Alix Partners poll respondents expect spike in European restructurings

By Caroline Salls

Pittsburgh, Oct. 5 - An Alix Partners LLC poll revealed that leading bankers, lawyers, fund managers and other industry experts believe corporate restructurings in Europe will spike upward in the next 18 months, according to a Thursday news release.

The poll was the first conducted by the AlixPartners European Turnaround Index.

"This survey of industry experts should serve as a red flag to corporate managements, boards and investors across Europe to be prepared to act at the first signs of weakened performance," Alix Partners chief executive officer Michael Grindfors said in the release.

"As one expert pointed out in the written part of our survey, declines in bond and equity prices tend to happen precipitously, not in an orderly fashion.

"Given that, and given that the majority of these experts see declines ahead across many European industries, it seems obvious that staying in front of the curve will require bold and timely action."

The survey showed that no less than 50% of respondents expect restructurings to increase over the next year and a half, with only 2% believing they will decrease.

According to the release, Europe has experienced extraordinarily low bond- and mezzanine-debt default rates in 2004 and 2005 - at 0.5% for both years, compared with 6.4% in 2003 and 25.1% in 2002.

However, Alix Partners said a very high number of acquisition-related debt issues in 2004 and 2005, coupled with rising energy and material costs and the specter of rising interest rates, seems to signal more defaults ahead. Those, in turn, would lead to more corporate restructurings.

A total of 72% of those surveyed said they expect to see more debt defaults in Europe within the next 18 months, with only 8% expecting defaults to decrease.

When asked to rate which of five European industries is most likely to experience the need for turnarounds, most experts rated manufacturing number one; retail and consumer products number two; health care and pharmaceuticals number three; banking and insurance number four; and energy and utilities number five.

However, all five industries received some votes for being "most likely."

When asked to pick which of five Western European countries is most likely to experience the greatest number of restructurings, most experts picked Germany, while the United Kingdom was rated number two, France and Italy tied for third and Spain was fifth. All countries but Spain received multiple "most likely" mentions.

In addition, 73% of those surveyed said that the United Kingdom remains the most hospitable country in Europe for insolvencies and attendant corporate restructurings, while 64% said they believe that new, more progressive insolvency legislation in other parts of Europe, such as France and Italy, will ultimately result in more filings in those countries.

And, 77% said they expect that cross-border restructurings will increase in Europe in the next year and a half.

Alix Partners is a Southfield, Mich., global performance improvement, corporate turnaround and financial advisory services firm.

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