An avalanche of large U.S. businesses will need to be restructured over the next 12 to18 months, said Rob McMahon, head of General Electric Corp's Restructuring Finance Group.
McMahon told the Reuters Restructuring Summit in New York on Thursday that the recent slowdown in bankruptcies and restructurings was partly due to the easy terms of loans extended prior to the credit crisis.
The only thing keeping more companies from filing right now is all the convenant-lite deals, said McMahon, whose unit is one of the leading providers of debtor-in-possession or DIP loans to bankrupt companies, We're still heading for an avalanche of deals over the next 12 to 18 months that will keep the restructuring world quite busy.
Some restructuring professionals have blamed the lack of DIP loans for out-of-court restructurings, liquidations and quick sales in bankruptcy court. McMahon said that explanation misses the larger issue of companies that have used all their assets to secure existing debt, leaving nothing to provide as security for a DIP loan.
There is not a scarcity of money available for DIP lending. There is a scarcity of companies with adequate collateral.
McMahon the complexity of corporate balance sheets and ownership structures has changed the focus of his lending toward providing money to bring companies out of Chapter 11.
I think we will wind up finishing 2009 having done more exits than DIPs, said. I think we will wind up continuing to look at more prepack(aged) deals as well.
He said the current rate of bankruptcy filings for companies with assets of $100 million were running at about 20 per month, up from three per month two years ago. He said he expected a rate of about 15 to 20 per month next year.
(Reporting by Tom Hals; Editing by Tim Dobbyn)