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What’s Happening in the World of Corporate Restructuring?

What’s Happening in the World of Corporate Restructuring?

There is always something going on in the corporate world with regard to not only business restructuring, but also bankruptcies. The following are some of the biggest headlines related to these subjects right now.

Small Business Restructuring

The Tax Reform Act isn’t exactly new news, but when it comes to the actual implications, it is relevant. Passed at the end of 2017, the new tax legislation brought some good news for corporations. The biggest bit of rejoicing on the corporate end came from the fact that the corporate tax rates were lowered from 35% to 21% at the highest end.

This has led a lot of small businesses to rethink their current structure. Changing from something like an LLC or an S corp to a C corp could save them quite a bit in taxes, so it won’t be out of the question to see many small businesses scrambling to make the change.

Of course, they’ll have to weigh out the costs of making the change versus how much they’ll save in taxes, but many advisors are telling their business clients that it’s a valuable time to make the change.

iHeart Media’s Restructuring

iHeart Media, Inc. is one of the biggest radio and media companies in the world, which is why it was surprising to many to hear the news they had reached an agreement with holders of more than $10 billion in their outstanding debt.

The agreement shows that there is support for a restructuring aimed at reducing the debt by more than $10 billion for the company. iHeart Media says they will continue operating in a business-as-normal way.

As part of the implementation of their restructuring, iHeart Media has filed voluntary petitions for Chapter 11 bankruptcy relief. A spokesperson for the company said the objective was to create a capital structure that would match their operations.

The Outlook For Restructuring Advisors

Debt restructuring advisors are seen as a grim force in the corporate world sometimes, but according to recent reports, they’re expecting they will be busy in the coming years.

Restructuring advisors told Reuters that they were expecting to see a significant wave of debt overhauls. They believe this could begin in 2019 and last for several years. Much of this is likely to stem from rising interest rates, which will make it harder for companies to continue borrowing.

Companies also won’t be as easily able to roll over their existing debt. For years companies haven’t had problems in these areas because credit was so cheap thanks to the zero interest rate policies set forth by the Federal Reserves. It all appears to be ending now.

Another factor professionals in restructuring cite includes the exodus from the junk bond market, which has been a top source of funding for borrowers that aren’t optimal in terms of creditworthiness.

Of course, it looks like inflation is likely to rise as well, and tariff changes announced by President Trump are fueling this even more.

The pickup in business for restructuring professionals is certainly in contrast to the past years of extremely low borrowing costs.

The Toys R Us Bankruptcy

The decline of Toys R Us has been a long one, but the retailer has now officially submitted their plans to liquidate their business in the U.S. to a bankruptcy court.

It’s been a rough ride for Toys R Us. They’ve struggled in pretty much every important area from selection and pricing to service. More surprising to many analysts isn’t the bankruptcy, but the ability of the company to hang on as long as they did.

While many have been quick to blame online retailers like Amazon, that wasn’t the only issue. Mega-retailers like Target and Walmart threw themselves into the toy game, and it just wasn’t sustainable for Toys R Us to continue under their tremendous debt burden.

Disney’s Corporate Restructuring

Finally, the Walt Disney Company just announced they would be doing a corporate restructuring. The restructuring is effective immediately, and it includes the creation of a new unit called Direct to Consumer and International Business. This new unit will take over streaming services and advertising sales for all Disney company networks.

Now, Disney Chairman and CEO Bob Iger will oversee the launch of all new Disney streaming services. Iger won’t have to go through any other middlemen to do so, which is a change.

Analysts are trying to determine how this could affect parks and resorts, but so far there’s nothing more than theories floating around. One thing that most people agree on is that it will likely lead to another reorganization in the not-too-distant future.

 

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