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Trigger happy: The outlook for restructurings is encouragingly upbeat

Talk to a room of restructuring lawyers and it won't be hard to find voices anticipating a wave of company failures. But the wall of restructurings expected at the beginning of the pandemic never materialized. Companies were given financial life support to stave off mass corporate distress and it worked.

Is a day of reckoning around the corner?

1/ The short answer: No

At the start of 2021, Debtwire projected 99 restructuring trigger events, over 60% of which were successfully managed via refinancings or companies improving their operations.

Overall, Debtwire recorded 152 outcomes in 2021, slightly more than the 146 outcomes in 2020, according to its Restructuring Roulette monitor.

With 2022 ahead of us, there are roughly half as many trigger events on the horizon as were projected at the beginning of last year. Assuming the pandemic and the economy don't throw up any further nasty surprises, this year is looking comparatively positive.

2/ The long(er) answer: Some sectors may have to reckon with this sooner than others 

In addition to the many issuers on the list that have company-specific woes, signs of distress can be found where you might expect them. In July last year, National CineMedia (NCM)—an advertising company that displays ads to Americans in movie theaters—secured a new US$50 million loan that sits pari passu with its existing term loan, to inject much needed liquidity into the business.

The company's leverage ratio covenants have been waived until September 30, 2022. It could face a restructuring this year if cash flows don't recover and debt isn't paid down during the next nine months. The threat of Omicron and moviegoer willingness to visit theatres will have a bearing on how NCM's fortunes play out.

Among the other companies on the Restructuring Roulette monitor at the start of 2022 is PetroChoice, which also fell on hard times during the pandemic. The lubricant distributor witnessed demand for its products in its automotive and industrial end markets sink, prompting it to hire investment bankers to work on a possible sale ahead of PetroChoice's debut maturities falling due on August 19 this year.  

Elsewhere, Texan industrial company Strategic Materials is struggling with high leverage, weak liquidity and negative free cash flow. In what has become an all too familiar story, escalating costs caused by supply chain bottlenecks are creating problems for Strategic Materials’ margins. The company's revolving credit facility is maturing on November 1, 2022, potentially triggering a restructuring event.

After almost two years of tumultuous trading, there are still companies out there for whom the wolf is waiting at the door. But, in the main, things could look a whole lot worse.