Rx Slowdown? Outlook?

I work at a top Rx shop, and things have been pretty slow. My hours have been as low as 20 hours of actual work and maybe as high as 60-70 hours so far this year. I have probably worked 40-50 hours on average the last couple months. It's been really nice after grinding through 2020

I know others in my group are still working 80+ hours, and we have had some pitch work, so I understand that this might not be the case for some people

Wanted to see (1) how other people are doing and (2) what are people's thoughts on Rx for the rest of the year

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Comments (33)

  • Associate 2 in Consulting
Apr 18, 2021 - 2:23pm

RX consultant here. Pretty much mostly been pitching. A few Rx jobs but not enough to keep everyone busy. 

Everyone loaded up on covid 19 covent holidays, amend and extends, gov support bux etc. Bit ridiculous really. Treating this year as a wash as well and hoping for busy 2022! 

  • Associate 2 in Consulting
Apr 19, 2021 - 5:07pm
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Apr 18, 2021 - 5:25pm

Not to sound too alarmist, but RX just isn't really in a great spot right now. You've probably run the screens and have seen that there just aren't a lot of companies with catalysts in the next year and a half. Almost everyone is sitting on a ton of cash and has been able to refi out their capital structures to deal with their near-term maturities. As a result, there just isn't a lot to do at the moment, and that seems unlikely to change for a while.

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  • Analyst 2 in IB - Restr
Apr 18, 2021 - 6:52pm

Same here. Been doing more debt advisory / bespoke financing work to fill the void but capital availability has definitely pushed out regular way restructuring transactions. We were working on an A&E + new money sponsor investment and the bank group eventually came to terms without outside capital.
 

Last year+ has been a crazy time to be in restructuring. Have seen historic peaks in filings and distress and then now unparalleled capital availability. Honestly a welcome change for a 2nd year analyst but to the 1st years and incomings who may be antsy: don't stress, there is 100% more cycles to come and likely a super cycle in the near future. All of the rescue capital that came in to bail out companies post covid haven't fixed the problem, just kicked the can out longer. Embrace the unconventional liability management work that you'll see until then bc that's equally constructive to your experience / future career in PE or banking. 

  • VP in IB - Restr
Apr 19, 2021 - 11:57am

Did you mean to say we haven't seen a historic peak in filings? Last year was an extreme outlier, as bankruptcy filings have actually been trending significantly lower last year and this year relative to the last couple decades.

That being said, this is all about to change sooner than most think. The next 3-5 years will be extremely busy in the Rx space.

  • Analyst 2 in IB-M&A
Apr 20, 2021 - 10:35am

Ah yes, me, when I was gullible sophomore in college a few years back: you know interest rates are low, cheap capital has flowed in, but I think there are a lot of catalysts on the horizon for a market correction leading to more restructuring. The associate interviewing me: you know, I said the same thing x years ago when I was coming out of school...

  • VP in IB - Restr
Apr 21, 2021 - 11:32am

@plskystks - that's a pretty ignorant statement to make. First of all, the distress space has plenty of activity every year (just a matter of the magnitude of work during extreme economic downturns being favorable within this niche practice). I think you may also need to educate yourself on distressed debt investing (guessing you focus on investing in stable, healthy companies generating positive cash flow at the time you first review the opportunity only). It's a highly lucrative arena to be in depending on the fund's investment strategy, with MANY opportunities available to target. 

Apr 20, 2021 - 1:14pm

Most liability management exercises are undertaken by PE firms either as loss mitigation or discount capture to drive equity returns. Its a big tool in their toolkit for portfolio companies 

Apr 18, 2021 - 7:12pm

long term view is that it won't be amazing-Rx spiked due to covid and now that we're almost over the hump, turnarounds are still out there, just far fewer

Array

  • Analyst 2 in IB - Restr
Apr 19, 2021 - 11:07am

OP here. Hoping to turn this into a more meaningful discussion so bear with me.

Fed-backed asset purchases, increased access to capital markets, etc. are keeping bond prices afloat, and investors are turning to riskier assets / yield. A Reorg survey from earlier in the year highlighted a relative shift in pricing - 90's becoming the new 80's for bonds. There's a lot of noise to look through. I think as we approach a near level of pre-Covid recovery, those businesses that have weaker business fundamentals (whether that be from Covid-driven acceleration / adoption or the business was underperforming prior to the pandemic - physical retail, legacy technology and media, etc.) will begin to show signs of underperformance relative to its peers and to economic recovery. There could be a normalization of bond prices or price discovery from the realization of underlying business deterioration and/or a shift in investor appetite and risk aversion. I think it'll be interesting to see how many Rx's will resurface from those that have already reorganized but cannot meet performance hurdles, newly negotiated debt indentures and credit agreements, etc.

Many believe there will be an uptick in activity in 2H21. What do people think about the above rationale? What do people think will be likely catalysts for an uptick in activity (Covid, rolloff of government aid to households and businesses, unexpected rise in inflation, etc.)? What are some industries that are still very much vulnerable and why?

  • Analyst 1 in IB - Restr
Apr 19, 2021 - 11:17am

I'd tend to agree with that. Issue with the COVID downturn is that it wasn't caused by the business cycle, it was purely event driven by lockdowns. So all the companies/industries that were already over-levered and struggling were just able to get help from the government are still in deep trouble whenever (if) the Fed starts to raise rates or general interest rates start to go up again. 

As for specific industries, I think the oil/gas companies will remain in a tough spot. 

Apr 19, 2021 - 3:33pm

Will second everyone here and say that things have slowed since January of this year. Most of us are working on legacy deals expected to close sometime this year. Only a couple new MM level bankruptcies and distress situations. That being said I think we're all expecting things to ramp up by Labor Day. I for one am happy I get to enjoy the impending spring and summer

  • Analyst 2 in IB-M&A
Apr 20, 2021 - 10:09am

Yeah but the legacy deals are still churning out 120 hour weeks on a regular basis for some of us, really think OP is painting too broad of a stroke

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