This month, Booth’s CREDIT Group hosted the 14th Annual Credit, Restructuring, Distressed Investing & Turnaround Conference at the University Club of Chicago for almost 200 attendees. This year’s speakers and panel members largely focused on applying lessons learned from historical empirics (e.g., the financial crisis, Toys ‘R’ Us restructuring, etc.) in order to assess where we are in the current credit cycle and to highlight risks that investors should be mindful of going forward.
Fittingly, Howard Marks (’69) delivered an introduction where he touched upon his new book, Mastering the Market Cycle: Getting the Odds on Your Side, and highlighted the opportunity for investors to improve their results by carefully pinpointing market cycle trends. Afterwards, Marks’s colleague Robert O’Leary – a co-portfolio manager within Oaktree Capital’s Distressed Debt group – fleshed out some of the specifics of evaluating risk premia volatility and cycle timing in a fireside chat with Professor Amir Sufi.
These opening remarks were followed by a discussion of restructuring and natural resources that was particularly topical given the shakeout in the energy sector that began in about 2015. AlixPartner’s 2019 turnaround & restructuring experts survey revealed that even after countless restructurings within the sector, the oil and gas sector is viewed by market participants as the second most likely to face distress (retail and automotives round out the top three); companies’ ability to thrive in an environment where we’ve seen what seem to be sustained oil prices near $50/barrel will be something to watch closely in 2019 and beyond.
Afterwards, Steve Czech (’98) – founder and CIO of Czech Asset Management – shared some insights from his 30-year career in credit and corporate finance. He and CREDIT Co-Chair Alexander Chi (’19) discussed the evolution in private credit markets following the 2010 advent of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which precipitated a paradigm shift towards non-bank direct lenders like Czech Asset Management. Attendees eagerly jotted down notes as Czech discussed the eight investment criteria that he’s learned to rely upon when originating senior secured loans to middle-market borrowers.
My personal favorite, out of the myriad of high-quality panelists and speakers at the conference, soon followed after a brief luncheon break: David Brandon, former Chairman and CEO of Toys ‘R’ Us, discussed his battle to save the company in the face of intense retail competition and financial distress. In a fireside chat with Chad Husnick of Kirkland & Ellis, Brandon discussed the challenges of running a toy retailer that relied upon not only the high yield credit markets, but also trade creditors like Mattel and Hasbro, in order to service its customer base and stay in business. Brandon touched upon key themes in retail, such as heightened competition from online channels, as well as upon some of the pressures that specialty retailers face when competing with better capitalized and larger competitors.
Brandon’s remarks were particularly insightful when considering the costs of financial distress that can be imposed upon a company whose access to capital is limited; particularly poignant were his comments about the tremendous impact of Toys ‘R’ Us’s ultimate liquidation on the company’s thousands of US employees, generations of loyal customers, and the toy industry at-large.
We capped off the conference with a panel discussing the lessons that we can take from the previous financial crisis and what market participants should be cognizant of going forward.
Overall, the conference was a great opportunity to network with Boothies (both alumni and current students), industry professionals, and esteemed academics. All aspects of credit and restructuring seemed to be well-represented in this year’s attendee pool (I saw investment professionals, financial/legal/turnaround advisors, debtors, and bank lenders). I learned a great deal from each of the speakers and panelists, and came away from the conference with a more nuanced understanding of recent and historical credit market trends. We look forward to next year’s conference, which should continue to provide a great learning and networking experience.