowers under stricter regulations. The public market has been dominated by large-cap companies that benefit from flexible capital like private credit for rapid expansion. An increase in private equity buyout activity has also been supported by private credit funding. In addition, lower beta, cyclicality, and default rates have encouraged traditional PE platforms to develop an in-house private credit platform.
Key word: relationships. Compared to the more transaction-based broadly syndicated loan (BSL) market, private credit lenders, especially in the middle-market, are much more incentivized to preserve relationships with a sponsor whom they provide financing for 5-6 deals. In private credit, the smaller groups of 4-5 lenders make it easier to reach a restructuring solution out-of-court, minimizing the problem of holdouts in the fragmented BSL market. Since there aren’t many smaller lenders to take advantage of, it would be harder to execute LMEs involving lender-on-lender violence in private credit. Despite loose credit documents and PE sponsors being obligated to satisfy their limited partners (the investors in the PE funds), sponsors value their private credit relationships, so they are less willing to engage in LMEs. The level of risk aversion of private credit lenders is so high that they are unwilling to do deals with sponsors who even raise the idea of changing positions in capital structures. Finally, lenders in private credit are not exposed to volatile loan pricing compared to the BSL market, where lenders use LMEs to minimize losses in their positions. However, the panelists still carefully qualified these statements that there could still be “some” LMEs in larger private credit deals.
Another pressing question was: given that tight liquidity is the source of most recent distressed situations, who will provide extra financing, and where should a sponsor’s rescue capital come in the capital structure? As a lender, ideally, the sponsor injects more capital junior to their initial investment but senior to other existing lenders. To prevent sponsors from gaining too much voting control and protect their secured positions, creditors would also have to contribute to preserving liquidity such as converting to PIK interest, a form of non-cash interest. Ultimately, a sponsor’s preferred position in the capital structure comes down to their view on the company’s option value, quality of the collateral, and requirements for lender consent in credit docs. However, in the high interest rate environment of the past years, more sponsors have started to hand creditors control over the companies to minimize further losses in their equity investments.
Liability Management in a Changing Environment
Damian Schaible, Partner, Davis Polk & Wardwell LLP - View Bio
John Sobolewski, Partner, Wachtell, Lipton, Rosen & Katz - View Bio
David M. Nemecek, Partner, Kirkland & Ellis LLP - View Bio
Josh Abramson, Partner, PJT Partners Inc. - View Bio
Daniel Flores, Partner, GoldenTree Asset Management - View Bio
With an array of perspectives represented by this panel, from sell-side (creditor-side and debtor-side law and restructuring banking) to buy-side credit, this discussion on the present and future of liability management exercises was both insightful and, at times, contentious. The discussion began by distinguishing liability management (LM) 1.0 and 2.0, with LM 1.0 consisting of infamous non-pro rata transactions such as drop-downs (e.g. J. Crew) and up-tiers (e.g. Serta Simmons), and 2.0 focused more on transaction design through cooperation agreements (e.g. Altice France) [see 99th edition for more on cooperation agreements]. The shift may be attributed to two major drivers:
Litigation: The winner-takes-all model of LM 1.0 led to significant litigation from non-participating creditors who were primed or stripped. Such litigation resulted in market uncertainty and burned cash. Now, in LM 2.0, we see more pro-rata deals, where everyone has the opportunity to participate in the transaction. Note that this does not mean all participants are satisfied with what they receive, but just that they may participate. While the rise of cooperation agreements does not spell the end of winner-take-all transactions, it marks a significant shift towards more consensus transactions.
Sponsor-driven: In LM 1.0, creditors opportunistically used credit documents to maximize recoveries. However, LM 2.0 is almost always sponsor-driven. There is so much third-party capital behind sponsors that lenders simply cannot compete, so they are pressured into joining something like a cooperation agreement because it is preferable to be part of the in-group. Thus, sponsors like accretive LM, while a number of creditors are not fans of LM.
