The summer solstice has come and gone, and with that, it is time for the Bankruptcy Blog to give you the restructuring industry score line at half time. In the 2012 Weil Bankruptcy Survey, we asked our esteemed readership what 2012 held in store for us. The overwhelming response was “Keep Calm and Carry On.” Let’s see if y’all were right.
Number of Jumbo Chapter 11 Cases
Bankruptcy Blog readers predicted between one and ten jumbo chapter 11 cases (assets over $1 billion) in 2012. There were ten such cases in 2011. At the mid-year point, we’re already up to nine, with four manufacturing cases, two financial services cases, and cases in the transport, publishing and telecom sectors. Our readers better hope the rest of the year is a quiet one or their predictions will be off the mark! Here is the list of “jumbo” chapter 11 cases, in alphabetical order:
|Arcapita Bank B.S.C.(c)||more than $1 billion||Financial Services|
|Catalyst Paper Corp (chapter 15)||more than $1 billion||Manufacturing|
|Eastman Kodak Company||$5,102,000,000||Manufacturing|
|Hawker Beechcraft, Inc. (pre-negotiated)||$2,778,300,000||Manufacturing – Aircraft|
|Houghton Mifflin Harcourt Publishing Co.||more than $1 billion||Publishing|
|Pinnacle Airlines Corp.||$1,539,488,000||Transportation|
|Residential Capital, LLC||$15,675,571,000||Financial Services – Mortgages|
|WP Steel Venture LLC||more than $1 billion||Manufacturing|
The top five sectors that our readers anticipated would involve significant distress this year were (in order of probability): (1) Retail; (2) Media/Communications/Publishing; (3) Restaurants; (4) Banking and Finance/Commercial Real Estate (dead heat); and (5) Energy.
At the half year mark, it looks like the manufacturing sector was worst hit, with eight filings (making up 17.5% of total filings involving debt of $100 million or more).
After that, the media/communications/publishing, transport, energy, and retail sectors are all tied with five filings a piece (11% of total filings, respectively). The financial services sector also managed an (un)healthy four filings, making up 8.7% of the total. Remaining sectors came in with one two filings a piece, nothing to write home about. So at the half year mark, our readers’ instincts are spot on in every category but manufacturing, where only 12% of respondents thought there was a high likelihood of distress.
Other Indicators of Distress
When asked what the 12-month global speculative-grade default rate would be as of December 21, 2012, over half of respondents expected it to end in the 2-3% range, much the same as in 2011 when it ended the year at 2.05%. The 12-month global speculative-grade default rate from April 30, 2011 to April 30, 2012 is currently at 2.59%. Standard & Poor’s expects the U.S. corporate trailing 12-month speculative-grade default rate to rise to 3.6% by March 2013 from 2.5% as of March 2012.
At the start of the year, respondents expected the closing price of the Dow Jones Industrial Average to remain in the 12,001 to 13,000 range by the end of 2012. It is currently north of 12,900. Interestingly, the DJIA is trading ahead of our respondents’ expectations, while corporate defaults are too.
Brent crude was widely expected to trade in the $100 to $110 per barrel range by the end of the year. Earlier this week, the price of a barrel of Brent Crude settled at just over $100 a barrel, at the bottom end of expectations.
The price of gold, which traded in January 2012 at around $1,657 a troy ounce, was also expected to remain flat, with nearly half of our respondents expecting it to trade between $1,501 and $1,750 a troy ounce. As of the half year mark, gold futures for August delivery are trading at $1,621, well within expectations and largely where it was at the beginning of the year.
The yield on the 10-year US Treasury note is currently at 1.63%. Half our respondents expect it to end up below 2% this year, while the other half expect it to end in the 2-2.5% range.
Lastly, 70.9% of our readers expected a consensual restructuring to resolve the Greek debt crisis. The majority of private holders of Greek government bonds ultimately agreed to trade in their bonds for new longer-dated ones with less than half the face value of the old ones and a low interest rate. The biggest sovereign-debt restructuring in history allowed Greece to wipe some €100 billion ($130 billion) from its debts of around €350 billion. Our readers were right, but Greece’s troubles aren’t over yet.
As always, the Weil Bankruptcy Blog will keep you updated with developments in the restructuring market, but as you all correctly predicted at the start of the year, it really is a case of Keep Calm and Carry On.