Evolution of RX IB Over The Years?
I'm in a typical IB coverage group, but I have always been interested in restructuring. The prior and current years have been interesting times in the market, and it feels like the space is evolving with the explosive growth of ABL usage and LMEs. Given the changing dynamics, have you guys seen any observable changes in your restructuring groups over the years?
Is there more fee desirability of doing out-of-court restructuring transactions? Are there MDs who are beginning to carve out niches for LME transactions? Are the average chapter-11 restructuring transactions becoming larger due to the additional tools to fend off bankruptcy?
Restructuring investment banking (RX IB) has indeed evolved significantly over the years, shaped by market dynamics, economic cycles, and the increasing complexity of financial instruments. Here's a breakdown of the key trends and changes observed in RX IB:
1. Cyclicality and Market Dynamics
2. Out-of-Court Restructurings
3. Specialization and Niche Carving
4. Size and Complexity of Transactions
5. Exit Opportunities and Prestige
6. Big 4 and Mid-Market Dynamics
In summary, RX IB has evolved to adapt to changing market conditions, with a noticeable shift towards out-of-court solutions, increased specialization, and larger, more complex transactions. For someone in a coverage group looking to transition into RX, staying informed about these trends and networking with professionals in the space can be invaluable.
Sources: Thoughts on Restructuring Groups?, Top Restructuring Groups 2016, Top Restructuring Groups 2019 & Restructuring Questions, Top Restructuring Groups 2019 & Restructuring Questions, Restructuring Groups 2020
Shameless bump
I can maybe hop in (as a first year though I may not be able to give you as much depth as you’d hoped, but I’ll do my best). I think the general notion wrt to restructuring has been that advisors who staked out a corner of the sponsor-backed distressed activity years ago are really reaping the profits. Back near when LTCM exploded and for the following 10-15 years so-called “fallen angels” led the restructuring world with the largest fees and most lucrative advisory roles. However, the rise of PE (and widespread use of high amounts of leverage) brought a new form of customer for RX shops to build relationships with - sponsors. Not only were they repeat customers, but their business model was predicated on treating equity as a call option (thus potentially forgoing positive NPV projects in lieu of risky undertakings - apologies for my theory here). The world of sponsors has also brought forth the concept of LMEs, since more DIP/distressed equity holders now have greater skin in the game wrt preserving equity value over performing their true fiduciary duty in the zone of insolvency. Combined with the absurd increase in bankruptcy costs and high business deterioration risk, out of court capital solutions have become much more core to distressed company toolkits. This has led to a narrower interpretation of debt docs that has then led to transaction structuring which “shifts” recovery value from senior capital structure constituents to junior call options. Something interesting going on in RX end-markets (or distressed entities) has been the rise of private credit essentially offering low-differentiated financing packages to sponsors. This has subsequently led to sponsor financing suppliers having to differentiate and win lending opportunities by compressing on low-hanging fruit (credit doc protections, since this doesn’t damage their returns in the immediate future). Thus LME opportunities continue to be plentiful when it would seem counterintuitive to permit issuing financing withouta JCREW blocker to a retail company with core crown jewel asset and permissible investment basket capacity. Sorry for the dump but let me know if helpful - honestly would love to hear what some of the more senior people have to contribute!
Excepturi sed veniam eveniet id. Labore incidunt autem et id dolorem eum neque. Dolores nisi doloribus ut eos non. Incidunt amet autem nemo voluptatem et assumenda officiis.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...