Insights – Key takeaways from panel discussion on “crystal ball gazing” from INSOL Tokyo 2023

An engaging and insightful panel discussion on “Crystal ball gazing – identifying future trends among disrupted markets, macro-economic uncertainty, and corporate distress” at INSOL Tokyo 2023 held at the Palace Hotel Tokyo on 13 September 2023.

DHC Capital Partner, David Chew chaired the discussion with panel members Annick Gnock Fah (Managing Director and Head of Asia, Contrarian Capital Management), Matthew Hamilton (Co-Founder and Chief Investment Officer, Fulcrum Capital), Richard Heis (Managing Director, Interpath Advisory) and Jamie Sprayregen (Partner, Kirkland & Ellis).

Key takeaways from the panel discussion:

  • Drivers of distressed activity and restructuring insolvency opportunities

    • Perfect storm looming where multiple factors, such as higher debt servicing costs, cash flow issues, highly leveraged balance sheets, upcoming debt maturities and an uncertain macro-outlook will strain the liquidity position of corporates

    • Lack of liquidity further exacerbated by challenges in the market to access capital. The old days of “cheap and easy money” are gone, banks are pulling back for non-investment grade borrowers, and capital markets are not as robust as in the past

  • Sectors impacted

    • Retail

    • Construction

    • Private equity sponsor deals

    • China local government financing vehicles

    • Tech

    • Potential hotspots due to impact of structural changes causing distress

      • Real estate: Commercial segment on back of work from home dynamic (i.e. less need for office space and alternatives to shopping in malls via internet shopping)

      • Automotive sector: Rising demand for electric vehicles. (i) Reinvention of traditional auto manufacturers and impact on downstream supply chain and (ii) intense competition from Asian and global players opens up the opportunity for market consolidation as weaker players run out of liquidity

  • Types of opportunities

    • Court supervised restructuring processes such as schemes and Chapter 11 to be active

      • Flexible tool to address complex capital structures and different agendas and requirements of multiple stakeholders

      • From a Singapore perspective, availability of powerful tools such as moratorium from creditors, super priority financing, prepack schemes and cram down feature

    • Distressed M&A expected to be active as companies facing liquidity pressures seek to complete a sale of a business or company in an accelerated manner

    • Liability management is a growing area

    • Opportunity for increased use of operational restructuring to improve the underlying business

  • Sources of new opportunities

    • Bank creditors becoming less prominent. Seeing a shift in capital structures from solely banks to mix of banks, bonds, alternative capital like private equity and private credit

    • Private credit and private equity sponsors are a new potential hotspot as some funds may not have the infrastructure in place to address large volume of workouts

    • Corporates facing Chapter 22 and scheme 2.0 situations as market conditions worsen and restructured corporates underperform against forecasts

  • Key challenges faced in restructuring

    • Rise of creditor-on-creditor violence as private equity sponsors and distressed debt investors take advantage of loose loan terms to keep a struggling company afloat and maintain ownership

    • Debtor integrity issues and lack of quality information remains a challenge in emerging markets

  • Preferred strategies for new capital in distressed situations

    • Buying debt on the secondary market upon a default with a view to (i) trade the debt or (ii) becoming an activist creditor, joining the creditors committee, leading the process and driving the terms of restructuring

    • Private credit will be a critical source of capital for corporates who need a slug of capital to address debt refinancing, working capital or liquidity shortfall situations. Lenders need to stay true to underwriting and credit analysis to avoid losses

  • Key challenges faced by new capital providers

    • Lack of hard assets for downside protection and valuation and pricing dynamics are the key challenges

About INSOL International

INSOL International is a world-wide federation of national associations of accountants and lawyers who specialise in restructuring, turnaround and insolvency. There are currently over 44 Member Associations with over 10,500 professionals participating as members of INSOL International.

The annual conference organised by INSOL International is the premier global event for the restructuring and insolvency industry with over 700 delegates attending.

David Chew1-30