Restructuring trends: What did we see in 2017 and what lies ahead for 2018?

19 February, 2018

Steven Fleming
US Business Recovery Services Leader, Principal, PwC US

1. Bankruptcy filings for 2017 were low, as expected

The volume of Chapter 11 filings with more than $100 million of liabilities fell from 104 in 2016 to 90 in 2017. Filings of more than $25 million in liabilities increased slightly from 175 in 2016 to 177 in 2017.

2. Energy, Healthcare and Retail industries dominated bankruptcy filings last year

While the Energy industry had the most bankruptcy filings in 2017, it was less active in both number of filings and total size from the previous year and we expect this trend to continue with fewer energy bankruptcies in 2018. Healthcare bankruptcies are on the rise with 19 cases over $25 million (a 46% increase in number from 2016) and the potential for more in 2018. Retail filings were at the highest rate since the recession, with 30 retail filings of more than $25 million in liabilities in 2017.

3. Interest rates and leveraged debt are on the rise

Leveraged debt is up with over $2 trillion currently outstanding, however, the current debt maturity wall poses few specific challenges. Interest rate increases were implemented three times in 2017 — the most recent being in December, which raised the target to a range between 1.25% and 1.5%.

4. Tax reform is mostly favorable for businesses but could affect those in distress

The Federal corporate tax rate decreased from 35% to 21% with the new legislation. The reduction will likely help businesses, but could also be problematic because business interest deductions will be capped at 30% of adjusted taxable income, net operating loss carrybacks have been eliminated and a one-time “deemed repatriation” toll charge on a company’s previously untaxed foreign earnings could trigger cash tax payments in the US.

5. The outlook for 2018 is positive

The U.S. is currently at 103 months of continued economic expansion – its third-longest period in history. As a result, fewer large Chapter 11 filings are expected in 2018 as the macro environment remains strong and the number of oil and gas prices stabilize. We expect the majority of restructuring to come in the retail, healthcare and technology sectors due to structural failings and disruption.

Last year was fairly subdued thanks in large part to strong economic indicators. This year is looking to be more of the same with some slight variation in industry activity. To get a more in-depth view of what restructuring was like last year and what’s in store for this year, review our Bankruptcy and Restructuring Outlook.