UK restructuring to drop in 2014

Tuesday, February 11, 2014 - 14:46

The level of restructuring activity in the UK is expected to decrease in 2014, according to new research from Deloitte.

The UK Restructuring Outlook 2014 saw Deloitte interview over 40 key restructuring lenders in the UK, including traditional bankers, alternative lenders and asset based lenders, responsible for managing loans both in the UK and Europe.
Some 76% of respondents said that they expect to see no change (24%) or a fall in levels of restructuring activity (52%) throughout 2014.

Factors behind the expected decline in restructuring activity include firm indicators of growth in the UK economy, reduced restructuring team sizes, and the progress of sales of non-core assets in 2013.

Just 24% of respondents expected to see a rise in restructuring work during 2014, attributing this to further non-core asset portfolio sales and the progressing restructuring on companies previously involved in swap mis-selling claims.

Speaking to Insolvency News, UK head of creditor advisory at Deloitte, Andrew Grimstone, said the findings are not unexpected.
Grimstone said: “If you go back to 2013 people were expecting a busier year for restructuring than how it actually turned out. One of the key points is the economy helping some companies, such as large enterprises which are able to secure financing and even M&A exits which avoid a restructuring.

“One of the concerns we do have is that people may be shying away from the operational restructurings that these businesses need to survive.”

40% of respondents said they saw the volume of restructuring cases decrease year-on-year, despite having previously expected a rise in activity.

In 2012, 52% of report respondents expected an increase in the volume of cases coming into restructuring, but only 30% said they had seen an actual rise in cases during 2013.

Nick Edwards, head of restructuring at Deloitte, said: “Expectations of increases in restructuring activity did not materialise in 2013, as larger companies were able to refinance and the UK economy picked up.

“UK banks have been strengthening their balance sheets through deleveraging non-core and non-performing loan portfolios, while investor appetite for opportunities has been pushing up prices and increasing deal flow.”

Just 18% of respondents used insolvency as a method of restructuring during 2013, with an exit via refinance or sale (38%) the most popular route of restructuring.

The main market sectors identified by the report to be challenged in 2014 are retail, manufacturing, professional services, real estate and healthcare – the same five as 2013.

External assessment is also a major factor for the respondents, as 27% of respondents said public relations and reputation was the most important objective at the outset of a restructuring, while 32% said fair treatment of customers was the most important factor.

Grimstone said: “This is a very positive message from the restructuring community to support businesses when the whole industry is under scrutiny.”