it is far from clear whether the type of uncertainty we’re
experiencing will result in greater or fewer opportunities.
Let’s start with the factors which may favor an
increase in turnaround activity.
Impact of Interest Rates Hikes
Interest rates are the most often cited. After many
months (years, in fact) of Delphic murmurings about the
end of quantitative easing and the tightening of slackness in employment, in March the venerable Federal
Reserve finally budged off its indiscernible post-down-turn interest rates by a whopping 25 basis points, with
glum susurrations about further increases in the year to
come. While increases in interest rates have been the
textbook cause of companies being pushed into loan
default and distress, it’s hard to imagine that interest
rate increases this small will cause too great an effect.
Disruption in international trade seems likely, given
the administration’s almost daily (
digitally-communi-cated and otherwise) attacks against our erstwhile foreign
friends and trading partners: China, Mexico, the EU, our
NATO allies, even our inoffensive neighbor Canada.
The process of globalization has been strong, steady
and pervasive over the past decades, with almost every
industry now inexorably connected to foreign suppliers
and/or customers. The threat of interrupting that progression, even if it turns out to be political bluster and is never
realized, already has companies scrambling for alternative sources of supply and outlets for their products. I can
almost hear the questions posed in lender credit meetings, “What happens if Company X can no longer import
its supplies from Country A or export to Country B or
receive shipments from their own plants in Country C?”
Former New York Yankees star Yogi Berra famously said, “When you come to a fork in the road, take it!” This seemingly unhelpful advice appears to signify
uncertainty about the future, which could be applied to
the current climate for turnaround management.
While turnaround activity abounds in the energy
and retail industries, (RadioShack has just filed Chapter
22 after filing Chapter 11 t wice in recent years), in nearly
all other industries, the future is far from clear for turnaround professionals. Several factors contribute to this
uncertainty, with the new administration unpredictably
delivering announcements regarding intended policies
and legislation on a daily basis, each of which creates
risk for the future. There’s a great deal of uncertainty
regarding how turnaround activity will develop in the
coming year, if at all.
Ironically, uncertainty has historically been a good
thing for turnaround professionals. Anything that appears
to increase risk — especially in the hearts and minds of
bank lenders — has traditionally led to phones ringing
for turnaround firms. In the current situation, however,
2017 and Beyond
BY HOWARD BROD BROWNSTEIN, CTP
Economic uncertainty has traditionally been good for turnaround professionals. But the game has
changed, and unregulated lenders can call a different tune. Howard Brod Brownstein looks into his crystal
ball and predicts a mixed bag for turnaround pros under the new administration.
If the status quo remains, the low level of turnarounds will continue,
with exceptions in industries that experience adverse conditions
specific to them. Interest rates have been so low for so long, and
there has been so much money chasing so few deals, that companies
suffering a hiccup can typically finance their way out of it or easily
find a buyer that can find financing.
HO WARD BROD BRO WNSTEIN
The Brownstein Corporation