By Lisa M. Schweitzer and Thomas Kessler (Cleary Gottlieb Steen & Hamilton LLP)
At the end of 2023, economic indicators remained mixed on whether there would be a recession or a soft landing in 2024. Either way, it is likely that a significant number of companies, across industries, will need to restructure their financial debt and operations. 2023 brought a significant increase in chapter 11 filings, and filings across industries, including such notable companies as Bed Bath & Beyond, Envision Healthcare, Rite Aid, and WeWork. Other companies avoided formal bankruptcy filings by undertaking liability management transactions that increased near-term liquidity through additional borrowings. However, as several high-profile filings in 2023 have shown, it is likely that many of these transactions may simply delay, rather than prevent, bankruptcy filings in the future.
Giving the uncertain economic climate, it is important for companies to think about their own internal planning and consider risks that are presented when suppliers, customers, and competitors encounter financial distress. This article explores various steps companies can take to best position themselves to proactively address industry distress, both to minimize its impact on a company’s own financial health and to realize strategic opportunities as they may arise.
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