What Comes Next? (Healthcare? More Oil & Gas? More Retail?)
Oil and gas exploration and production is SO 2016. Everyone is sick of 2017's #retailapocalypse. So, now what?
The above notwithstanding, there are many who believe that oil restructurings will hit again if (when?) oil dips below $40/barrel again. Early reorganizations that didn't delever enough or didn't tackle bloated SG&A will need a solution - even if just to stay competitive with companies that did, in fact, file and clean themselves up (though, based on the recent trading levels of post-reorg equities, some of those guys aren't doing so hot either; notably, none of them have gotten the support of a large institutional sponsor behind them). And some Chapter 22s may start rolling in too.
On the retail side, November is not too far away. If retailers can't bridge themselves to Q4/Q1 by this point, they're probably beyond repair.
In the meantime, restructuring professionals are earnestly turning their attention to "healthcare" - a catch-all category that subsumes various subsegments like biotech, pharma, and medical services. Industry decks have been circulating around like wildfire to the point where we have a pool as to whether we'll read more banker/advisor decks in the next 12 months than we'll see meaningful bankruptcies in that time (who wants in?). Leading indicator of hype-flow: the panels are starting. Last Monday there was a New York City Bar panel on healthcare issues.
So far in 2017, there have been a number of healthcare-related bankruptcies spanning across the various subsegments including, among others, 21st Century Oncology, Adeptus Health Inc., Halt Medical Inc., Bostwick Laboratories Inc., Unilife Corporation, and California Proton Treatment Center. There have been a number of smaller deals too but those don't ramp up advisory fees, e.g., this one from this week. Healthcare services providers have also been hurt, e.g., Angelica Corporation. And there are tons of other sizable healthcare names on distressed watchlists - though it's unclear whether they'll ultimately file for bankruptcy, e.g., Pernix Therapeutics ($PTX), HCR Manorcare (Carlyle Group owned), and Concordia International Corp. ($CXRX).
Getting out ahead of all of this, some Kramer Levin Naftalis & Frankel LLP attorneys released a recent thought-piece issuing a "Code Red" for the healthcare industry. They delineate the various reasons why healthcare is the new hot thing - from uncertainty around the ACA/AHCA (even with this week's release of Trumpcare Senate-version) to reimbursement pressure from Medicare to the change to bundled payments (rather than "fee for service" payments) to unsustainable capital structures emanating out of debt-driven acquisitions. A "Code Red" ladies and gentlemen. Hold on to your butts.
Now, there are unique considerations that apply to healthcare restructurings - one among them the likelihood of the appointment of a Patient Care Ombudsman - which just means that there'll be another contingent of estate-sponsored advisors soaking up fees. That prospect alone probably gets juices flowing. Professionals love tables with a lot of seats around them.
But, most of the companies highlighted in decks don't have maturities until 2019 or 2020 and so this has to, in the near-term, be a liquidity/covenant story...? Maybe. And it's unclear how that story will unfold - particularly with so much regulatory overhang. We're wondering if all of the current focus on healthcare is more hype than substance and maybe is a bit premature...? What do you think?
On an aside, we read stuff like this and it makes us less inclined to make jokes and more inclined to beat someone's a$$. This is people's health we're talking about and so it's disconcerting to see physicians speaking openly and publicly about deficiencies that are sparked by the need to service debt.
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