By Harold S. Novikoff, et al., Wachtell, Lipton, Rosen & Katz
Prior to 2015, corporate defaults and bankruptcy filings were at relatively low levels, amid continuing low interest rates and well-performing credit markets.
In 2015, those trends began to reverse. There were 75 chapter 11 filings in 2015 involving debt of $100 million or more, the highest number since 2010. During the second half of the year, credit and commodity markets proved increasingly volatile. In addition, near the end of the year, several investment funds specializing in high-yield debt suspended redemptions or announced liquidations or closings.
Looking forward, we expect many of the trends from 2015 to continue. In particular, low commodity prices will continue to create a challenging environment in the oil and gas and related sectors. Retailers will also face pressure, including from internet shopping. Faced with market volatility and the high costs of bankruptcy, we expect distressed borrowers to continue pursuing out-of-court strategies, including exchange offers, bespoke financing arrangements and equity capital infusions.
In this memo, we discuss several important developments and themes from 2015, as well as expectations for the year ahead. Among other things, the memo discusses issues regarding secured creditor cramdown, the Trust Indenture Act, Puerto Rico and extraterritorial reach of the Bankruptcy Code.
The full memo is available here.