NEW YORK -- Bankruptcy professionals have a grim view on the U.S. corporate recovery, despite a recent rise in stocks and an uptick in business deals.
"I think it's going to be a sad holiday season," said Lynn Tilton, chief executive officer of Patriarch Partners, a private equity firm that specializes in distressed companies.
Consumers will be stingy with their spending, keeping malls and resorts empty, bankruptcy professionals said at the Reuters Restructuring Summit in New York this week. Even the wealthy will steer clear of the wild, brand-conscious spending that marked the last few years.
"No one is conspicuously consuming they way they did in 2006," said William Derrough, a managing director at investment bank Moelis & Co. "That excess spending creates little boutique hotels, it creates that restaurant that sells the $19 doughnut and the Kobe beef burger. Those things don't need to exist."
Higher unemployment and little bank lending will keep a lid on economic gains, likely forcing thousands more companies into default, bankruptcy or liquidation.
"I just don't see a rapid recovery," said Tilton.
EMPTY BERMUDA RESORT
U.S. unemployment has climbed to its highest rate since June 1983, to 9.8 percent, according to U.S. Labor Department data on Friday.
Bankruptcy pros who managed to eke out a small vacation between an avalanche of bankruptcies this year that included automaker General Motors GM.UL and American outdoor apparel chain Eddie Bauer Holdings Incsay resorts are deserted.
"I snuck away last week to Bermuda and the hotel was empty," said one restructuring expert. "Absolutely empty."
Miserly bank lending is exacerbating the problem. Until banks lend again to small-sized businesses or lend to companies with below-investment-grade ratings, unemployment will rise still more.
"At the risk of being cynical, which if you are in the restructuring business comes relatively easy, the banks are making money, but they aren't lending money," said Henry Miller, chairman and co-founder of investment bank Miller Buckfire.
In addition, there is some $117 billion in debt maturities due in 2011, according to a study by Bain Corporate Renewal Group. Think that figure is high? Debt maturities spike to $165 billion in 2014.
"It's hard to see how all of that can be refinanced," said Miller.
The outlook is dim for a slew of industries, according to the restructuring executives.
Media, real estate and private equity-sponsored companies are most in need of drastic restructuring, said James Sprayregen, a bankruptcy attorney for Kirkland & Ellis. Other busy areas for restructuring will include commercial real estate and smaller auto-parts makers, he said.
"We are still headed for an avalanche of deals over the next 12 to 18 months that will keep the restructuring world quite busy," said Robert McMahon, a managing director for GE Capital, Restructuring Finance.
Retail, too, will suffer.
"How well is retail going to fare this year?" said Thane Carlston, managing director at Moelis. "I could make a case that Christmas may not come."
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