Prepare for Increased Rx Activity in 2026/27?

Restructuring groups are gearing up for what could be a busy period in 2026/27, and here's why:

1. Outlook on the Space:

   • Based on the most helpful WSO content, the restructuring landscape is expected to see significant activity in the coming years. With high interest rates potentially persisting and many LBOs facing floating rate exposure, free cash flow (FCF) erosion is likely to push even "good" businesses into distress.
   • The rise in liability management exercises (LME) over the past two years signals that sponsors are already taking proactive measures to manage liquidity. However, as maturities from 2025 to 2028 approach and refinancing becomes challenging, a wave of "real" distress could emerge.
   • Industries like retail and oil & gas have historically been prone to distress, but the current environment suggests broader sectoral impacts, especially for businesses with aggressive leverage structures.

2. Preparation by Restructuring Groups:

   • Top restructuring groups (e.g., HL, Lazard, PJT) are likely positioning themselves to handle increased deal flow. This includes bolstering teams, refining processes, and leveraging expertise in both creditor and debtor advisory.
   • Groups are also likely focusing on tighter documentation and navigating evolving case law, particularly around non-pro-rata arrangements, as these could shape the restructuring landscape.
   • For mid-market and smaller firms, Big 4 restructuring teams (e.g., Deloitte, PwC) are expected to play a significant role, especially in financial restructuring and Chapter 11 support.

If you're in the space or considering entering, now is a great time to sharpen your skills in restructuring modeling, understanding LME strategies, and staying updated on market trends. The next few years could be pivotal for the industry!

Sources: https://www.wallstreetoasis.com/forum/hedge-fund/the-future-of-special-situations-distressed?customgpt=1, Restructuring Outlook: The Hottest Product Group in Banking, Top Restructuring Groups 2016, Thoughts on Restructuring Groups?, Top Restructuring Groups 2019 & Restructuring Questions