Diversity

Restructuring Trends
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The 2016 restructuring market
on the island of Ireland saw a
continuation of the previous year
with financial institutions continuing
to de-leverage non-performing loans
through further loan portfolio sales and
subsequent settlement or enforcement
measures. In addition, the National
Asset Management Agency (NAMA) and
international banks moved to the final
stages of disposal of distressed loans and
exiting the Irish market respectively.
In December 2016, EY released its
Economic Eye – Winter Forecast 2016
report which predicted all-island growth
of 3.7% GDP for 2016 and commented
on the outlook for the economy in 2017
and beyond to 2020. The report looks
positively toward steady growth in
2017. However, this is through the lens
of continued uncertainty following the
significant geopolitical events which
took place in 2016 – namely Brexit and
the success of Donald J. Trump in the US
electoral campaign. These fundamentals
will shape the growth of the all-island
economy; therefore, any resultant
changes to the trading environment will
be hugely influential for the future of the
economy in the months ahead.
In October 2016, EY released its 15th
edition of the Global Capital Confidence
Barometer which surveyed executives
across 45 countries. Looking ahead, the
report provided a positive outlook for
M&A activity. However, the underlying
macro environment and corporate
strategy assessment still present
continued uncertainty and challenges.
Due to remaining legacy debt, global
uncertainty, and the continued traction
of technology and ambition to innovate
across all sectors, we believe that the
restructuring market is in a period of
change. In 2017, we expect companies to:
• Continue to work through
remaining legacy debt issues;
• Plan for, and adapt to, a new trading
environment; and
• Restructure to innovate.
Current developments are changing
the way in which businesses analyse risk
and how they apply themselves to deal
with disruption. So what does this mean
for business on the island of Ireland?
Table 1: EY Global Capital Confidence Barometer – Executives rank the greatest
economic risks to their core business
Economic and political stability in the EU
(including Brexit).
An unexpected rapid slowing of growth in
China.
Slowdown in global trade flows (economic
nationalism, protectionism, industrial policy.
Global geopolitical instability (including
terrorism, border and territoial disputes).
Political stability in your home country/
region including the rise of populist parties.
High volatility in currencies, commodities
and other capital markets.
1. Working through legacy debt
Loan book sales: the period from 2011 to
2016 saw approximately €95 billion of
residential, commercial and development
loan book sales with approximately a
further €5-6 billion in progress at the end
of 2016 or expected by the end of 2017.
The year 2016 inevitably saw the
continued shift for many borrowers
from dealing with traditional banking
relationships to one of dealing with
international funds who acquired
their debts. The work-out strategies for
the individual loans within the loan
portfolios acquired by the funds are
well under way and, in the case of some
early loan portfolio acquisitions, they
are practically complete. Typically, these
work-out strategies result in one of two
possible outcomes:
• Refinancing, or consensual disposal
of security, or settlement of existing
facilities; or
• Failed refinancing or settlement
resulting in formal enforcement
proceedings.
We also saw a continuation of
receivership appointments across the
island of Ireland in 2016, which we expect
to continue in the months ahead. On the
positive side, the underlying statistics
from the Central Bank of Ireland (CBI)
show that there was €3.282 billion in
new lending in the first three quarters
of 2016 in the Republic of Ireland. This is
a positive indicator that there is credit
in the market for good quality bankable
propositions, and it demonstrates that
0% 5% 10% 15% 20% 25% 30% 35%
there are options to deal with legacy
debt other than formal enforcement.
This has helped a significant number
of cooperating borrowers, but not all, to
refinance and normalise debt levels in
reaching a settlement with their existing
or new lenders.
The increased presence of alternative
credit providers (ACPs) in the market
has also helped the distressed financing
space. ACPs offer competition to
traditional lending and provide
optionality on refinancing that may not
have been available previously.
We expect to see continued activity in
the remainder of this year for distressed
refinance and restructuring of legacy
debts acquired by funds.
Residential property debt: while, at an
overall level, there are declining trends
in distressed residential property debt in
ROI, the residential property debt sector
remains extremely challenging. At the
end of Quarter 3 2016, the CBI outlined
the position as follows:
• A total of 75,562 principle dwelling
houses (PDH) were in arrears;
• 56,350 accounts were in arrears of
over 90 days;
• The number of PDH accounts
classified as restructured was 121,140,
with 88% deemed to be meeting the
current restructuring arrangement;
• 14,518 buy-to-let (BTL) properties
were in arrears of over 720 days
with an outstanding balance of €4.3
billion, which is the equivalent of
18% of the total outstanding balance
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