(TMA International Headquarters)
CHICAGO – Skittish consumers are a significant
factor in the top choices for the most troubled industries in 2007, according to
respondents to the Turnaround Management Association’s annual Trend Watch poll.
Potential homebuyers and U.S. automobile owners seem to be in a “wait-and-see”
mode, adding to the current distress in those industries.
The top four candidates predicted to encounter the “greatest
financial and/or operational difficulties” in this year’s poll:
1.
Automotive
topped the list with 74 percent of the responses. It
also was named as the most distressed industry in 2006.
2.
Homebuilders
jumped into second place with 58 percent of the
responses. Airlines held this position in the 2005 poll, but dropped to sixth
place this year.
3. Construction/contractors followed with 36 percent of the responses.
4.
Manufacturing
slipped down one notch from third place last year,
receiving 26 percent of this year’s responses.
Most distressed sectors
“Homebuilders are sitting on undeveloped
land they once considered assets,” said Tom Henderson, Houston attorney and
member of the TMA International Board of Directors. “Now the land’s become just
another form of liability as sales of new homes in most markets have
slowed.
Many consumers who pulled
equity out of their homes and refinanced in a low interest environment are
discovering that the increased values they expected by now have evaporated.
While potential buyers wait for the market to settle down or reach bottom, they
are electing to leave their down payment dollars in the bank or invest those
dollars elsewhere.”
“The
construction trades industry continues to shake out because of the sheer numbers
of businesses owners who compete for new business by bidding for contracts with
extremely thin profit margins,” said Steve Mischo, past president of the TMA
Long Island Chapter and senior workout officer /vice president at State Bank of
Long Island.
“Trying to overcome
that situation by aggressive billings on change orders sets the stage for
further problems. In addition, many of these businesses fail to accurately
predict the carrying cost of receivables. Many contractors have quietly
disappeared in recent years, and we expect that increased interest rates will
exacerbate the shakeout.”
Manufacturing has been near
the top of the list of distressed industries since TMA began the survey in 2002,
with members citing general economic conditions, global competition, legacy
costs, and a high level of debt as major factors.
Improved industries
On the other hand, Trend Watch
respondents named airlines as the industry most likely to improve during
2007.
More demand, restructurings,
and improved operations were named as reasons for this recovery. “More people
are flying whether it be for business or pleasure. Airlines also have
strategically reduced the number of flights, leading to higher loads, which
combined with decreasing fuel costs as 2006 wore on, mean better financial
performance,” said Tom Pabst, Trend Watch Committee member and chief
administrative officer at Great American Group in Chicago. In addition, legacy
costs for some airlines, such as pensions and medical coverage of retirees, have
been reduced as a result of recent in-court reorganizations.
Other industries named by more
than a quarter of the respondents included technology and financial services.
Turnaround trends in 2007
When asked to name the key
factors affecting 2007 turnarounds, nearly half the respondents (48 percent)
believe the influence of hedge and private equity funds will continue to
increase. Nearly 30 percent foresee an increase in second lien and junior
tranche lenders participating in corporate renewal, and nearly 40 percent
predicted that traditional financial institutions will tighten credit during
2007.
“In fact,
TMA’s first Distressed Investing Conference being co-sponsored by The Deal at
the Wynn Las Vegas on January 17-19 will address the uptick in the number of
distressed companies,” Cross added.
Turnaround Management Association (
www.turnaround.org
) is the only
international non-profit association dedicated to corporate renewal and
turnaround management. With international headquarters in Chicago, TMA’s 40
regional chapters comprise a professional community of 7,600 turnaround
practitioners, attorneys, accountants, investors, lenders, venture capitalists,
appraisers, liquidators, executive recruiters and consultants. Members adhere to
a Code of Ethics specifying high standards of professionalism, integrity and
competence. Its Certified Turnaround Professional (CTP) program recognizes
professional excellence and provides an objective measure of expertise related
to workouts, restructurings and corporate renewal.
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Note to editors: Charts graphically depicting the
statistics for the past five years on these topics are available at http://www.turnaround.org/cmaextras/IndustriesAtAGLANCEdec2006.doc
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