Again, note that both advisors and creditors were on this panel. The debate became more contentious when discussing the merits and faults of LM. Some of the sell-side panel representation asserted that it is false to assume these LM transactions are aggressive, as “it’s not aggressive to use flexibility you paid for in negotiating credit documents.” However, the creditor-side of this panel replied that the success rate of the 84 LMTs since 2014 was a meager 10%, with 35% of these cases still stressed and to-be-determined. As such, buy-side sees LM as a “true double dip for advisors.” This obviously did not sit well with the many advisors on the panel, who retorted that (1) success rates are skewed given the majority of these deals are Covid-era deals, and (2) success does not necessarily equate to avoiding bankruptcy—buying time is valuable. In certain situations, more time can allow enterprise value to recover (e.g. Hertz value during delays from the sponsor bidding war), allow for the arrangement of a more comprehensive out-of-court solution, or prepack for Chapter 11. The creditor-side of the panel staunchly disagreed on this second point, arguing that creditors do not want to give two discounts, first in LM then in Chapter 11. The sell-side response was that while lenders always fight giving discounts and argue that LMs are ineffective, if lenders were willing to give more discounts, it could have a deeper restructuring impact that is preferable in the long-run.
The debate then shifted to cooperation agreements. While some advisors on the panel were not a fan of cooperation agreements, calling it a “death pact’ where everyone gets the same result, creditor representation on the panel argued that cooperation agreements are the best defense against loose creditor documents. Headwinds to cooperation agreements include antitrust and deviations, and some on the panel believe that things will change. From 2019-2023, there were on average around ~4 cooperation agreements annually. In 2024, there were ~45.
For 2025? It’s anyone’s guess.
Liability Management - Bankruptcy Litigation - Go Wesco Young Man
While LM 2.0 has been a hot topic, this panel revisited the ongoing Wesco/Incora litigation from the LM 1.0 era. Out of the eighty-four LMEs recorded to this day, very few like Incora have been undergoing full litigation. As a quick summary of Incora’s uptier exchange in 2022, Incora, an aerospace supply chain service provider, issued an additional $250mm of 2026 notes to certain holders of the secured and unsecured notes (“the favored noteholders”), giving them a superiority position as 1L and 1.25L. As a result, the non-favored noteholders’ liens were released, meaning their collateral was stripped away from previously secured notes, making these notes unsecured and junior in the capital structure. The additional $250mm notes were issued, voted, and canceled on the same day. In June 2023, Incora filed for bankruptcy, which brings back to the point that an LME can buy a bit more time rather than preventing a Chapter 11.
Figure #1: Incora’s Pre vs. Post-Uptier Exchange Capital Structure
Both 2024 and 2026 notes indentures required a supermajority voting position (2/3 of outstanding notes) to amend the indentures. The favored noteholders had a supermajority position in the 2024 notes but only a simple majority (one-half of outstanding notes) for the 2026 notes, so they entered a controversial two-step process to ‘manufacture’ a supermajority position:
1. Step 1: under the third supplemental indenture, the favored noteholders issued the new $250mm 2026 notes, which they repurchased to reach a supermajority position for both the 2024 and 2026 notes.
2. Step 2: with their newly acquired voting power, the favored noteholders amended the fourth supplemental indenture to 1) authorize the exchange and 2) strip the liens of 2024 and 2026 notes for non-favored noteholders.
The non-favored noteholders litigated that Step 1 didn’t directly but “had the effect” of stripping the liens – not allowed under the third indenture because this was before the favored noteholders had enough voting power for a supermajority position.
On July 10, 2024, Judge Isgur ruled in favor of the non-favored noteholders. The liens of the non-favored noteholders were not released, meaning they still had a secured claim, and the $250mm additional notes were not validly issued. Simply put, he took issue with the “domino effect” – completing Step 1 automatically triggered Step 2’s fourth supplemental indenture because the indenture language “had the effect” assumes automatic transactions.
The panelists, as lawyers representing the non-participating noteholders, unsecured creditor committee, and the debtor, exchanged clashing opinions.
Zachary Rosenbaum, representing the debtors, argued there was a breach of contract issue – the indentures were amended, and new notes were issued without supermajority consent. In response, Andrew Leblanc, representing the debtor, framed that the “crux of the case is a legal issue.” He believed that Judge Isgur’s domino effect theory conflicts with the debtor’s right to use exit consents, which is legally permissible in the U.S although outlawed in Europe. When exchanging old notes into new notes, exit consents allow issuers of the new notes to strip away covenants of the old indenture. To participate in the exchange, lenders must agree that the old indenture will be amended to remove most covenants. This incentivizes lenders to accept the exchange offer, even at worse terms, to avoid being left behind with no covenant protection. Andrew pointed out since Incora’s exchange offer came along with stripping existing covenants, the debtors were not expected to reach a supermajority threshold. Hence, in his perspective, no indentures were in a legal sense “amended” to reach supermajority, given that consenting lenders voluntarily agreed to the exchange offer.
