Global restructuring opportunities

Even in good economic times, companies around the world need help from experts in TRI. New countries are opening up to investment and new regulations, new technologies and new policies are changing how those policies might develop.

“There are a lot of global opportunities that we are seeing. Our clients are driving us to a lot of places that I never would have dreamed of five years ago,” said Frank Longobardi, CEO of accounting firm CohnReznick, headquartered in New York City.

To understand these opportunities, experts from around the world gathered at the Nexia TRI conference, held on 14 May 2018, in New York City. The conference saw over 80 people from 17 countries come together.

Nexia’s TRI group was founded in 2012 to bring together financial and legal expertise from across the network to support international businesses and their advisers in times of challenges or distress.

It is now an established global network of TRI specialists, within member firms, who are able to provide advice to clients and support the offering of Nexia members around the world.

The conference topics were wide reaching and included:

Lawmakers fight ‘Forum Shopping’

U.S. Senators Elizabeth Warren (D-Mass.) and John Cornyn (R-Texas) have sponsored a bill in Congress that could have a giant effect on where companies can file for bankruptcy.

If passed into law, the Bankruptcy Venue Reform Act would require the parties in a bankruptcy case to file in a jurisdiction that is the principal place of business for the bankrupt company. That’s a big change from the current law, under which a bankrupt company can use a small asset like a bank account or the office of a subsidiary to justify filing in a jurisdiction. For example, Enron filed for bankruptcy in New York, even though just 0.5 percent of its assets were located there.
“The system is manipulated when the Dodgers file in Delaware, or Enron files in New York… It looks like a setup,” says the Honorable Donald H. Steckroth, member of Cole Schotz, a law firm based in New York City and a retired U.S. bankruptcy judge for the district of New Jersey. For example, creditors may be less to participate in legal proceeding. “The employees in particular are harmed.”

London could lose its favored status for bankruptcy

Currently, companies from all over the EU regularly file for bankruptcy in London but that could become less if the UK leaves the EU.

“The flexibility of English law has allowed a string of bankruptcy cases to be filed in England,” says Glen Flannery, solicitor and partner for CMS Cameron McKenna Nabarro Olswang, based in London. European law currently recognizes the validity of bankruptcy decisions made in the UK.

That could change if the UK completes its current plan to leave the EU in 2019. Officials in the UK have already submitted a treaty proposal that would allow the current system to continue. But if that treaty is not ratified, bankruptcy proceedings in the UK would become much more complicated, which might motivate many stakeholders to file for bankruptcy in another jurisdiction, such as Holland or France.

“Absent effective replacement measures, Brexit will weaken the UK’s stature in European cross-border cases, but it’s likely to remain a compelling choice,” says Flannery.

New opportunities to turn around companies

Turnaround experts are finding new opportunities to improve companies sometimes in new markets, other times in familiar markets transformed by new technologies.

“We are seeing things from very far away, people are willing to go outside of their region to explore funding sources from here in the U.S.,” says Sam Alberts, partner with Dentons US, based in Washington, D.C. Bringing investment from the U.S. to an unfamiliar new market often requires learning. “It is always an investment to get used to a new jurisdiction but it is always worth it. The more complicated the better.”

New countries are opening up to investment. “Saudi Arabia is challenging … we have spent a lot of time in the Arab Gulf fundraising,” says Russell Flicker, co-founder and managing partner for AWH Partners, based in New York City.

New technologies are also creating opportunities. For example, real estate is likely to change because of technologies such as ride sharing companies like Uber and self-driving cars. “Not today, but soon there are going to be opportunities in the parking space. Investors are now valuing parking differently than they did before because of the lowered need for parking,” says Flicker. “Cap rates are moving today because of the future need from parking.”

Opportunities to transform retailers and retail spaces

Turnaround experts are also helping retail real estate companies find new ways stay relevant and improve their business, despite the rise of online shopping. “If you are a retail real estate firm, you have seen your business decimated by e-commerce,” says Tama Huang, principal and global real estate advisory services leader for NOI strategies, a division of CohnReznick.

