2017 tipped to be ‘year of restructuring’

Rate rises, geopolitics and Brexit are expected to drive an increase in workouts and distressed opportunities in Europe.

After a quiet year for European restructurings in 2016, the year ahead is predicted to see much more activity, in Southern Europe in particular, according to a new survey.

The 13th European Distressed Debt Market Outlook from Debtwire, investment bank Greenhill and law firm Orrick canvassed the opinions of 130 hedge fund managers, distressed debt investors and private equity professionals on their expectations.

They cited interest rate rises (22 percent), geopolitical conflict (21 percent) and Brexit (16 percent) as the most important factors in what is tipped to be an upsurge in European restructurings in 2017.

“We enter 2017 with a great deal of uncertainty and many events that will shape Europe’s future already on the agenda for the year: the UK’s invocation of Article 50, elections across France, Germany and possibly Italy and radical change in the White House to name but a few,” said Gareth Davies, head of financing advisory and restructuring in EMEA at Greenhill.

He added: “Perhaps as a consequence of this uncertainty, this survey suggests an increase in restructuring activity for 2017. This may be because 2016 was a low point in volumes, but also appears to reflect a genuine anticipation of a wider economic downturn.”

Brexit drew pessimism from respondents, with most expecting a recession this year and many planning to scale back investments in the UK. However, private equity investors were the most bullish, saying they aim to take advantage of any downturn.

Furthermore, 58 percent of distressed and 54 percent of PE investors said they had no intention of relocating outside the UK and only a handful are considering reducing headcount.

At a regional level, respondents said they expected Southern Europe, and especially Italy, to drive the European restructuring market in 2017. Restructurings, equity raisings, forced consolidations and NPL sales and securitisations are all expected to be on the agenda in Italy in the period ahead.

In terms of sector, energy, financial services and infrastructure are expected to offer the highest number of restructuring opportunities.