The landscape in Germany is a bit different. The economy is still strong and insolvency is at an all-time low. However, there is particularly bad management in the retail arena, leaving room for buyers to pick up distressed retail assets and increasingly use a loan-to-own strategy. “We have a new system similar to Chapter 11 in the U.S. that allows for a loan-to-own strategy with shareholders,” said Matthias Kampshoff, a partner with McDermott Will & Emery. “It’s a unique situation for the German market. Buyers can get into a business in a hostile way by buying a portion of the business.”
Emerging trends in the European restructuring market
The United Kingdom
The number of non-performing loans (NPLs) is high and regulators have yet to set a strategy on how to deal with them. According to Grant Thornton partner Alagar, regulators need to figure out what options debtors can have, how they can work them out and if they have the option to restructure around them. NPLs will be the catalyst for making banks deal with distressed situations.
Health care is a sector that remains under pressure in the UK. For example, Four Seasons Health Care, owned by private equity firm Terra Firma, announced plans to restructure its debt. While the industry is seeing the number of people over age 85 doubling in the next 25 years and the need for health care rising, it is in distress. “It’s hard to make a profit. Smaller operations are going under,” said Alagar.
The economy is strong, but fragile, and money is cheap. The lending market is stretched; when the economy shifts, and interest rates rise, more distressed assets will come to market. Some sectors already showing signs of distress are shipping, hospitals and the automotive industry. “There is not insolvency, but distress is coming. Germany is known for the car industry, but, as preferences skirt toward electric cars, you have to change your model to stay competitive,” said Uwe Goetker, a partner with McDermott Will & Emery.
Ireland is the success story of the financial crisis. Its bail-out program for non-conforming loans in part resulted in sensible decision-making and enforcement, so there are limited opportunities for distressed investing.
Things are changing in Greece, according to Andy Charters, a director with Grant Thornton. There is regulatory pressure and new guidance being set by regulators. That said, the macro economy has picked up and tourism is in a good place, which is helpful. “Political risk is still an issue, but overall things are stable,” said Charters.