Charting a New Course: Navigating the Corporate Restructuring Landscape

James Poston

Last Modified : Oct 03, 2024

Fact-checked by: Bruce Sayer

The landscape of corporate health and turnaround is constantly evolving. Companies face dynamic challenges, from economic downturns and disruptive technologies to supply chain disruptions and shifting consumer preferences. Headwinds persist, including stubbornly high interest rates and the possibility of pending economic contraction. According to findings from global consulting firm AlixPartners’ 5th Annual Disruption Index, nearly all CEOs surveyed anticipate needing to overhaul their business models in the next year due to disruptive forces.

While CEOs managed 2023’s disruptions better than anticipated, the path forward demands greater agility and decisive action. Success will come to those who adapt and restructure to meet the demands of a changing world. In this environment, the role of restructuring professionals and alternative finance has become more critical than ever.

This blog will delve into the current state of the corporate restructuring space and explore how alternative finance provides innovative solutions for companies seeking to navigate financial distress and emerge stronger.

Current State of the Corporate Restructuring Space

Cost cutting and new cash sources helped many companies navigate the high interest rates and economic uncertainty that drove a surge in restructurings in 2023. However, these measures may soon prove insufficient.

Analysts point to credit restrictions and the impending refinancing risk from approaching maturities as significant factors contributing significantly to the current level of business distress. Business bankruptcy filings increased 40.4 percent YoY and are likely to remain elevated due to high costs and lingering operational challenges.

Additionally, pressure to address environmental concerns from various stakeholders is rising, with over a third of leaders noting its impact, according to the AlixPartners’ survey.

Many companies will hold out as long as they can, watching for rate cuts or a more positive economic outlook before turning to restructuring as a last resort. However, significant positive overall change is not imminently expected, and many borrowers may not have the runway to hang on much longer.

A Shifting Tide: Industry Trends Shaping Restructuring Strategies

As financially distressed companies face the threat of bankruptcy, a new trend is reshaping restructuring strategies. Collaboration with lenders, creditors, and restructuring specialists is forming dynamic partnerships to enhance corporate turnaround success rates. These partnerships effectively merge flexible financing options with essential environmental, social, and regulatory (ESG) guidance to create robust restructuring strategies and successful out-of-court workouts.

Let’s take a closer look at three key elements of this shifting tide in restructuring strategies:

#1 Bankruptcy

Despite business sentiment rising to a six-month high in June, there is every reason to be cautious as commercial bankruptcy filings increased 34 percent in the first half of 2024. This continued increase in filings reflects the growing economic strain on businesses as interest rates and costs remain high. As the volume of restructurings accelerates, key challenges emerge. Prominent difficulties include navigating regulatory hurdles, which can favor liquidation over rehabilitation, and the lack of experience among management teams in handling bankruptcy situations.

Collaboration with restructuring professionals and experienced alternative lenders provides essential expertise and strategic guidance. These specialists help businesses navigate complex regulatory hurdles and manage financial distress effectively, resulting in improved turnaround success rates.

#2 Out-of-Court Workouts

The Turnaround Management Association’s (TMA) recent analysis paints a picture of a dynamic restructuring landscape. Along with the increase in bankruptcy filings, there is a rise in out-of-court workouts and restructuring activities. This trend signifies a shifting tide emphasizing proactive intervention and a collaborative approach to navigating financial challenges. The rise of out-of-court workouts underscores the shift towards a more collaborative approach to corporate turnaround. These workouts involve partnerships with lenders, creditors, and other stakeholders to develop restructuring plans that avoid the often lengthy and costly bankruptcy process. A growing emphasis on transparency and communication between all parties facilitates this collaborative approach.

#3 ESG

Additionally, the TMA Journal of Corporate Renewal highlights the increasing impact of ESG (environmental, social, and governance) factors on restructuring strategies. In today’s turnaround processes, companies are prioritizing their financial viability and ESG initiatives to meet stakeholders, customers, and government expectations.

