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European restructurings predicted to hit next peak in 2017

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The volume of European restructurings is expected to hit its next peak in 2017, according to a survey by Debtwire in conjunction with independent investment bank Greenhill and law firm Orrick.

The study, for Debtwire Europe’s 13th European Distressed Debt Market Outlook, canvassed the opinion of 130 European hedge fund managers, distressed debt investors and private equity professionals and provides insight into their expectations for the European distressed debt market in 2017 and beyond.
 
“2016 proved to be another challenging year for the restructuring community, mostly as a result of a continued slim pipeline of workouts and distressed opportunities,” says Robert Schach (pictured), Debtwire Europe’s managing editor. “Hedge fund returns remained well off the pace of their previous years, although bets on commodities, especially oil and gas, paid out handsomely, enabling many funds who had jumped in too early the prior year to make good their previous losses.”
 
Looking ahead, respondents cited interest rate rises (22 per cent), geopolitical conflict (21 per cent) and Brexit (16 per cent) as the most important macroeconomic factors driving European restructurings in 2017.
 
Gareth Davies, head of financing advisory and restructuring in EMEA at Greenhill, says: “We enter 2017 with a great deal of uncertainty and many events that will shape Europe’s future already on the agenda for the year: the UK’s invocation of Article 50, elections across France, Germany and possibly Italy and radical change in the White House to name but a few. Perhaps as a consequence of this uncertainty, this survey suggests an increase in restructuring activity for 2017. This may be in part because 2016 was a low point in volumes, but also appears to reflect a genuine anticipation of a wider economic downturn.”
 
Respondents were fairly pessimistic over Brexit, with a majority expecting a recession this year and many funds planning to scale back investments in the UK. However private equity respondents are more bullish and aim to take advantage of any downturn. On a more positive note, 58 per cent of distressed and 54 per cent of PE investors have no intention of relocating outside the UK, while only a handful are considering reducing their headcount.
 
Drilling down to a regional level, respondents expect Southern Europe, and in particular Italy, to drive European restructurings in 2017.
 
“After years of tentative steps we think that 2017 will be a year of restructuring, equity raisings, forced consolidations, and NPL sales/securitisations for the Italian banking system,” says Stephen Phillips, co-head of the European restructuring group at Orrick. “Interestingly the market survey points to Belgium and a number of other countries as the centre of possible bank resolution activity,” Phillips added.
 
In terms of sectors, energy (89 per cent), financial services (85 per cent) and infrastructure (83 per cent) are expected to offer the highest number of restructuring opportunities in 2017.

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