ABI Journal: Exploring Fed Policy’s Impact on Restructuring
An article in the June edition of the ABI Journal examines whether the fundamentals of corporate restructuring have changed since the financial crisis of 2008, or whether government actions have merely delayed an impending bankruptcy boom. “Unprecedented levels of distress and systemic crisis presaged historic levels of restructuring activity, but unprecedented levels of government involvement have delayed — or perhaps extinguished — that promise,” write James Doak of Miller Buckfire and Steven Argan and Alan Dalsass of MorrisAnderson in their article “Fed Policy Regulation’s Impact on the Restructuring Industry.”
While it appeared that a big restructuring cycle was on the horizon in the summer of 2007 after years of easy money and lax lending oversight, the sustained caseload never materialized. “Working to prevent a complete meltdown of the banking system and economy, in the fall of 2008 the Fed, the Treasury, the FDIC and the Securities and Exchange Commission (SEC) all took aggressive steps,” the authors write. Most visibly, the Fed continued to lower its target rate at a dramatic pace, and various government agencies created, resurrected or adopted programs and policies in response to the crisis. “There is little denying that the Fed and Treasury actions – along with coordinated efforts with U.S. and international agencies such as the SEC, FDIC and International Monetary Fund – did what they were supposed to do: They stabilized the financial system and arrested the free-fall of the economy and the concomitant investor panic,” the authors write.
However, Doak, Argan and Dalsass point out that many of the programs and policies that were designed to be temporary responses to the 2008 crisis are still in place today. As a result, the authors write, “we [continue to] struggle with stubbornly high unemployment and slack gross domestic product growth rates; this despite historically low Fed rates and continued QE, each of which (theoretically) encourage lending and growth.”
While leverage levels have crept back up to 2007 and 2008 levels, the authors write that they have gotten there through new financial vehicles and capital sources, in spite of – and encouraged by – the Fed and federal policy. “Success for restructuring professionals lies in recognizing and adapting to this new ecology” and in the opportunities it will produce in the short term, as well as the wealth of opportunities it could generate beyond, according to Doak, Argan and Dalsass.
To obtain a copy of “Fed Policy Regulation’s Impact on the Restructuring Industry,” published in the June issue of the ABI Journal, please contact John Hartgen at 703-894-5935 or via email at jhartgen [at] abiworld [dot] org.