Restructuring activity set to decrease further in 2014
3 February 2014
Three quarters (76%) of banking institutions, asset-based lenders and alternative lenders expect to see no change (24%) or a fall (52%) in levels of restructuring activity this year, according to research from Deloitte.
This follows a quieter 2013, when 40% of respondents saw the volume of cases decrease, despite having anticipated an increase.
Nick Edwards, Head of Restructuring at Deloitte, commented: “Expectations of increases in restructuring activity did not materialise in 2013, as larger companies were able to refinance and the UK economy picked up. UK banks have been strengthening their balance sheets through deleveraging non-core and non-performing loan portfolios, while investor appetite for opportunities has been pushing up prices and increasing deal flow.
“These factors will continue to impact restructuring activity this year, although businesses with greater working capital requirements could hit difficulties as they try to fund growth. We could also see more restructuring in the retail sector as the high street continues to evolve.”
Insolvency was only the third most likely outcome from a restructuring last year, as responses indicated an exit via refinance/sale in 38% of cases, with 20% amending and extending (A&E), and just 18% resulting with insolvency.
Nick Edwards continued: “Refinancing and A&Es give corporates more time to resolve their operational difficulties, where they are not beset by poor trading and unsustainable debt levels.”
“However, our survey noted a reluctance to address operational challenges at the same time as dealing with a financial restructure. So, even as the UK economy improves, we would expect there to be some restructuring required to address increased working capital requirements and in situations where management relies solely on economic recovery to drive trading improvement.”
More than half of respondents lending in Europe expect restructuring activity to decline in 2014, although there is uncertainty as to what impact the ECB’s upcoming Asset Quality Review (AQR) programme will have.
Nick Edwards concluded: “The process of banks downsizing and improving the quality of assets is not as far advanced on the continent, and new provisioning requirements will necessitate this change. This could spark further restructuring activity in Europe.”
Deloitte interviewed over 40 key restructuring lenders in the UK including traditional bankers, alternative lenders and asset based lenders, responsible for managing loans both in the UK and Europe.
Notes to editors
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.
Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.
The information contained in this press release is correct at the time of going to press.
Member of Deloitte Touche Tohmatsu Limited.
"Expectations of increases in restructuring activity did not materialise in 2013, as larger companies were able to refinance and the UK economy picked up. UK banks have been strengthening their balance sheets through deleveraging non-core and non-performing loan portfolios, while investor appetite for opportunities has been pushing up prices and increasing deal flow"-Nick Edwards, Head of Restructuring at Deloitte