ABI says 2006 cycle to feature smaller bankruptcies

By Caroline Salls

Pittsburgh, June 6 - The next bankruptcy cycle may not begin until 2006 but will be marked by smaller bankruptcies, according to an article published in the American Bankruptcy Institute's Journal.

In contrast to the mega-bankruptcies of 2001 to 2002, the next default cycle will be filled with smaller middle-market bankruptcies, particularly broken leveraged buyouts and other sponsored-backed deals, according to the report.

Also, the article said the surge in asset-based lending, especially if it continues, will prompt secured lenders to get actively involved in troubled credits sooner and move more quickly to protect collateral values, even if that means reorganization.

Arranging for debtor-in-possession financing in such an environment will be a daunting challenge for debtors whose assets are already highly encumbered going into bankruptcy, according to the ABI journal. In turn, quick sales of businesses and assets are more likely to ensue.

Holders of second-lien loans are expected to see lower recoveries in default than they had anticipated going into these deals.

In the wake of the fast pace of debt defaults in 2001 and 2002, particularly those resulting from the telecom bust and a few big corporate bankruptcies, the article said debt defaults and restructurings moderated significantly in 2003.

The following year was marked by strong earnings growth and expansion for American business and one of risk-taking in the capital markets.

Alexandria, Va.-based ABI is a multi-disciplinary, non-partisan organization dedicated to research and education on insolvency.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.