US: Credit Market

Turnaround Specialists Gear Up as Demand Soars


There's one pot of gold for the battered financial services industry: Firms that offer corporate restructuring and bankruptcy advice are adding staff and seeing profits climb as the slowing U.S. economy yanks the rug out from under struggling companies.


The collapse of the housing market, the decline in consumer spending and the sluggish U.S. economy have slammed companies including retailers like Linens 'n Things and airlines like Frontier Airlines Holdings .

But corporate travails are a boon for firms that offer restructuring services to struggling companies.

"Our group has been growing while some other areas of investment banking, like financing, have been declining or not as robust in this market," said Michael Henkin, managing director and co-head of the recapitalization and restructuring group at investment banker Jefferies Group's  Jefferies.

Jefferies does not break out its results between different investment banking divisions but Henkin said the restructuring group is hiring "at all levels."

Los Angeles restructuring firm Scouler has increased its staff by more than 40 percent since the beginning of the year.

"It's been busy and it's going to get busier," said Dan Scouler, Scouler founder and managing principal. "I think the downturn will be pretty bad. We haven't seen the end of the housing problems -- that's a slow-motion train wreck. And consumer spending is coming down. Consumers are tapped out."

Goldin Associates, which offers turnaround consulting and restructuring services, has struggled to keep up with requests for information.

"The number of calls we have received in the past eight weeks is almost four times the number of calls we received in the preceding six months," said David Pauker, Goldin Associates managing director and national practice leader.

Pauker, who acted as chief restructuring officer for the multibillion dollar commodities and futures broker Refco, said jobs in the restructuring field are opening, just as Wall Street is slashing employment.

"We'll be expanding," Pauker said. "We're looking for people who are experienced turnaround managers; we're looking for corporate finance professionals, for accounting and forensic specialists."

Demand for Goldin's services is unlikely to decline soon, as soaring prices for commodities including steel, oil, and foods and livestock feeds such as soy and corn have sharply raised costs for many companies, throwing a wrench into their business plans.

"We're seeing something we haven't seen before," said Pauker, who is also on the board of Interstate Bakeries, the bankrupt maker of Wonder Bread. "And that is the simultaneous, unprecedented increase in (prices of agricultural commodities."

Corporate Pressures

When companies are hit with higher costs, many can't immediately raise prices to compensate. That can cut drastically into working capital. When commodity prices rise yet further, companies take more hits, sometimes causing them to have trouble paying vendors and creditors.

"Ultimately, maturities are impossible to avoid," said Jefferies' Henkin. "You have to refinance, repay or there is going to be some form of renegotiation or restructuring."

Industry experts said they expect to see increased restructuring services demand in sectors including the auto industry, gaming, retail and financial services.

In addition, "anything to do with the housing industry is definitely distressed," Scouler said.

With demand from so many affected industries, restructuring service providers, like Henkin, don't expect business to slow down anytime soon.

"I think there's going to be a growth period where we have at least two to three years of more activity and more work for advisers," Henkin said.