By Duncan Brodie
Thursday, January 24, 2013
MOST restructuring specialists see no prospect of economic recovery in 2013, according to a new survey, although the picture in the East of England is slightly more positive than elsewhere.
Four out of five (80%) of restructuring bankers, lenders and advisers in the UK predict no real recovery this year, and nearly half (45%) expect an increase in the level of defaults, according to research from business and financial advisers Grant Thornton UK LLP.
The survey of the restructuring industry found that 84% of respondents rated retail as having the lowest resilience of any sector in 2013 – a view reinforced by recent high-profile failures such as Blockbusters, Jessops and HMV.
The hotels, pubs and leisure sector is rated second least resilient, while sectors including food and drink and energy are considered much more robust.
On a more positive note for underperforming businesses, bank forbearance levels are anticipated to stay at the same comparatively high levels as in 2012 by over 60% of respondents.
Government influence over nationalised banks and the on-going review of the sale of interest rate products were cited as important factors influencing forbearance this year, as was the impact of public opinion.
Ian Carr, advisory partner at Grant Thornton East Anglia, said: “Undoubtedly due to on-going poor consumer confidence and tough trading conditions, 2013 will continue to be difficult for those companies who do not have strong brands, products and balance sheets.
“And while businesses in the East of England are not totally insulated from the general economic climate, we have generally seen lower failure rates in this region than much of the rest of the UK, although the loss of national chains will still obviously impact unemployment.
“If bank forbearance levels remain high, this may give those businesses which are experiencing difficulty some breathing space. Now is the time for these companies to get their houses in order for future refinancing as if they fail to change this year, 2014 is expected to be even more challenging.”
The survey revealed that cost cutting continues to be the favoured restructuring tool while more fundamental restructuring options, such as diversification or, at the other end of the spectrum, the sale of non-core assets, are often overlooked.
The research also showed that enforcement action is the last resort exit for lenders and is only employed in the minority of cases.
Respondents do not expect much change to the strategies employed to deal with underperforming loans but a significant minority expect that divestments of underperforming loan books to third parties, and exits through the market sale of debt will increase, by 35% and 32% respectively.
Secondary loan sales to US funds are viewed as a key area of activity in 2013, not just in the UK but throughout Europe.
Darren Bear, corporatefinance partner at Grant Thornton East Anglia, added: “Despite challenging trading conditions, funding is available from a variety of sources including banks and investors.
“It is really important that companies forecast there funding requirements, take early advice and remain in control of their own destiny.”