After listening to a round of cross-fires between Zachary and Andrew, Lorenzo, who represented the UCC, made a quick remark. While they initially planned to sit out of the litigation, with the equity they received, they had to participate to make sure no claims were made against the management team.
Unlike other similar litigations on uptier exchanges like Robertshaw, Incora’s ruling reversed parts of the transaction. As if the uptier never happened, all of the 2026 secured noteholders’ rights and liens were restored and $250mm additional notes were treated as unsecured, not secured. Since the ruling, the participating and non-participating noteholders have been disputing over how to run the company post-reorg if Judge Isgur approves the reorganization plan to hand control over to creditors. While uptier exchanges will not go away, Incora’s long, messy litigation may increase preference for less aggressive LMEs without the interference of non-favored lenders – this explains newer technologies like double-dips that stay within the parameters of the existing credit docs.
Retail / Commercial Real Estate -- Will We Ever Go Shopping / Officing Again?
Benjamin L. Nortman, Co-Chief Commercial Officer, Hilco Global (Moderator) - View Bio
Dan O’Brien, Executive Vice President & Partner, Hilco Real Estate - View Bio
Tim Hynes, Global Head of Credit Research, Debtwire - View Bio
Jeffrey Stein, Managing Partner, Stein Advisors - View Bio
Seth Laughlin, Managing Director, Market Analytics, Green Street - View Bio
After distress in retail peaked during the pandemic, retail bankruptcies have subsided in 2024. The current retail landscape has stabilized with strong demand of class A properties and more willingness of landlords, considered as creditors, to negotiate leases with retailers out-of-court. However, there were also divided opinions in the panel that pricing power has returned to the landlords for the first time in the last decade. Strip center landlords have especially seen strong rental income from occupancy rates exceeding 90%. Similarly, malls owned by public companies have stabilized in valuation. From a distressed investor’s standpoint, while debt maturities in malls have been mostly addressed after store closures peaked in 2018, malls still present an attractive investment opportunity in both public and private markets.
Despite the ability to reject leases and rent expenses in Chapter 11, retailers are also actively exploring out-of-court LMEs over in-court solutions. In the office sector, A and A+ assets have been rebounding while assets on the lower end have been pursuing out-of-court transactions to address near-term maturities. Even so, not all out-of-court solutions have been effective in extending runway. For example, Office Property Income Trust, a lower quality REIT, deleveraged by $200mm from multiple debt exchanges yet has been burdened with a higher coupon rate in the low teens.
Beyond discussions of whether WFH is here to stay, the panelists revealed some critical inflection points in the office sector. Digging through data of publicly traded office buildings, Seth Laughlin at Green Street has found a massive disconnect between strong top-line income and weak cash flows of office buildings: rent expenses represented 30% of net operating income (NOI) to keep the building competitive. The asset quality of office buildings has declined by 60% and hefty capex requirements will increase reliance on financing from sponsors (often the backdrop of an aggressive LME). More than ever, tenants and creditors will demand transparency about an office building’s financial health. Lenders have been unwilling to inject new debt capital due to the uncertainty behind the value of assets and debt costs. For distressed investors keen enough to see through this black box without sticking to old valuation methods, low valuations in the office sector seem to present attractive investment opportunities.
Just like LM 2.0, the era of Retail 2.0 has arrived.
Where Do We Go From Here? The Return of the Capital R Restructuring?
Joshua A. Sussberg, Partner, Kirkland & Ellis LLP - View Bio
Daniel Aronson, Senior Managing Director, Evercore - View Bio
Lauren Krueger, Managing Director, KKR - View Bio
Paul Basta, Partner and co-chair of the Restructuring Department, Paul Weiss - View Bio
Aparna Yenamandra, Partner, Kirkland & Ellis LLP - View Bio
Steve Zelin, Partner and Global Head of the Restructuring and Special Situations Group, PJT Partners - View Bio (since 1988)
In this panel of heavy-hitters, law, and banking converge to discuss the future of “Capital R Restructurings,” referring primarily to tumultuous Chapter 11 free-falls. From the onset, the panel asserted that Chapter 11 is really just another form of liability management and that liability management exercises are a natural result of an expanding market. After all, as per Steve Zelin, more business is won by framing advisory as “we have some ideas that will allow you to reconstitute your balance sheet with willing participants” as opposed to “hire us because we are the best at helping you hand the keys to creditors.” Chapter 11 and LM are both part of longer term trends of a growing market, not necessarily a trade-off.
