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Strong foundations make for sound structures

As a microcosm of the macroeconomic picture, restructuring activity is pointing in a positive direction. Debtwire Credit Research tracks businesses in dire straits in its Restructuring Roulette and has found that the number of US companies on its radar has fallen by more than half in the past 12 months, from 186 to 89.

Of course, as names drop off the list, new ones are added. But there have only been 68 additions that have triggered restructuring events, offset by the 165 companies pulling themselves out of the doldrums.

Of those 165 companies, 39% refinanced their way back on track, thanks to capital markets that have been wide open, while 30% simply benefited from an operating recovery. Just under a fifth (18%) met the worst fate of heading to court for formal bankruptcy proceedings

On the up and up

Judging by the ongoing, if slowing, economic recovery, those in-court restructurings are likely to fall in favor of refinancings and cash flows recovering on the improved operating outlook. Restructuring situations, as a whole, should continue to trend downwards.

The US government's Bureau of Economic Analysis recently reported that real GDP increased at a 6.7% annual rate in Q2, with the forecast indicating a slowdown to 3.5% before picking up again in Q4 to 5.2%. All told, 2021 is looking to come in at 5.7%, decelerating to 3.8% of real GDP growth through next year.

Ball and chains

That should be enough to keep restructuring activity at bay and the energy sector in particular is benefitting from the sky-high oil price. Indeed, since mid-October, two issuers—Summit Midstream Partners and Athabasca Oil—have completed refinancings as debt markets have regained full confidence in the uptick of cash flows in the sector.

Across industries, federal stimulus has kept many a business afloat, with easy access to credit and a reopened economy being a further boon. But further down the food chain, companies will continue to struggle. Supply chain snarls are taking a stubbornly long time to work through and smaller suppliers that don't have open access to debt markets are not out of the woods just yet.