According to AlixPartners’ annual Turnaround & Transformation Survey, more than half of restructuring experts from across the U.S. and Europe (56%) said their clients performed better during the COVID-19 pandemic than they did during the 2008 financial crisis. The majority of respondents (80%) nodded to the fact that companies have had greater access to liquidity over the past year. More than two thirds of restructuring experts across Europe (71%) and almost half (47%) in the U.S. also said they expect interest rates to remain low over the coming months.
In spite of the available liquidity and low interest rates, 96% of restructuring experts believe the pandemic will cause their clients distress this year. Approximately one in three (29%) specifically anticipate more than half of their clients that secured financing in 2020 will find themselves in financial distress again later in 2021.
These findings are based on a survey of more than 500 restructuring experts from financial advisory firms, banks and law firms and corporate professionals across a range of industries based in the U.S., the UK, France, Germany and Italy.
“Many businesses have been able to weather the storm over the past year thanks to the ample availability of liquidity and to public funding in certain markets,” Lisa Donahue, global joint head of AlixPartners’ turnaround and restructuring services practice, said. “But with the pandemic continuing to cause significant strain and with inflation on the rise, many businesses have taken on unprecedented levels of debt while operating within a bubble that risks bursting. Business leaders must ensure that the debt they carry is sustainable and that they have an operating model that is fit for purpose for the long term. Those that seek to refinance without keeping a close eye on their balance sheet risk encountering disasters down the line.”
“One of the biggest threats facing companies at the moment is the inevitable increase of the cost of debt and the withdrawal of pandemic-related public funding,” Joff Mitchell, global joint head of AlixPartners’ turnaround and restructuring services practice, said. “To avoid being caught out, business leaders need to take the necessary steps now to manage their debt and associated capital structure and to return their business to leverage levels and investment grade ratings that reassert a competitive stance. The implications of inflation and interest rate rises must be planned for and combated should they materialize.”