FICC Focus Houlihan Lokey's Hardie on Yet-to-Crest Wave of Distressed Debt: State of Distressed Debt
Mar 9, 2024
William ‘Tuck’ Hardie, a Managing Director at Houlihan Lokey with over 20 years of experience in financial restructuring, discusses the rising wave of distressed debt driven by post-pandemic rate hikes. He shares insights on liability management transactions and the shift towards out-of-court restructuring. Tuck emphasizes the role of private credit and CLOs in prolonging distress scenarios. He also highlights the importance of monitoring creditor relations and the cyclical nature of current market vulnerabilities, including sectors like healthcare and telecom.
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Pick Groups Strategically, Not Automatically
- Join creditor cooperation groups when small or cuspy to gain negotiating strength.
- But large holders may lead deals alone if being the originator yields better protective terms.
Choose Real Recapitalizations Over Kicking Cans
- Reject kick-the-can fixes when the business merits a stronger balance sheet; buy equity if you believe in recovery.
- Hardie cites a credit investor who refused a can-kick and chose to recapitalize for real recovery.
PIK Interest Is A Hidden Time Bomb
- PIK (payment-in-kind) interest compounds a time-bomb by gradually eroding equity and future reinvestment cash.
- Hardie warns PIKs quietly consume value each night and hinder business reinvestment.