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Amid grim employment picture, demand for restructuring expertise sharpens

As the coronavirus pandemic sends U.S. unemployment soaring, one area of expertise is in demand: credit workouts.

Law firms are hiring. Direct lenders are adding workout experts and building teams. Private equity firms are engaging restructuring specialists to advise across entire portfolios.

Gordon Kamisar, founder of Kamisar Legal Search, is filling a bankruptcy attorney position on behalf of a law firm that represents creditors. The partner-level role will be based in Seattle. The role requires experience in loan workouts and insolvency proceedings, as well as strong relationships with creditor clients.

The job posting dates from before the pandemic, and is partly due to retirement of senior partners. But the hiring has become more urgent, despite expectations that federal stimulus could postpone some bankruptcy filings until August or later, according to Kamisar. "The work and calls from clients are already starting to increase at a consistent rate," he said.

According to Kamisar, this role is interesting due to its seniority, and the fact that it represents creditors. He said, "People usually want to hire associates. And some firms represent debtors. Debtor work is usually not repeat business."

This week, Owl Rock Capital Corp said it filled the lead role of a workout group as it continues to build out those capabilities. That hire, Brian Finkelstein, joined in April as a managing director. He spent more than a decade at Fifth Street Asset Management, a BDC that no longer exists, where he also led workout efforts.

Within firms, staff are increasingly being deployed for enhanced portfolio monitoring and management. With the market for new opportunities largely shuttered, the demand for credit work on new investments has lessened.

Owl Rock said this week that the firm had turned senior underwriters on to enhanced portfolio management efforts. The firm has established a "task force" to step up support for each borrower company. The task force is led by the firm's chief underwriting officer and head of portfolio management. The company has increased information flow about developments at borrower companies.

"We have asked several senior members of our team with significant workout experience to dedicate their time to portfolio management, including workouts as they arise, and we plan additional hires in this area," CEO Craig Packer said during a May 6 investor call.

Although Owl Rock's portfolio investments were healthy companies prior to the COVID-19 pandemic, many face near-term liquidity pressures. This is forcing lenders to re-underwrite borrowers for the possibility of sustained downturns in revenue, a labor-intensive process.

In demand

Market participants say the usual merry-go-round of job changes among Wall Street firms after bonus payouts won't play out in the regular way this year in the face of extreme market volatility. But for those with the right credentials in credit, there are opportunities.

For example, Monroe Capital has two listings on its website for restructuring and workout expertise.

The Chicago-based firm is seeking a restructuring and turnaround specialist to manage existing direct, club, and syndicated leveraged loan transactions. The senior associate/AVP portfolio management-level hire will join a team managing Monroe's higher-risk-rated investments, which includes senior debt, junior capital, and equity.

The role entails enhanced operational management and frequent interactions with company management, sponsors, and third-party advisors. Responsibilities include maximizing recoveries and preparing credit amendments and waivers.

This hire would add a ninth person to a team of eight. Nathan Harrell heads the group.

"We've always had a workout and restructuring team in house. We've hired 4–5 people in the last couple years. It's an ongoing expansion effort, not new to the pandemic. We're actively looking for top talent in distressed investing, special situations and opportunistic investments. It's a core part of our business," said Monroe Capital CEO Ted Koenig.

"Of course the pandemic has increased opportunities in special situations," he said.

Another role at Monroe is for an asset-based lending professional with experience in loan workouts and bankruptcy. Qualifications for the role are 3–8 years of experience. The job includes reviewing and monitoring borrowing base calculations to determine if loans are adequately collateralized, and reviewing loan modifications.

BDC earnings calls this week indicate this is a growing business as stress increases in credit portfolios. Borrowers in businesses such as restaurants, retail, fitness operators, energy, hotels, airlines, hospitality, entertainment, and non-essential healthcare face low-or-no revenue environments.

Prolonged shutdowns may lead to direct lenders stepping into an activity they didn't initially seek out: owning companies. This could lead to new business lines opening up. The subject came up in Ares Capital Management LLC's earnings call on May 5 in response to a question on the need to balance shareholder interests with good sponsor relationships.

"If we need to, we can come in and own a business. It's as we've said to all of our private equity clients, certainly not our preferred outcome. But we know how to do it," said Ares Capital CEO Kipp deVeer. He continued, "And if that's where it gets, we'll obviously roll up our sleeves again with 130 or so people and own companies and get them through, and we think achieve good recovery. We're not in the business of making loans that we hope turn into equity stakes in companies, right? That's really not our business. But we have an ability to do that where it's needed."

This story was written by Abby Latour, who covers direct lending and the middle market for LCD.

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