Bankruptcy has always been a last resort for troubled companies. But that is especially true now. In this economy, where’s the need?

Duane Morris partner Lawrence J. Kotler moderated our two panel discussions during which our esteemed contributors provided insight and commentary. In our first panel, Duane Morris partners Walter J. Greenhalgh and James J. Vincequerra were joined by Mark Lawrence, Managing Director at Apollo Global Capital Management; and Rob Warshauer. They discussed the state of play in bankruptcies in 2014.

“The capital markets are on fire” for companies seeking to raise new capital, said Rob Warshauer. Both leveraged loans and high-yield markets were very strong in 2013, and with the expectation of rising rates, companies have gravitated to high-yield deals with fixed interest rates, rather than the fluctuating rates of leveraged loans. (See Figure A.) In other words, many companies are just taking on more debt because it is so cheap. Said Warshauer: “Funds need to put money to work. They want to know, ‘how do I get a little more yield?’”

In fact, Warshauer has a strong message to clients and potential clients. “If you are CEO or a CFO of a company, and you have not refinanced your debt, tomorrow morning when you go into the office, the first thing you should do is fire yourself. There is practically no reason not to refinance your debt in this environment.”

Added Mark Lawrence, Managing Director at Apollo Global Management: “We’ve definitely seen a bifurcation in the market. Above $500 million, it’s very easy to get credit; you can get it syndicated. Even $350 million and above, you can still get it rated. Below $50 million, we’ve seen a tremendous amount of money raised for direct lending funds. It’s that middle space, between around $50 million and $250 million, where we’ve seen the holes.” “We’re starting to see leverage really creep up on an enterprise value,” Lawrence said, and risk is increasingly acceptable. “People are getting consistently more comfortable with PIK (pay-inkind) loans.” PIK loans, of course, are expensive, high-risk financing instruments. “They are comfortable that these companies are not going to default. At least, they are willing to take that added risk in order to balance their portfolios to get the returns they need.”