Business Bankruptcy Financing Hits Roadblock

Business bankruptcy financing may be seeing the last of the easy days as global market volatility makes investors jittery about putting their funds in this area.

According to the expert legal and banking professionals who specialize in business restructuring, negotiations these days are more difficult. In contrast, just a couple of months ago there was a more apparent appetite for such risky debt investments, and companies like Lyondell Chemical Co managed to put together multi-billion-dollar exit financing by offering high-yield bonds.

Bankruptcy financing is usually tied into the capital markets and is directly affected by the overall amount of available liquidity.

When the financial crisis hit back in 2008, business bankruptcy financing crashed to low levels, but then as the markets came back up this year, so too did the amount of bankruptcy financing deals.

Companies were then able to tap the flexibility of the bond market to support exit financing, instead of relying on the leveraged loan market.

According to Brian Trust, head of the bankruptcy practice at Mayer Brown LLP said, “Through the end of April, when we saw a tremendous amount of capacity soaked up for Lyondell Basell, it looked pretty frothy,” Trust said.

But then the environment turned sour, and things are not looking so rosy at the moment.

“Things got choppy over the last couple of weeks,” said Michael McGrath of Mesch, Clark & Rothschild, whose firm is handling a $200 million exit financing deal for a client.

“We have not determined if take-out finance can be put together because of the volatility in markets and because of the pricing,” McGrath said.