ENERGY

“Energy is in massive upheaval,” said Peter Chadwick, noting that in the past year, the three-largest producers of oil and gas in the United States all filed for bankruptcy. “The flood will continue in the energy space,” he said.

The dynamics of these bankruptcies and restructurings are shifting. When oil and gas prices were really tanking, the secured lender determined the plan and the outcome. “They were able to basically jam it down everyone else’s throats,” said Chadwick. As values have appreciated, more and more players found a seat at the table, making bankruptcies more complex.

It’s a boon for energy lawyers, said Duane Morris associate and panelist Jarret P. Hitchings. “Just about every Delaware bankruptcy lawyer worth their salt has done the homework in oil and gas law, including things like the esoteric principles of North Dakota mineral rights,” he said. “They have to.”

“The question is whether the dominoes are going to fall on midstream gatherers, the folks who build the pipeline infrastructure,” said Hitchings. “In Re Sabine, a case pending in the Second Circuit, highlights how midstream companies could lose some ground.”

RETAIL

The retail sector is also pinched. Disruptions, including shifts in consumer spending behavior and intense competitive pressures, have taken major retailers off-guard. “In many cases, the value of their real estate is potentially more profitable than their business operations,” said Hitchings. For example, “Department stores like Macy’s have sold space to mall developers, who in turn break it up and lease the property to other stores.”

Sports Authority is another company that miscalculated its market value, said Hitchings. “When they went into chapter 11, they expected that retailers like Dick’s Sporting Goods or Modell’s might take their footprint. But the buyers just weren’t there. Sports Authority liquidated a good number of its stores at minimal value. Its brick-and-mortar operation was too expensive.”

Other miscalculations have hurt retailers, added Chadwick. “The younger generation is far more cost-conscious and less brandsticking than prior generations. They’re very comfortable shopping online,” he said. “Many in the retail sector didn’t see that coming.”

“If a retail company goes into bankruptcy,” said Miller, “it’s very difficult to emerge as the same company. The value of liquidating is dramatically better than trying to revitalize a failing brand.”

RESTAURANTS

The restaurant industry is experiencing a shakedown, said Hitchings, especially corporate-owned restaurants like Così and Garden Fresh. Restaurant openings have simply outpaced demand.

“Over-expanded restaurants are trying to shed some of these leases to right the ship,” said Hitchings.

Added Holman, “I think one of the main lessons from those cases is that, if there’s not a buyer, there’s not a brand—as soon as that becomes obvious, the brand name becomes virtually worthless.”

Retail businesses are very susceptible to trends. “Something hot six months ago becomes suddenly passé and no one will touch it,” said Miller. “Particularly with the young folks, in retail and restaurants, there are just so many choices available to them. Any brickand-mortar expansion is a big risk. It’s much better to stay flexible.”

HEALTHCARE

The Affordable Care Act’s impact is rough on providers, said Chadwick. “Haywood and I do work with a lot of skilled nursing facilities, longterm care facilities and acute care facilities,” he said. “Many of them are not capable of managing their billing systems in a timely way and end up in liquidity trouble because the federal government is very focused on proper billing. It can hold up your reimbursement,” he said. For those that have not adapted to the ACA’s model that rewards caring for fewer people at a higher billing rate, “they end up getting cut in their reimbursement rates.”

Added Miller, “There are just a lot more insureds out there, and the insurance companies don’t want to participate in these exchanges. Many facilities haven’t really complied with ACA, and they are slowly deteriorating. The only thing propping them up is money from the federal government, the states and Medicaid payments.”

“There’s no obvious solution to this serious problem,” explained Miller. “There’s hundreds and hundreds of community hospitals and thousands of senior living facilities serving Medicaid populations. Reimbursement is doing nothing but going down. Banks have few options. It’s very difficult for a bank in a community to shut down the one hospital within a hundred miles.”

COMMERCIAL REAL ESTATE

“Last time we gathered for this seminar, we reported on the wall of maturities coming due on the commercial real estate front with CMBS facilities,” said Holman. “CMBS facilities, of course, are mortgaged-backed or commercial mortgage-backed securities that reached their high-water mark right before the financial crisis. We are now in the middle of those loans terming out,” he said. “The fact that many of these securities were backed by less-thanideal real estate—well, there was a very bleak prospect that there would be any refinancing sources.”

Our forecast came to fruition, said Holman. “There are upwards of $14 billion worth of commercial mortgage-backed securities maturing every month, and that will continue well into 2017.” The good news is that commercial banks are increasingly starting to lend to commercial properties now, and “we’re seeing proposals with relatively low interest rates,” said Holman. “Less attractive properties will not be lapped up by commercial banks,” he noted. “That sector may have to go through a fairly painful adjustment.” In other words, “we may have a wall of maturities and defaults relating to dog real estate, but as far as those backed by prime real estate, we may be seeing the end of that nightmare.”

Time will tell how economic, political and cultural forces will settle. But one thing is certain: When you’re flying high, it’s a good idea to have a strong safety net. And a good lawyer.