Anticipating the Next Downturn

Default rates and bankruptcy filings hit historic lows in 2007. Until last summer's credit crunch, the availability of financing on very favorable terms allowed companies facing a liquidity problem or a potential default to borrow their way out of trouble. As both the lending market and the Ban...

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Bibliographic Details
Published in:Mergers and Acquisitions 2008-05, Vol.43 (5), p.97
Main Author: To, My Chi
Format: Article
Language:English
Subjects:
Bankruptcy laws
Bankruptcy reorganization
Changes
Credit default swaps
Debt restructuring
Derivatives
Lenders
Loan workouts
Private equity
Reorganization
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Summary:Default rates and bankruptcy filings hit historic lows in 2007. Until last summer's credit crunch, the availability of financing on very favorable terms allowed companies facing a liquidity problem or a potential default to borrow their way out of trouble. As both the lending market and the Bankruptcy Code have undergone significant changes since the last downturn, it is safe to predict that these changes will affect how the restructuring game is played. Given the low number of recent large corporate bankruptcies, however, the impact of these changes has yet to be fully observed. The overall effect of the 2005 amendments to the Bankruptcy Code is to shift leverage from debtors to creditors. Many restructuring experts predict that these changes will result in more section 363 sales than in the last downturn. With less time and liquidity with which to restructure, more debtors may be forced to sell or liquidate their businesses.
ISSN:0026-0010