The Epiq Angle

Booming While Others Go Bust: The Debt Restructuring Industry Takes Off

May 11, 2017

It’s been a long, gloomy spell for the sectors trying to stay afloat in a rapidly changing market. Political upheavals, changing consumer spending habits, competition from online vendors, and lower oil prices have all played a role in the decline of energy, retail, shipping and health care company fortunes. And for many businesses still struggling to weather the storm, it does not appear that the rough weather is blowing over just yet. According to Epiq’s 2017 bankruptcy trends data, there were 149,280 national filings in March and April—the largest two-month total since March/April 2015.


The burgeoning need for specialized bankruptcy expertise means that increasingly, businesses in distress are calling on the services of lawyers, insurers, private equity and investment specialists, banks and other lenders.
There is an obvious irony in a bankruptcy acceleration creating its own industry boom. But all of this activity, and the promise of more in the near future, have led a recent Business Insider article to muse that debt restructuring is set to become the big success story of 2017.

Chapter 11 filings rise; private equity swoops in

While overall bankruptcies fell in 2016, these were almost all consumer filings. Chapter 11 bankruptcies rose six percent over 2015 levels to 7,450, according to the U.S. Bankruptcy Courts’ 2016 Annual Report. While this is certainly a perverse bit of good news for bankruptcy lawyers, the biggest beneficiaries of the bankruptcy windfall have been private equity firms.

It is no secret that private equity firms often take on a distressed business to reduce and renegotiate its debts and thereby stay a going concern (while also avoiding the expense of liquidation). There are certainly situations where private equity firms have essentially strip-mined distressed companies, buying them on the cheap and then allowing them ultimately to go under.

Private equity: A way out?

However, a 2012 study by the American Finance Association found that, overall, private equity firms provide a viable way out for insolvent companies. Examining 2,151 firms that borrowed in the leveraged loan market between 1997 and 2010, the study found that “PE-backed firms are no more likely to default than other leveraged loan borrowers. When firms do default, PE-backed firms restructure more often out of court, restructure faster, and are more likely to remain an independent going concern following the restructuring. PE owners are also more likely to retain control of the firm following the restructuring. The propensity for PE owners to infuse capital as firms approach distress is positively related to measures of the success of the restructuring.”

As the retail and energy markets continue to wobble, most analysts agree that more bankruptcies are on their way this year. While this is certainly not the forecast many businesses hoped for, for private equity and bankruptcy restructuring firms, the outlook is bright.

Filed under: chapter 11, corporate restructuring