The minimal loan covenants associated with specialty financing options allow companies to self-direct funds and use capital however needed to best serve the business. This flexibility enables midmarket businesses to support their ESG goals as they work to restore financial stability and grow.

Enter Specialty Finance: A Restructuring Tool

Traditional bank loans have long been the go-to option for companies seeking working capital. However, the structured nature of these loans can limit flexibility for borrowers. Allocation of funds to support restructuring strategies, ESG goals, or growth initiatives are often stifled by restrictive covenants. This is where the flexible nature of specialty finance emerges as a game-changer.

Specialty finance has become an essential restructuring tool to achieve financial stability and agility. Fast funding, few restrictions, and expandable credit limits enable companies to improve financial health and be positioned for growth.

Specialty lenders offer a lifeline for distressed companies with an array of flexible funding solutions and expertise to help restore financial health and provide a pathway back to bank financing.

Flexible Financing Solutions

Specialty lenders provide comprehensive financing solutions featuring minimal debt covenants and expandable credit limits to enhance agility and support growth. These flexible funding options can function independently or in combination to maximize access to credit. By customizing terms to align with a company’s turnaround and growth strategies, specialty lenders provide a streamlined approach to access more funds, faster, and with fewer restrictions than conventional lending options.

Working in collaboration with leading specialty lenders

Building relationships with specialty lenders experienced in turnaround finance adds an additional layer of expertise to help guide businesses to success effectively. Their knowledge of industry-related complexities, emerging regulations, and developing trends is backed up with data-driven insights to help guide strategic decisions. Establishing collaborative relationships with the best of these lenders is key to accessing diverse financing options and making informed decisions to help guide success.

Conclusion

The corporate restructuring landscape constantly evolves, with new challenges and emerging opportunities. The rise in bankruptcy filings, a growing trend in out-of-court workouts, and mounting ESG pressures underscore the need for innovative approaches to financial distress.

Collaboration with lenders, creditors, and restructuring specialists is forming dynamic partnerships to enhance corporate turnaround strategies. In this environment, specialty finance has emerged as a crucial tool, offering the flexibility and agility needed to support effective out-of-court workouts and avoid bankruptcy.

Building solid relationships with experienced specialty lenders can further enhance a company’s ability to adapt and thrive. These lenders bring added value with expertise and tailored solutions, such as asset-based lending and invoice factoring, that can empower companies to navigate financial distress and emerge stronger. Companies that embrace the benefits of specialty finance will be better equipped to tackle financial challenges, meet evolving stakeholder expectations, and achieve sustainable growth.

Contact us today to request a free financing consultation and learn how we can collaborate to benefit your clients.

Key Takeaways

• Business bankruptcy filings increased 40.4 percent YoY and are likely to remain elevated due to increasing regulations and the improbability of near-term interest rate cuts.
• In this environment, collaboration with restructuring professionals and specialty finance lenders is increasingly critical to navigating the corporate restructuring landscape.
• Collaboration with experienced specialty lenders is crucial for restructuring professionals to effectively guide client businesses to success.
• Establishing collaborative relationships with the best of these lenders is key to accessing diverse financing options, leveraging their expertise to get deals done, and growing

James Poston

James is an experienced product expert in receivables financing, trade finance including purchase order financing, and asset-based lending. In his role, he oversees eCapital’s sales strategy by driving business development and creating unified revenue generation processes across our organization. Utilizing his experience in developing strategic relationships and nurturing strong networks, James is positioned to expand our company’s market footprint and industry associations.

Prior to joining the eCapital organization, James served as Executive Vice President and Sales Director for Bibby Financial Services Canada. During that time, he participated in all aspects of the organization including operations, credit and finally business development where he was named a 40 under 40 Award recipient by Secured Finance Network.

James is a Chartered Professional Accountant and Certified Management Accountant and holds a Bachelor of Economics degree with concentrations in international relations and political economy from McGill University.