08 February 2018 | 13:53 CST – Debtwire (reprinted with permission)
by Kyle Younker
The long-anticipated rise in interest rates will make 2018 the year corporate borrowers that have avoided restructuring due to years of easy-money monetary policies finally succumb to their overleveraged balance sheets, according to remarks from Mackinac Partners’ Keith Maib at the TMA Distressed Investing Conference in Las Vegas.
In sharing his colorful thoughts on the impact of macroeconomic adjustments on middle market borrowers, Maib, a senior managing director, said that the low interest rate environment has allowed many companies to stay in business, but that the increasing cost of borrowing will lead to higher default rates.
Though prognosticators have called out this dynamic for many years, it didn’t keep Maib from throwing some red meat to the TMA crowd.
“I think we’re finally at that point where inflation is going to dictate a rise in interest rates,” he said. “And that rise in interest rates triggers credit defaults. And credit defaults drive our business” in the distressed advisory community.
“A lot of money in the marketplace has fueled a lack of restructuring of companies that could have gone through a restructuring in this cycle, but didn’t,” he said. These companies are therefore barely hanging on, leading to underinvestment in technology, supply chains, and people, Maib said.
“I’m really fearful that this year coming up is going to be a shaking out of those [underperforming] companies,” he continued, “and it’s going to make our job really hard.”
Teresa Kohl, a managing director at SSG Capital Advisors, in deftly summing up Maib’s remarks, said, “Put on your oxygen mask first, and evolve, adapt, or die.”