Key Takeaways from the ABI Annual Spring Meeting

Key Takeaways from the ABI Annual Spring Meeting
By Eric McDonald
Director, Agency and Trust Business Development | CSC Global Financial Markets
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Delaware Trust, a wholly owned subsidiary of CSC®, was in attendance April 28-30 in the heart of Washington, D.C. for the return of the annual ABI Spring Meeting. After a two-year hiatus the spirit was upbeat and colleagues were happy to be back and enjoying face-to-face interactions. The spring weather in D.C. didn’t disappoint, making networking activities–including a picturesque opening ceremony at the DC Wharf District Pier–one of the conference highlights.

The event’s theme—restructuring the future—was at the forefront of the panel discussions. Here are my four key takeaways.

#1 A restructuring wave is coming

Everyone agrees that a new wave of restructuring is coming, but when and how severe that will be is still anyone’s guess. New money and government aid have been flowing into the system, curbing the “long anticipated” downturn. Recently however, tightening covenants and market uncertainties are impacting the flow of new money and refinancing options. If forces continue at the current pace, some expect an immediate uptick, others predict as late as Q4 2023, and most believe it will happen sometime in between.

#2 Inflation may prove more adverse than higher rates

The fed is walking a fine line, balancing increases in interest rates with rising inflation rates that we haven’t seen in 40 years.  Obviously, interest rate hikes will adversely impact over-leveraged companies.  But many industry analysts are predicting that even a small uptick in rates, combined with the rising cost of materials and labor, means we’ll be swimming in that restructuring wave sooner rather than later.

#3 Light covenants may lead to interesting court room cases

The unprecedented availability of capital over the past few years has secured borrowers with light covenants and other favorable language in their agreements.  These cov-lite loans present rich benefits to the borrower while diluting the lender-side. The market is anticipating a “court room” unravelling of the outcomes generated by the cov-lite documents, but just how far the court decisions move collateral within the capital structure remains to be seen.

#4 Corporate governance is critical

Independence is key to maintaining appropriate corporate governance standards, ensuring unbiased business judgement to gain the trust of shareholders. The fiduciary obligations–to act in the best interest of the corporation–do not waiver, even as companies head into bankruptcy. Corporate governance best practices are in place to demonstrate that boards meet their fiduciary obligations. This requires creating and maintaining records that include detailed meeting minutes and other documentation throughout the company’s duration in the event that litigation arises.

No one at the conference wants another 2008. However in this period of fiscal tightening, it is widely recognized that restructuring work will be on the rise. And, since history does tend to repeat itself, many see similarities to 2008 such as increasingly over-leveraged institutions that need correction.

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