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Let’s Hear it for Walls (of Debt): Restructuring Industry
by: Restructuring & Bankruptcy of Greenberg Traurig, LLP  -  GT Restructuring Review
Wednesday, March 9, 2016

It seems that walls are a hot topic nowadays, playing a central role in the presidential race — with even the Pope joining in. While Democrats and Republicans appear to disagree about walls, restructuring professionals of all political stripes are excitedly awaiting the arrival of the “Wall of Debt.” Younger professionals think of the Wall of Debt as a mirage that is visible on the horizon but disappears by the time you get there. That was certainly true of the 2013 and 2014 debt maturity walls predicted in 2010.

A mirage maybe, but an awfully big one is looming on corporate debt horizon. As reported by Bloomberg, $9.5 trillion, with a “T”, in corporate debt will reach maturity in the next five years, with U.S. companies accounting for $4.1 trillion of that. That figure makes our earlier walls look like mere flower box borders. While much of the debt is investment grade right now, about a quarter of it is junk-rated debt.

Will the wall be whittled down and moved off into the future by the time the maturity dates arrive, or will a massive restructuring effort be required to resolve it? Only time will tell, but several factors suggest that restructuring likely will be at least part of the solution.

Many of the borrowers are very highly leveraged, having taken advantage of stimulus programs and low rates to replace equity with debt on their balance sheets. The amount of debt is so large that it will require a strong bond market in order to refinance it. Right now, the bond market seems to have lost its appetite, especially for highly leveraged debt. Recent articles recount the difficulties encountered selling bonds backing the Solera Holdings buyout, and suggest that even investment grade offerings are being scaled back due to weak demand. The turmoil in global markets caused by the unexpected collapse of oil prices and concerns about China are unlikely to calm investors’ nerves. The current effort by a major retailer to refinance almost two billion dollars in junk-rated bonds coming due in the next two years should provide an early test of the market’s willingness to push maturities forward.

So what can I say to restructuring professionals about this looming Wall of Debt? To borrow a favorite phrase from one of our presidential candidates, “You’re gonna love it.”

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