Houlihan Lokey Sees ‘Growing Pockets of Distress’ in Debt Marketby and
Houlihan says restructuring has hit highest level since 2008
CEO comments amid global growth concern, market selloff
Houlihan Lokey Inc., the investment bank that has advised on some of the world’s largest bankruptcies, said the volume of restructuring work has reached the highest level since the 2008 credit crisis as struggling companies find it harder to obtain financing.
“While the overall default rate remains at near-historic lows, there are growing pockets of distress,” Chief Executive Officer Scott Beiser said late Monday in a conference call discussing fourth-quarter results. “The amounts of new leveraged loans and high-yield debt issued has recently slowed, potentially impacting future opportunities for companies in need of refinancings.”
Beiser said the rout includes energy companies rattled by low fuel prices, and retailers challenged by competition from online purchasing. The cost of protecting against default by junk-rated borrowers soared on Monday to the highest level since 2012, while oil slid to less than $30 a barrel. Houlihan Lokey has been hired in the past year to advise lenders to Arch Coal Inc., as well as bondholders of Gulf Keystone Petroleum Ltd. and Magnum Hunter Resources Corp.
“Our total number of active restructuring engagements as of Dec. 31, 2015, is now the highest since the Great Recession, and up over 25 percent from one year ago,” Beiser said. “While the recent growth trends are significant, to date, most of these new mandates reflect mid-cap-size debt levels. We still have not experienced the extraordinary large-size restructurings like we saw in the last economic downturn.”
Stocks and bonds have fallen globally amid concern over slowing economic growth. Chesapeake Energy Corp. plunged Monday by the most since 1993 as investors speculated that the natural gas driller’s financial options are narrowing. The company dismissed speculation it’s facing a liquidity crisis.
Selling riskier corporate bonds has become so challenging that in the last quarter of 2015, banks were forced to boost yields on more than $23 billion of loans because of waning demand, up from $11.7 billion in the previous three months, according to data compiled by Bloomberg.