To keep drawing customers, retail real estate firms and retailers are working to provide an experience in their physical stores that shoppers cannot get by shopping online. “A downtown Louis Vuitton show is becoming more of an entertainment center than a shopping center,” says Huang. “You go there because of an event, rather than to buy a purse.”

Retail property managers are also finding partners like farmer’s markets or pop-up stores to bring new experiences and unique vendors to their retail spaces.
Mixed-use development is also helping to create captive audience for some retail spaces. “Every shopping center is now being surrounded by mixed-use,” says Huang. “Residential is going hand in hand with retail, so people are living where they shop.”

Brexit causes uncertainty for firms that deal with the UK

As the United Kingdom prepares to leave the European Union, many companies now struggle to understand how the change will affect their business. Some may need help from turnaround experts.

“If you are planning, you need certainty and uncertainty is a killer. We need to model various scenarios and be able to adapt quickly” says Greg Palfrey, partner and national head of restructuring and recovery services at Smith & Williamson. He is also chairman of Nexia TRI.

“It is fairly certain that the UK will actually leave the E.U., despite continued speculation that some last minute change could undo the 2016 referendum in which Britain narrowly voted to leave. I think that we are coming out. And I don’t see how that is going to change,” says Palfrey.

That leaves the details to be worked out on matters ranging from immigration to tariffs on which regulations will govern bankruptcy procedures. So far, British negotiators have not racked up many victories to UK companies. “We have continued to not play our best hand,” says Palfrey.

President Trump’s policies break with predictability

Since the election of Donald Trump as U.S. p resident in 2016, companies around the world have struggled to understand how changing U.S. policy might affect their business and how they can adapt. President Trump is unlikely to become less confrontational or unpredictable, because that is what many of his core supporters seem to expect of him.

“They voted for someone who said ‘I’m going to break some glass, and that’s what he’s been doing,” says Byron Dorgan, senior policy advisor for the law firm of Arent Fox, based in Washington, D.C. Dorgan also served as a U.S. Senator, and was a member of the Senate leadership for 16 years, first as Assistant Democratic Floor Leader and then as Chairman of the Democratic Policy Committee.

However, there are limits on how much a Republican White House has been able to accomplish to change U.S. policy, because the Republic Party only has a thin majority in the houses of Congress. “The Speaker of the House Paul Ryan did not have a great number just a 21 vote majority, and more than that in the Freedom Caucus,” says Dan Renberg, partner with Arent Fox, a former Republican Congressional staffer.

So far, the U.S. economy has weathered uncertainty on issues like trade policy and immigration. “This country has a very strong economy that is growing and it remains so,” says Dorgin.

Skilled nursing homes under pressure

Many of seniors housing properties that provide the most intensive medical services to residents are under a lot of pressure. “Skilled nursing is just now on fire – the pain is so bad,” says David E. Gordon, partner with Polsinelli, a law firm based in Atlanta.

These properties are being hurt by a federal push to save money on seniors care. The Center for Medicaid Services, the federal entity that sets Medicaid reimbursements, is now rewarding hospitals for supplying services at the lower levels of acuity, which have in the past been provided at
nursing homes. “That puts skilled nursing under pressure,” says Gordon.

Skilled nursing homes will eventually benefit from a huge demand for housing as the Baby Boom generation grows old enough to need the level of medical care that skilled nursing facilities provide. “There is an opportunity. The question is timing it so that you invest when it is on the upswing,” says Thomas Califano, partner and co-chair of the restructuring practice group for DLA Piper, based in New York City.

Restructuring experts also see an opportunity to help the hospital system in the U.S. provide better care at a lower cost. “There are inefficiencies in our system that need to be changed,” says Califano.

Greg Palfrey,
Smith & Williamson,
United Kingdom
E: greg.palfrey@smithandwilliamson.com