But a bout of inflation not seen in a generation, a big run-up in interest rates and continuing worries over recession are going to prove to be too much for some.
To get a sense of what comes next, WWD spoke to Richard Klein, senior managing director of Hilco Corporate Finance, experts in restructuring. This conversation has been edited for length and clarity.We’re in the early stages of a distress cycle where we’ll see default rates tick up. But default rates are a funny thing because there’s so much more debt out there today than ever before that you don’t have to get to the level we’ve seen in other major downturns.
I think so, yes. Either you have floating rate debt, debt which is going up, or you have fixed rate debt, mostly bonds. Hopefully you refinanced more than a year ago before interest rates started to tick up. If you didn’t, capital’s going to be more expensive.Any company that’s bumping up against covenants or availability on their liquidity line are companies that you’re going to see have problems. What really is driving restructuring these days is maturity and/or liquidity needs.
In my experience, whether it be a retailer or a restaurant chain, there’s always a reason why that store is underperforming and it’s going to turn around. Generally companies keep too many marginal stores when they should cut them. Because even if it’s just breakeven, there’s still a lot of capital being tied up in the form of inventory that could be deployed elsewhere.
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