As such, both LME and Chapter 11 are here to stay. However, the challenge facing many restructuring professionals is when a LME predates bankruptcy. While it may create an “advisory double-dip” as joked earlier, when the operational side fails after LME, it is difficult to sort through the resultant complex financing structure in-court and can lead to significant litigation which increases costs and delays.
One of the main questions that arose in the later part of the panel is why credit documents are not tightening as much, beyond some J. Crew and Serta provisions. The consensus answer was, put simply, one of supply and demand. Credit is currently a hot investment area, and investors do not police documents in absence of a credit cycle. When there are many choices for investors, what gives is pricing and document flexibility. One panelist, however, noted how they were indeed adding more provisions in private credit, especially in early amendment stages which is the ideal time to tighten documents.
The other discussion was the impact of lower rates. While M&A is expected to accelerate, the impact is a bit more nuanced in restructuring. Lower rates may actually facilitate LM, as liability management transactions can be done at lower rates, with new savings from lower interest reinvested into the company. Alternatively, a company burdened with many expensive leases may choose a Chapter 11 prepack to reject leases through bankruptcy court procedure. Either way, while restructuring will remain active, the panel agreed that they do not expect as many freefalls given the high costs of Chapter 11. However, it was noted that the more complex modern capital structures mean that efficiency in bankruptcy may sometimes be worth the cost, so Chapter 11 is not going anywhere.
The panel ended on an optimistic (?) note, foreseeing more restructuring activity in the future, no matter what form it might take.
Recognition, Releases, Torts in Cross-Border
Evan Hill, Partner, Skadden, Arps, Slate, Meagher & Flom LLP (Moderator) - View Bio
Hon. Robert Drain (RET.), Of Counsel, Corporate Restructuring, Skadden, Arps, Slate, Meagher & Flom LLP - View Bio
Hon. Lisa Beckerman, United States Bankruptcy Judge, Southern District of New York - View Bio
Timothy Graulich, Partner, Davis Polk & Wardwell LLP - View Bio
With half this panel consisting of judges, both current and former, this panel was an especially engaging discussion on legal developments in cross-border restructuring. Outside the United States Bankruptcy Code, some foreign jurisdictions are a wild west for restructuring. For example, some foreign jurisdictions have no absolute priority; others allow non-consensual third-party releases.
Formerly, cross-border companies defaulted to the U.S. for filing, as U.S. bankruptcy procedure was relatively more developed. For example, Avianca, an airline headquartered in Colombia, filed for bankruptcy in the U.S. because Colombia lacked a realization statute, which made it difficult to monetize assets in court. However, after the wave of COVID-driven bankruptcies across the world, other countries have developed their own bankruptcy procedures. As such, the U.S. may no longer remain the default country to file for cross-border companies. Europe and England especially have become much more debtor-friendly. For example, the UK during COVID developed laws allowing cross-class cramdowns without absolute priority. In Brazil, reforms make it easier to DIP finance and sell assets. In the UK, Netherlands, Germany, France, Singapore, UK, Brazil, there are ways to discharge a guarantor—releasing a guarantee obligation.
The primary question is whether it is appropriate to allow companies who restructure abroad in foreign jurisdictions with different rules to then retain that relief back in the U.S. through Chapter 15 recognition. Chapter 15 was originally intended to assist in streamlining foreign cases (see section 1507, 1519, 1521-1522). Without Chapter 15, multiple plenary proceedings—full-fledged bankruptcy cases in which courts assert control over all assets and creditors in their jurisdiction—could occur in various countries where a debtor has assets, leading to conflicts, inefficiencies, and competing claims. Chapter 15 avoids this by deferring to the main proceeding, harmonizing the bankruptcy resolution cross-border. To be eligible to file in a different country, the company must either have their main business operation there (main proceeding) or have a more than a non-transitory business activity in jurisdiction, known as “establishment” (non-main proceeding).
With growing development in legal technology outside the U.S., Chapter 15 recognition may become more common. Relief should align to Chapter 11 in U.S. courts; however, there is ambiguity on whether a distribution process would run afoul of U.S. law if distribution differs from a theoretical Chapter 11 distribution. Do these cases need to be fair in the eyes of U.S. law, or should they only need to be judged fair through the eyes of international law? Cases making an argument on distribution are rare, so there is little case law here; circuits have not given much guidance.
Ultimately, Chapter 15 is a useful tool, expected to be more used as foreign cases for cross-border companies become more common. This may lead to some interesting restructuring maneuvers and disputes in the future.
