Restructuring

Co-authored by Adam Strochak
We received nearly a hundred responses to the Weil Restructuring Outlook Survey, our third annual barometer of the restructuring community’s views on key economic indicators for the upcoming year.  Thanks to everyone who participated.  Here are the predictions for 2013.
As we do each year, we asked survey participants to choose one phrase that best describes the overall outlook for the economy in the year ahead.  This year, choices came from recent movies.  Life of Pi, based on the best-selling novel by Yann Martel, is a tale of faith, hope, and fighting for survival. It is telling that survey respondents chose this film’s central message — “Above all, don’t lose hope” — as the phrase that best forecasts the economic outlook for 2013.
This top spot was as fiercely fought for as the Superbowl: 30% of respondents to the annual Weil Restructuring Outlook Survey were bullish, seeking to hoist Silver Linings Playbook as their banner for 2013, with the quote “Let me tell ya. You gotta pay attention to signs. When life reaches out with a moment like this it’s a sin if you don’t reach back…I’m telling you.”
23% of respondents to the survey were bearish, choosing Argo as their banner of choice, with the fateful: “Bad news, bad news. Even when it’s good news, it’s bad news. John Wayne in the ground 6 months and this is what is left of America”.
None of our respondents were apocalyptic, and the quote from Les Misérables — “An economy like this can never change” — was left out in the cold just like Jean Valjean.  Only 2% of our respondents were wildly optimistic, choosing this quote from Anchorman: The Legend Continues: “I don’t know how to put this, but 2013 is going to be kind of a big deal.”
So let’s see what 2013 brings, in the meantime, Life of Pi, Silver Linings Playbook and Argo are nominated in various categories for Academy Awards.  If there is a correlation between the restructuring community’s pick as the banner headline for the economy in 2013 and what the Academy has to say, we’ll know on February 24 when the Oscars are announced.
Number of Jumbo Chapter 11/15 Cases
Mood on the number of jumbo filings (assets greater than $1 billion) in 2013 was evenly split.  Forty-four percent of respondents expect between 6-10 jumbo filings in 2013, while 36% expect between 11-15 jumbo filings.  So we have 80% consensus for a range of 6-15 cases of this size.  In 2012, 14 jumbo chapter 11/15 cases filed, while ten jumbo chapter 11/15 cases filed in 2011. There were 19 jumbo chapter 11/15 cases in 2010, and in the very busy year of 2009, the 20th largest case was Station Casinos with $5.8 billion in assets.
Sector Analysis
As was true with our 2012 survey, the retail sector remains top of the list when it comes to expectations of distress in the restructuring community for 2013, followed closely by the publishing, energy and healthcare sectors.  Note that the total is greater than 100% because respondents could choose three sectors.  Consensus seems to be that the automotive, banking, homebuilding and commercial real estate sectors have finally turned the corner.

 
Economic Indicators and Indicators of Distress
When asked to predict the U.S. trailing-12-month speculative-grade corporate default rate as of December 31, 2013, a large majority (69.7%) saw the rate sitting between 2-3% in 2013.  The trailing-12-month speculative-grade corporate default rate ended 2012 at 2.06%, up slightly from 2.05% in December 2011, and down from 3.3% in December 2010.
The yield on a 10-year U.S. Treasury note was 1.78% at December 31, 2012, down from 1.89% at December 31, 2011.  Two-thirds of respondents to our 2013 survey expect the yield to stay in a range between 1.6% and 2.0%.  Twenty percent of respondents predicted 2.1-3.0%, while 15% expect it to drop further to 1.0-1.5%.
The Dow Jones Industrial Average opened 2012 at 12,221.19, and it ended the year at 13,104.14.  Nearly half of respondents expect the Dow to trade in the 13,001 to 14,000 range this year.  Bankruptcy Blog readers were spot on last year, so we’ll be watching the Dow closely to see how good this prediction is.  Approximately 20% of respondents saw the Dow trading between 12,001 to 13,000, and 20% were bullish, seeing it trading at 14,001 to 15,000.
Expectations for the price of oil were fairly split: approximately one-third of respondents predicted that a barrel of ICE Brent Crude Futures with a February 2014 delivery date would trade in the $111-$120 range at December 31, 2013.  Twenty-five percent of respondents predicted $101-$110, and 24% predicted $91-$100.
Predictions for the price of gold per troy ounce at December 31, 2013 were again evenly split in our poll.  Twenty-five percent of respondents saw the price of gold trading in a $1,501-1,600 range, 25% saw it trading in a $1,601-1,700 range, and 25% saw it trading in a $1,701-1,800 range.
As to what lies ahead in 2013, we thought we’d just give you the responses straight up! They make for interesting reading: Interesting times; The economy will stagnate in 2013; Much of the same; More of the same; Dr. Bernankenstein printing at the Ministry of Reflation; Mild economic improvement and more volatility; Slow, choppy growth; Fiscal cliff – It’s a long way down…; Big bounces. This is going to be a trampoline year; Continued decline in bankruptcy filings; Underappreciated economic growth; Pain; Uncertainty; More of 2012; Pre-Hysteria Positivism; The economy will continue to improve, aided by Fed policy keeping interest rates artificially low for the near-term; Somewhat better economy and lower unemployment but otherwise more of the same; Same slow steady growth that isn’t felt by the average Joe; Slow growth and continued political disturbances; Beach vacations for bankruptcy attorneys, the return of bonuses of bankers, more smiles in the line at the bank, and warmer weather; Another bad year for restructuring professionals; Slow steady improvement; Declining discretionary spending; Continued very slow growth; Dysfunction in Washington; Tough sledding for countercyclical professionals; More muddling through, same as before; More distress in public sector; The House of Representatives will try to put us in a ditch but the markets (and everyone else) will eventually tune them out; Fed-induced asset value inflation against a backdrop of stagnant macroeconomic performance; High taxes and lots of uncertainty; Things can only get better; Recovery in US and Europe; 2013 is going to rock!
Compared with the 2012 Weil Restructuring Outlook Survey, the mood of respondents is improving: there is consensus that 2013 will see growth, though whether this is going to be sluggish, anemic growth or moderate, choppy growth is an open question.  Either way, whatever you do, just remember one thing: “Above All, Don’t Lose Hope”.
You can see Jacqueline Palank’s related article here. Jacqueline is a reporter for Dow Jones Daily Bankruptcy Review and frequently writes for the Wall Street Journal’s Bankruptcy Beat blog.