Restructuring seen surging as buyout boom pops

By Joseph A. Giannone

NEW YORK, Nov 7 (Reuters) - The credit crunch and housing slump may be bad for the economy, but it's good news for firms that advise struggling companies on getting their finances in order.

Corporate default rates are expected to rise from unusually low rates over the past few years. Combine that with the immense volume of leverage loans and bonds that fueled the leveraged buyout boom, and restructuring is poised to take off.

"Based on the conversations I've had recently, I think you can expect the default rate to go up," Jeff Werbalowsky, co-chief executive of Houlihan Lokey Howard & Zukin and head of its restructuring practice, told the Reuters Finance Summit in New York. That will lead to a "huge volume of leveraged loans and bonds out there will create the largest default universe we've ever seen."

After peaking at 12.7 percent of outstanding debt in 2002, default rates were kept low -- less than 1 percent at the end of last year -- because investors were willing to put oceans of cash available to work, regardless of risk.

That changed suddenly this summer, as investors pulled back and liquidity dried up.

It's unlikely that default rates will rise again to double digits, but even a few more points in the rate would fuel a boom in restructuring for advisers such as closely held Houlihan; Greenhill & Co (GHL.N: Quote, Profile, Research, Stock Buzz); Lazard Ltd (LAZ.N: Quote, Profile, Research, Stock Buzz) and Evercore Partners Inc (EVR.N: Quote, Profile, Research, Stock Buzz).

Standard & Poor's recently forecast $35 billion in corporate debt over the next 15 months, versus $4.5 billion this year.

Banks and advisory firms are gearing up by hiring bankers, analysts and restructuring experts to handle the expected boom.  Continued...