Stretched Restructuring Bankers Get Picky About Who to Help
Having endured a lean decade, Wall Street’s top restructuring bankers are facing a fresh and unexpected problem: which companies to turn away.
So urgent and widespread is the recent downturn that even the largest restructuring practices are inundated by calls from businesses short of cash and swamped by debt, and having to choose who they can help -- and who they can’t.
“We’re carefully considering which mandates we’re taking on because of the speed at which the market has shifted,” said Steve Zelin, PJT Partners Inc.’s head of restructuring and special situations in the Americas. “As a firm, we want to ensure that any client we advise is one that we can provide the level of service our clients have come to expect.”
With the Covid-19 pandemic shuttering stores across the U.S. and closing many non-essential services, swathes of companies are set to need help. Retailers, restaurants, and small businesses, many of have which have seen cash flow disappear completely, have been hit particularly hard.
The energy industry also is under strain from a price war that’s sunk the price of oil by about half in the past month. California Resources Corp. is now considering bankruptcy after the troubled oil and gas company’s efforts to rework its debt out of court fell short, people with knowledge of the matter said.
“There’s definitely more careful decision making around which restructuring mandates advisers have capacity to take on,” said Andrew Bednar, co-president of Perella Weinberg Partners. “That wasn’t an issue a month ago.”
Perella, which was advising California Resources according to an earlier statement, also advised Royal Caribbean Cruises Ltd. on a new $2.2 billion credit line announced on Monday. That move helped stem a steep decline in the cruise operator’s stock, which has lost about two-thirds of its value this year.
Companies worldwide have tapped banks for $200 billion in less than three weeks to shore up their finances.
Even with careful planning, the corporate restructuring industry is preparing to be stretched to the limit in the coming weeks. One senior restructuring banker, who didn’t want to speak on the record, said that the onslaught of work means advisory firms don’t want to get bogged down with engagements that aren’t going to be profitable.
The sudden uptick in activity contrasts starkly with the fortunes of bankers advising on mergers and acquisitions, who have seen an decade-long boom in dealmaking end abruptly. To help manage the corporate triaging, banks have been reallocating resources from suddenly time-rich merger departments to help out with restructuring.
“To make sure we’re well positioned for the demand and to best serve our clients, we’re also moving some resources from M&A to restructuring, similar to what happened in 2008 to 2009,” Bednar said.
©2020 Bloomberg L.P.