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Action Matters

Restructuring: Year in Review

Action Matters recently sat down with Jeffery Stegenga, a Managing Director at Alvarez & Marsal, who oversees the firm's central region restructuring practice to discuss restructuring activity in 2010.

Action Matters: What kind of year has it been for Alvarez & Marsal with regard to turnaround work? How does 2010 compare with the past couple of years?

Jeff Stegenga (JS):  To assess 2010, you first need to put it in context of the previous year: 2009 by all measures was a banner year for A&M and the restructuring profession as a whole. By definition, we all expected a natural slowdown, and got that in 2010. I would characterize this year as one of transition and preserving market share. It has been a year of "backlog runoff" as all professionals in our industry pursue fewer new opportunities triggered by the underlying improvement in the capital markets.    

AM: Any notable work / assignments in 2010?

(JS):  We treat our client relationships with the strictest of confidence. As such, we will only reference those retentions already in the public domain. For 2010, this list would include names such as Lehman Brothers, The Chicago Tribune, Washington Mutual (WaMu), Blockbuster and Visteon.

AM: With the number of large cases declining, is there more competition for middle market cases? How are you responding? 

(JS):  First, it's important to point out that since 1983, A&M has always served the middle market; this is not new for our firm. Given the current environment, it's natural for restructuring professionals to cast a wider net and continue to pursue all viable opportunities available in the marketplace. Larger firms will invariably go "down market," where we've always had a natural presence.  At A&M, we believe the current environment requires us to get more creative with fee structures, and how we staff assignments. It gives us a unique opportunity to place very experienced resources in "stressed" situations versus those that are "distressed" with fewer options. We have always encouraged our senior professionals to apply their corporate restructuring skills and experience in new ways and in more than one context. Further, slower markets have propelled A&M to successfully extend our expertise to pockets of struggling sectors, or niches, such as the Public Sector. Today, we are very active with our Federal Sector consulting and restructuring practice in D.C., and have been serving state and local governments and municipal school systems since 2003.

AM: What is your assessment of the economy? Are we over the hump? Will there be many more large bankruptcies? Are trouble areas ahead like commercial real estate?

(JS:) Accepting the limitations of anyone's crystal ball, we believe the restructuring market will continue to be slow in 2011 and into the first half of 2012.  While the market will always produce its share of large bankruptcies, such as the recent filing of A&P, we expect those filings will be fewer in number due to the current accessibility of the capital markets environment. As for commercial real estate, that sector has been everyone's prediction for the primary catalyst of the next wave of restructurings. The question is one of timing. We don’t see it in the next 12 to 18 months.  

AM: Are restructurings more difficult in today's environment? Why? What are causes?

(JS):  I believe 2010 continued the trend of more efficient Chapter 11 proceedings. Traditional filings have been largely replaced with pre-negotiated filings in order to accomplish restructuring objectives with greater efficiency. And to extent that their unique fact pattern can afford companies these opportunities, pre-negotiated filings have been shown to minimize the financial and human costs inherent in the process. It's a natural focus, and I believe is here to stay.    

AM: Will the restructurings / distressed investing environment be different in 2011? 

(JS):  The environment will continue to be challenged. At A&M, our outlook - and my personal view on 2011 and 2012 - is that we will continue to see a reduced level of restructuring activity due to the available capital options in the marketplace. Cycles are natural in our profession. Like all others, this one will require creativity and stamina to work through. And also like the others, this too will pass. Our focus is for A&M to be as ready as we can be for our client base when that inevitable uptick occurs. The preparation starts now.