It is typically easy to determine how and why a business became distressed. After all, this analysis is frequently made after the fact and is fully informed by 20/20 hindsight. The difficult part is predicting the future and, through much of 2020, determining when various asset classes would emerge, and what they would look like post-pandemic, was practically impossible. Although there was significant bankruptcy activity in 2020, much of it was driven by either preexisting financial issues that were exacerbated by the pandemic or the needs of borrowers to seek protection in bankruptcy to avoid enforcement activity from creditors.
Nearly all sectors of the economy are experiencing financial distress and have been for some time, but there is light at the end of this dark tunnel. Vaccines are being developed, approved, and distributed, and there is a hope, if not an expectation, that the economic pressures created by the pandemic will be easing over the coming months. This presents an opportunity for distressed investors to assist these damaged businesses and help them emerge from financial distress. This issue of the JCR is focused on distressed investing, and it could not be more timely.
In our first article, David Herman, Peter Kaufman, and Liam Ahearn examine the underlying motivations of the various parties to a restructuring transaction and how this impacts their respective approaches to a restructuring. The article proposes novel strategies on how to restructure debt with lenders under the unique circumstances faced by various business sectors during this time period.
In our first industry-specific article, Jeff Anapolsky and Jean Almonte from CohnReznick LLP discuss strategies for acquiring distressed energy assets. The authors do a deep dive on the underlying economics in the energy sector and examine why the cyclical nature of the oil and gas industry continues to present opportunities for investors, both in and out of court.
Next, my colleague Morgan Fiander at Polsinelli PC examines the pressures faced by the hospitality industry, particularly with respect to hotels, and analyzes the factors relevant to distressed investors in this industry.
Our next industry-focused article from Joshua Salzman and Alex Florea from Blueprint Healthcare Real Estate Advisors involves distressed healthcare transactions. They discuss the types of distressed healthcare assets and how investors evaluate the variables related to valuation of the underlying assets. There has been significant activity in the healthcare space in recent years, and this article provides a helpful framework by which investors can evaluate these opportunities.
In addition to market-specific investors, increased bankruptcy activity necessarily results in increased bankruptcy claims trading activity. Joseph Sarachek of The Sarachek Firm discusses the challenges and uncertainty associated with buying administrative claims. Sarachek takes a deep dive into the treatment of administrative claims in major bankruptcy cases over the last several years and examines the risks and rewards associated with purchasing those claims.
Finally, we take a look back at bankruptcy statistics for 2020 through the lens of the Polsinelli/TrBK Distress Indices. The spike in filings in the general Chapter 11 space has not necessarily included similar spikes in the real estate and healthcare sectors. This article examines the underlying data.
