Restructuring

Co-authored by Adam Strochak
Our 2012 Restructuring Outlook Survey garnered 150 responses from readers and the phrase that most selected to forecast the year just concluded was “Keep Calm and Carry On.”  It seems we’ve done just that.  The United States muddled through political gridlock and narrowly averted the fiscal cliff of automatic tax hikes and indiscriminate spending cuts at year end.  Europe and the Euro also managed to survive 2012, as predicted here.  Overall, our readers’ predictions for 2012 were close to spot on, and markedly more reliable than the Mesoamerican Long Count Calendar. 
Watch this spot for our 2013 Restructuring Outlook Survey, which will open on Thursday, January 24, 2013.  In the meantime, here’s the true up on the 2012 survey. 
Number of Jumbo Chapter 11 and Chapter 15 Cases
The majority of our survey responses predicted between one and ten jumbo chapter 11/chapter 15 cases (assets over $1 billion) for 2012.  As of mid-2012, nine jumbo chapter 11 cases had already filed.  So how did we do for the rest of the 2012?
Looks like folks weren’t far off: since our last update, five more jumbo chapter 11 and chapter 15 cases filed: Dynegy, Inc.; Patriot Coal Corporation; ATP Oil & Gas Corp.; Centrais Eletricas do Para S.A.; and Overseas Shipholding Group, Inc., bringing the grand total to 14 jumbo chapter 11 cases for 2012.  These largest cases were spread among several sectors, with most in the manufacturing and energy businesses.  The Dynegy, Inc. filing was a follow-on to subsidiary cases that first filed in late 2011, and the Eletrobras case was a chapter 15 filed after the restructuring was completed in Brazil to facilitate the mandatory exchange of $250 million in notes, so while the official number is 14 jumbo cases, it’s really more like 12. 
Here’s the breakdown of jumbo chapter 11 and chapter 15 cases in 2012, alphabetically:

Sector Analysis
The top five sectors that our readers anticipated would involve significant distress this year were (in order or probability): (1) Retail; (2) Media; (3) Restaurants; (4) Banking and Finance/Commercial Real Estate (dead heat); and (5) Energy. 
By the end of 2012, of the 72 major chapter 11 filings we reviewed, the top five sectors that involved significant distress were: (1) Manufacturing (17 filings); followed by a four way tie for second with nine filings apiece: (2) Media; Energy; Retail; and Transportation.

Other Economic Indicators and Indicators of Distress
The U.S. trailing 12-month speculative grade corporate default rate ended 2012 at 2.6% according to Moody’s and Standard & Poor’s, finishing the year up slightly from the 2011 when it finished 2.05%.  Over half of the respondents to our 2012 survey expected it to end in the 2-3% range. 
S&P lists the following corporate entities as the U.S. corporate speculative-grade defaults in 2012.  Of the 47 listed, only 18 were chapter 11/chapter 15 filers in 2012:

 
Most of our 2012 survey respondents anticipated that the closing price of the Dow Jones Industrial Average on December 31, 2012 would be between 12,001 to 13,000.  The Dow opened the year at 12,221.19, and it ended the year at 13,104.14, just slightly ahead of the range predicted by the majority of our respondents.
Brent crude was widely expected to trade in the $100-$110 per barrel range by the end of the year.  As of December 31, ICE Brent Crude Futures with a February 2013 delivery date opened at $110.35 per barrel.  We’re rounding this one down to $110 and calling the prediction spot on. 
The price of gold was also expected to remain flat in 2012, with nearly half our respondents expecting it to trade between $1,501 and $1,750 a troy ounce during the course of the year.  As of December 31, 2012, gold was trading at $1662.90 per troy ounce, having started the year at $1,603.80.  Is there anything our readers got wrong this year?!
Most of our respondents predicted the yield on the 10-year U.S. Treasury note would end 2012 below 2%, though a substantial number of survey participants also expected it to end the year in the 2-2.5% range.  The yield on the 10-year U.S. Treasury note started the 2012 at 1.97%, and closed out the year at 1.78%.  Bullseye!   
Lastly, 70.9% of our readers forecast a consensual restructuring to resolve the Greek debt crisis.  As it so happens, they were right again, which is good news for the Greeks.
Best wishes to all for a successful 2013!