News & Analysis

Study: UK is the distress capital of Europe

Due to its proliferation of leveraged buyout activity during the credit boom era, the UK is home to more distressed assets than any other European country, according to Close Brothers Corporate Finance.

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The UK is seeing the greatest number of distressed businesses among Western European countries, according to analysis by European advisory firm Close Brothers Corporate Finance.

As of 1 July 2009, the UK accounted for 24 percent of Europe’s distressed assets – those that are known to be stressed, distressed or undergoing financial restructuring – according to analysis of data from Debtwire. Germany accounts for 14 percent, Italy 12 percent and France 6 percent.

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Close connects the high number of distressed assets with amount of leveraged buyout activity in the UK compared to other markets. Between January 2000 and July 2009, the UK accounted for 34 percent of all LBOs in Europe, followed by France with 14 percent, Germany with 12 percent and Italy with 7 percent, the firm said.

“The key reason for higher levels of distress in the UK is the larger volume of leveraged transaction completed at the height of the credit boom,” Jonathan Trower, managing director at Close Brothers Corporate Finance, told PEO, “However, other contributing factors include a greater preparedness in the UK to be realistic about the need for a balance sheet restructuring than in some other jurisdictions.”

Foxtons: in lender talks

Businesses such as BC Partners’ property group Foxtons and Terra Firma’s music group EMI are among the UK-based businesses currently in negotiation with lenders. Earlier this month Monier, a French roofing business previously owned by PAI Partners, moved into the control of a consortium of its lenders in one of Europe’s largest debt-for-equity restructuring deals to date.

The European manufacturing sector has borne the brunt of the slowdown, accounting for 41 percent of distressed European businesses. “The manufacturing sector remains one of the largest employers across Europe, but it is facing the most serious issues,” said Cunningham, “The long-term consequences of which will have significant detrimental effects for many years to come.”