Annual Distressed Investors’ Roundtable
Steve Gidumal, CEO, Portfolio Manager, Virtus Capital, LP (Moderator)
Gary Hindes, President & Portfolio Manager, The Delaware Bay Company LLC - View Bio
Matthew Dundon, CEO, President, Dundon Advisers, LLC - View Bio
Richard Fels, Managing Director, Odeon Capital Group - View Bio
Ken Grossman, President, Portfolio Manager, Juris Partners
While the conference began with a recap of major events this year and macro predictions for the following year, this final panel rounded off the discussion by exploring some of the most interesting opportunities out there for distressed debt investors—a fitting end to the 31st Annual Distressed Investing Conference.
The majority of the conversation was centered around opportunity with the junior preferreds of Fannie Mae and Freddie Mac, which some panelists expect to exit from conservatorship as soon as next year under the Trump administration. These companies have been profitable for years already, and are so stable that a panelist noted that these mortgage agencies may emerge from conservatorship even under a Harris administration. With preferred still trading below their stated $25 par value, this could be an interesting opportunity. While the panel was generally bullish, a few noted that not a penny of dividends will be paid until the housing agency permits it, and that investors should be cautious about opportunities that have rallied in the past few weeks due to elections (FNMAJ up ~130%). If Republicans lose the House in June, which they only have a slim majority in, investors should not expect much change legislatively—judicially and executively, perhaps.
On that cautionary note, the discussion shifted to the future impacts of the rise of private credit. There was a general expectation of future fallout from excesses in the credit market, though that fallout may not be seen for years (and either way, that fallout is welcomed by the restructuring professionals in the room, and perhaps also our readership). These private credit guys—a lot of whom have Drexel on their resumes—claim they can manage default cycles. Given how private credit has a controlling position in loans, LPs are sophisticated, and capital structure is set up well, perhaps default default-driven loss rate will be tempered, and restructuring might lose out on fees. Yet, as one panelist brought up, even though managers may be smarter now, sectorally there will come a point where there is an oversaturation of capital. A Drexel-like situation may follow.
The final topic of discussion was more general: gauging sentiment on the 30-year Treasury. The consensus was a cautious long, with some on the panel claiming no opinion. Bullishness was driven by expectations of oil prices, inflation, and interest decreasing—a callback to our introduction by Steve Gidumal. This was a great panel to round off a phenomenal conference. Especial kudos to Beard Group, notably Will Etchison, for organizing.
Conclusion
Across diverse panels and perspectives, all can agree that restructuring is getting more complex.
Part of this complexity comes from legal developments and financial engineering. The industry has come far from the ‘80s, where the balance sheets consisted mainly of unsecured debt—a 1.25 lien would once have been absurd. Even in recent years, we’ve seen a shift from LM 1.0 to LM 2.0—perhaps by next year, the 32nd Distressed Investing Conference might be discussing LM 3.0. The rise of cooperation agreements and increasing legal technology abroad are only a few new steps in a long journey forward for the restructuring industry.
Future trends to track are numerous. How will macroeconomic trends such as oil prices, Chinese economic woes, federal debt levels, and war resolutions in Israel and Russia impact this industry? Will we continue to see a bifurcation between liability management or liquidation? Will cooperation agreements face antitrust challenges? What will Chapter 11 look like in the future? And of course, with private credit on the rise, all eyes are on its implications. What will liability management, cooperation agreements, secondary markets, and the number of defaults look like for private credit in the coming years? Only time will tell.
Restructuring can also be a morally complex field. While it is easy to get swept away in excitement within a room of restructuring professionals eyeing new developments and opportunities, there is also something to be acknowledged about the tragedy of working at the end of a company’s lifecycle where livelihoods and legacies are at stake. Sometimes, winning a bankruptcy case comes at the cost of harming individuals. When the bankruptcy judge approved the termination of pension plans for United Airlines to exit from bankruptcy, the Kirkland team remained silent as a sign of respect for the employees. Restructuring can add societal value by rescuing companies from distress, but at the same time, industry professionals should acknowledge the broader implications for individuals affected during the process.
Steve Gidumal began this conference by stating that, “Restructuring keeps the economy strong by ending weak companies.” We will end this article on the same note. Restructuring is a critical industry, and while it will doubtless change and develop, it is here to stay.
And with that, the 2024 season of Pari Passu Restructuring content comes to an end.
We will be back in your inbox next Friday with our classic Year End Letter!
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