As the pace of restructurings picks up amid a troubled stock market and a slump in the resources sector, Robins Kaplan has announced the appointment of a partner and co-chair of its restructuring practice.
H. Jeffrey Schwartz, former lead counsel of the Official General Unsecured Creditors Committee of Corinthian Colleges, is now co-chair of the firm’s New York-based insolvency practice along with Howard Weg. In the course of his career, Schwartz has represented debtors, such as PTC Steel Alliance and Bayou Funds, and creditors’ committees, such as those formed in the wake of insolvencies involving Coda Automotive, Digital Domain Media Group, Constar International, and FGIC Corporation.
In an exclusive interview with IFLR1000, Schwartz analyzed the restructuring market and described the pace of restructurings as driven by a surge in energy exploration and production cases. There are more such cases thanks to the crash in the price of oil and gas, along with severe contraction in the coal industry, Schwartz said.
“Secular industry collapses occur periodically in the practice. I’ve been in the practice for over 30 years. A particular industry will collapse, and then there will be a spike in business distress and a consequent spike in downgrades of performing debt into distressed debt. This happened, I remember, in the oil sector in the mid-1980s," Schwartz commented.
"There is a phenomenon of distressed industry rotation – sometimes it’s retail, sometimes it’s real estate or retail in a boom and bust cycle. I recall that 10% of the publicly held nursing home debts were in Chapter 11 in the late 90s. And today, the trend involves an oil and gas price glut and price collapse resulting in many Chapter 11 case filings and many more out of court restructurings of E&P industry enterprises,” Schwartz added.
Schwartz said he would also include the makers of steel tubing for exploration and production among those likely to undergo restructurings.
“In the boom part of the cycle, such enterprises often over leverage their balance sheets in heightened capital expenditures or aggressive expansion, leaving them unable to service such debt in an unanticipated collapse of commodity prices,” he remarked.
In Schwartz’s analysis, a trend marking the last decade or so, in particular, is for all funded debt to have become secured. Previously, high levels of debentures – of unsecured debt – were common, Schwartz noted. High-yield bonds were unsecured, and the same was true even for bank loans.
“Now all funded debt, that is, all indebtedness for money borrowed, is secured; it’s tranched out in tiers, so you have pitched litigation battles at the beginning of and throughout reorganization cases,” he noted.
“You see litigation between secured creditors, debtors, and unsecured creditors committees, but you also have pitched battles among holders of various tranches of secured debt. Who’s the fulcrum security? What is the value of the collateral? What would you call a waterfall?"
As a result, Schwartz said, chapter 11-related litigation has risen at least tenfold, and there are no signs that it will flag.
"Robins Kaplan is exceptionally well positioned as the preeminent national litigation powerhouse to participate to the hilt in those controversies,” Schwartz continued.
Schwartz holds a J.D. from Cleveland Marshall College of Law and a B.A. from Cleveland State University.