Restructuring activity at levels not seen since the GFC
17 February 2025
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Restructuring activity has skyrocketed to levels not seen since the GFC. The focus of recent mandates has shifted from tussles within capital structures to more substantive restructuring of fundamentally broken business models.
Over the past few years, COVID triggered the need for restructuring of many “good businesses with bad balance sheets”. Lenders and sponsors could see a path to profitability and were comfortable providing support with some compromise. Many companies, sponsors and lenders acted swiftly and are now well-positioned to deal with the challenging market conditions expected in 2025.
Conversely, government stimulus and a historically low interest rate environment have hidden problems within some business models for years. Companies have woken to inflation, higher borrowing costs, and in many sectors such as gambling and healthcare, a heightened regulatory environment, creating a perfect storm for financial distress.
In circumstances where business models are broken rather than experiencing excessive debt, restructuring solutions will be more complex. This year, as the stakeholder landscape expands beyond capital structure, more parties will need to agree to a compromise solution to avoid insolvency.
In determining who pays, restructuring will be characterised by a deep examination of legal rights and the testing of those rights against the economic leverage of the players involved in a distressed situation.
We expect to see more regulators, suppliers, and customers coming to the negotiation table, as borrowers and financiers find themselves incapable of addressing broken business models on their own. The proliferation of private credit over the past decade will also introduce new faces. Negotiations will be further complicated by the existence of stakeholders with conflicting interests, particularly in heavily regulated industries where government has a major role to play. Negotiations will be tense. In 2025, more stakeholders will be asking the question, “Is the company worth saving?”
More from the author, Jonathan Henry
Restructuring activity is at its highest levels since the GFC. The focus has shifted from fixing balance sheets to addressing fundamentally broken business models. For some, COVID-era support enabled recovery. But for others, structural weaknesses are now surfacing and will require complex stakeholder solutions to avoid insolvency.
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