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Q1 Restructuring: Retail, Energy Most Active Sectors

By Kirk O'Neil | Published on March 29, 2018

Restructuring attorneys and advisers were forecasting late last year that fewer energy companies would be restructuring out of court in the first quarter as higher energy prices allow companies to recover.

Retail companies also said they would be less likely to restructure out of court in favor of filing Chapter 11 to reject leases of underperforming locations.

Those predictions have not held true as a parade of retailers chose to restructure out of court in the first quarter instead of filing for bankruptcy and energy companies continue to restructure out of court, hoping to buy time as energy prices rise to more favorable levels.

Many restructuring advisers, however, were also predicting that healthcare providers and related companies would be among the most active in out-of-court restructurings, but few significant healthcare companies launched out-of-court restructurings in the first quarter.

Notable retailers that were restructuring out of court in the first quarter included auto parts retailer Fenix Parts Inc., which extended a forbearance agreement and U.K. retailer Matalan, which refinanced debt, in January.

Vitamin and supplement retailer Vitamin Shoppe Inc. (VSI) conducted an out-of-court restructuring and competitor GNC Holdings Inc. (GNC) refinanced debt in February.

U.K. retailer New Look restructured out of court and restaurant chain Kona Grill Inc.amended a credit facility in March.

Retailers will attempt out-of-court restructurings if they are able to renegotiate leases and refinance debt, but will head for Chapter 11 if landlords and lenders don’t cooperate.

The roster of energy companies restructuring out of court included SA Exploration Holdings Inc. (SAEX), which completed a debt exchange, oil producer Legacy Reserves LP (LGCY), which refinanced debt and Lonestar Resources US Inc. (LONE), which refinanced debt in January.

Power generator FirstEnergy Solutions Corp. tried to restructure out of court in February before filing for Chapter 11 on March 31.

Pipeline construction company Willbros Group Inc. in March conducted a strategic review before selling its assets to avoid filing Chapter 11.

More energy companies are likely to try to find ways to restructure out of court to avoid the high costs of a Chapter 11 filing and loss of control of their enterprise.

The most significant healthcare out-of-court-restructuring included Prospect Medical Holdings Inc., which refinanced debt in January.

In February, Teva Pharmaceutical Industries Ltd. refinanced a $2.3 billion term loan in its out-of-court restructuring.

Restructuring advisers are convinced that uncertainty with the Affordable Care Act and the Trump administration will lead more healthcare companies to restructure out of court as the year progresses.


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