A Rising Tide? Update on Trends in Bankruptcy & Restructuring

VP Product Marketing, IntraLinks

POSTED ON October 8, 2009

Matthew Porzio A few months ago, I wrote about the gathering storm cloud of bankruptcy and restructuring engagements we were seeing here at IntraLinks in the first half of 2009 as well as the high-value, high-profile bankruptcies that constantly appeared in the news.

The economic forecast now seems to be improving, despite the Wall Street Journal's report on Monday that personal bankruptcy filings have topped one million for the first three quarters of 2009, as corporations are now filing for Chapter 11 at a slower rate and the pace of defaults is slowing as well. (In fact, I observed in July from what we see here at IntraLinks that we might see a decrease in the number of bankruptcy filings in the end of 2009 and into 2010 as equity and debt markets stabilize.)

Corporate bankruptcy and restructuring processes facilitated by IntraLinks have slowed 21% this quarter versus the previous quarter. Realizing the number of these processes utilizing IntraLinks as a virtual dataroom and/or collaboration platform is still high when viewed annually - up 90% over 2008 activity - the pace is beginning to slow. Interestingly, the number of bankruptcies and restructurings using IntraLinks in North America this quarter came in at only 40% of the global total. (The Americas accounted for 60% of these engagements just a few months ago, as we announced last quarter.) This could indicate the U.S. may be poised to make a quicker comeback than we had previously anticipated despite recent jobless claims data and uncertainty heading into the corporate earnings announcement period.

Of course, the fallout from so many Chapter 11 filings and corporate restructurings will continue to settle as the year closes. For starters, the Supreme Court term that began this Monday will be dominated by cases concerning some of these massive corporate bankruptcies, corporate/executive compensation, and government oversight of the financial system.

Fourth quarter trends are likely to be telling as we approach the new year; I’ll explore them here on the IntraLinks blog in December.

Tags: banking / bankruptcies / bankruptcy / Chapter 11 / corporate restructuring / IntraLinks Deal Flow Indicator / M&A / Matthew Porzio / personal bankruptcy / restructuring / virtual dataroom

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Dear Nicholas and Roy,You consider as a key plrboem that a Debt-GDP ratio of 150% or above is a number which does not convince anyone inside or outside EU about Greece's chances to cope with its indebtedness. You seem to propose that this is the main reason why (you predict):(a) Greece cannot stay on track until 2012(b) that lending to Greece by the IMF/EU will cease after 2012.Given the above disastrous predictions, you recommend the early restructuring (and a way to implement this restructuring) in order to smooth out the effects of a violent episode in case the Greek government is forced by facts to a unilateral involuntary default. In brief, the way I understand your argument is that your proposal might act as, (i) an antidote for a disaster scenario, and (ii) as a device for taking away this annoying 150% debt-GDP ratio that is a major burden for Greece's credibility.I have learned a lot from your proposal(s) on the technical front. In fact, I am all for discussing antidotes against disaster scenarios. What I am totally against of, is the discussion of such antidotes in public. Your article is material for discussion behind firmly closed doors. By choosing to go public with your proposal, you give a signal that reform efforts have become issues of secondary importance and this reflects a feeling of desperation coming from experts. In a nuts*****, exactly because you are experts giving public priority to these disaster-antidote issues, you make readers pessimistic and scared. Most issues regarding insolvency are discussed behind closed doors. The main reason is that the world's global financial system has not yet restored the credibility it enjoyed four years ago or before that. This lack of credibility in the overall environment surrounding the Greek plrboem is the reason why the IMF/EU financing mechanism of Greece involves so tight international monitoring and feedback: in the Greek case very little is currently convincing (Greece's politics, its productive infrastructure, its debt-GDP ratio, etc.); so, Greece is led, hand by hand, through a well-defined path with lots of monitoring and guaranteeing partners.The current frontline of Greece's fight is how to beat its partisan interest groups in order to achieve commitment for facing its fiscal plrboem under the guidelines of the current IMF/EU plan (and the successors of such plans). After battles for keeping this frontline are won, then the next level is the reforms discussed in this forum. There is a long way to go, and one should not place a public-debate emphasis on plans that seem as retreat plans.The mechanism through which the public (and politicians) perceive issues as complex as the Greek plrboem is very simplistic (although far from naive). By publicly discussing a disaster antidote, the public perceives that experts are discussing a retreat plan in the middle of a crucial battle.An even more important reason I disagree with publishing proposals about disaster antidotes is the issue of adverse signaling towards our EU partners and the IMF: as Jacques puts it, we, as Greek economists on this public forum, should be discussing Greece's constructive reform. If we make the mistake to (1) jeopardize losing any credibility we have left in the eyes of EU partners because we are discussing practices that do not focus on our major reform responsibilities, and (2) let speculators know that we are discussing disaster antidotes, then we are harming both ourselves and our EU partners by causing frustration.Behind closed doors I would be delighted to give you comments and suggestions on the technical part (and also to learn more about it). Yes, your accounting is right: a 150% debt-GDP ratio is a heavy burden, and it adds enormously to our plrboems. But, in my opinion, it is not the time to convince anyone that alleviating the burden in the way you propose for the next few months is the starting point. The reason is, in this truly hazardous world, and inside the Euro zone, the one and only way for Greece to cope with its plrboem is to find a way to comply with guidelines of a highly controlled trajectory as this proposed by the EU/IMF (in my opinion). To the extent that Greece complies, that kind of help makes sense to continue, and this will give a chance to smoothly restore Greece's credibility. Debates on disaster antidotes and disaster-survival practices while disaster may (or may not) be approaching should be kept behind closed doors: the public (and politicians) can wrongly start thinking that technicalities discussed by experts are priorities. In my opinion, our priority now is to follow the safer way offered and to communicate to politicians and the public why, indeed, this is our priority.With great respect,Christos KoulovatianosPS. As you understand, I disagree with the view that a restructuring should be part of a plan to be put on the table as a short-term strategy, even behind closed doors. Your working hypothesis is that our cooperation with the EU is fragile and that we may need to restore our credibility of international markets soon (or soon after some shock therapy). I think Greece should focus on restoring its credibility among its EU partners and to ignore others in the short run. This is a long debate, and it is more of a politico-economic debate rather than a macroeconomics/public-finance/development one, and I do not wish to pursue it now/here. My main point is that experts should be careful about making their thoughts public: the danger of getting misunderstood is enormous nowadays.

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