FREE MEMBERSHIP Includes » ABL Advisor eNews + iData Blasts | JOIN NOW ABLAdvisor Gray ABLAdvisor Blue
Skip Navigation LinksHome / Articles / Read Article


Rate Hikes, Global Woes May Escalate Restructurings

Date: Jan 25, 2016 @ 07:00 AM
Filed Under: Bankruptcy

Restructuring professionals also expect healthcare, for-profit education, and municipalities in the United States to face distress in 2016.

Healthcare: A blend of regulatory considerations, many of them stemming from the effects of the Affordable Care Act, combined with ongoing operational pressures at underperforming hospital chains may drive a greater number of healthcare restructurings in 2016.

For-profit education: Sharp drops in student enrollment at leading for-profit colleges, which represent 13% of the total U.S. higher education market (1.),  may compound the effects of a recent  regulatory crackdown. The higher-education industry saw a 13.7% drop in enrollment from the fall term of 2014 to the fall term of 2015 (2.), and Federal rules concerning the availability of loans and the requirement that for-profit schools demonstrate that their graduates have gainful employment are increasing the pressure on this sector. Those facts prompted 68% of respondents to say they predict a moderate-to-significant jump in restructuring activity in the for-profit education sector in 2016.

Municipalities: A number of U.S. municipalities remain distressed, burdened by legacy pension and retiree healthcare obligations and costly infrastructure needs. As a result, 18% of survey respondents said municipalities are among the top sectors in the United States likely to face distress in 2016. Among troubled states, 64% of respondents singled out Illinois as the one most likely to face financial distress, reflecting well-documented struggles to meet pension obligations and to solve other problems related to existing debt payments.

Restructuring’s Return?

The end of near-zero interest rates may signal the end of seven years of sharply reduced restructuring activity. Much depends on how the economy performs in the near term. The U.S. economy is not as robust as it was before 2008, yet when asked whether a strong economy has helped sustain companies, 62% of experts said it had a “moderate” or “strong” influence on keeping companies out of Chapter 11. One factor in the declining numbers of bankruptcy filings may be costs, as many respondents said companies’ managements and boards of directors feel that bankruptcies have become too expensive and litigious, making out-of-court restructurings more attractive. Among the respondents, 68% said cost had either a “moderate” or “strong” influence on the drop in Chapter 11 filings. But as economic conditions shift and lenders adjust to a monetary policy that projects both rising interest rates and inflation, restructuring may have a larger role in the 2016 business environment.

Photos of Lisa J. Donahue - Managing Director - AlixPartners and Jim Mesterharm - Managing Director - AlixPartners

(1.)  Profit Industry Struggling Has Not Reached End Road
(2.)  Ibid.

Lisa J. Donahue & Jim Mesterharm
AlixPartners LLP
Lisa J. Donahue is an AlixPartners Managing Director and global leader of the firm’s Turnaround and Restructuring Services practice. She is currently serving as Chief Restructuring Officer for the Puerto Rico Electric Power Authority (PREPA). Donahue specializes in financial and operational reorganizations and transformations—an expertise that led to her being named one of New York’s 40 Under 40 by Crain’s New York Business in 2002 and Woman of the Year by the International Women’s Insolvency & Restructuring Confederation in 2007. Donahue has extensive experience in business transformation, operational alignment, cash management and cost reduction, negotiation, situational analysis, and debt restructuring for both domestic and international organizations. Her engagements have been in the oil and gas, energy, consumer packaged goods, manufacturing, distribution, apparel, retail, telecom, and shipping industries.

Jim Mesterharm is Managing Director at AlixPartners and co-head of the firm’s Turnaround and Restructuring Services practice for the Americas. Currently serving as Financial and Restructuring Advisor to Walter Energy, he specializes in developing financial and operating strategies for underperforming and troubled companies. Mesterharm has led and assisted on the successful restructurings of Eastman Kodak Company, General Growth Properties, Parmalat, Safety-Kleen, and Zenith Electronics. Jim has significant expertise in interim crisis management, cost reduction plan development and implementation, cash management, capital structure refinancing, and business plan development for acquisition and restructuring purposes. Mesterharm has served in senior management positions in turnarounds as Chief Restructuring Officer, Chief Operating Officer, and Chief Financial Officer. He has also served as a senior advisor to companies evaluating restructuring alternatives.

AlixPartners is a leading global business-advisory firm of results-oriented professionals who specialize in creating value and restoring performance at every stage of the business life cycle. We thrive on our ability to make a difference in high-impact situations and deliver sustainable, bottom-line results.

The firm's expertise covers a wide range of businesses and industries whether they are healthy, challenged or distressed. Since 1981, we have taken a unique, small-team, action-oriented approach to helping corporate boards and management, law firms
Comments From Our Members

You must be an ABL Advisor member to post comments. Login or Join Now.