Kicking The Can Down The Road: When Broken Companies Don't Ever Really Get "Fixed"
When comparing this default cycle with default cycles past, once thing is certain: Today's capital structures are a lot more complex. For starters, no one knows who holds what. In the boom era of lending between 2005 and 2007, banks didn't just write a check and wait for the interest to accrue-they syndicated it out through CLOs, which were purchased by hedge funds. When faced with a workout situation, these nontraditional holders are less likely to "take their medicine," as one source put it, by taking a writedown on the company and right-sizing its debt load. They'd rather take control of the company through the bankruptcy courts (a scary practice for many of them which have never acted as operators), or "kick the can down the road," a term that's become popular in recent weeks. Lenders have taken to "kicking the can down the road," or extending debt maturities in exchange for more onerous terms on companies that are struggling to service their crippling debt loads. Some buyout pros believe these "amend and extend" policies are responsible for holding back the tidal wave of bankruptcies that bankruptcy professionals predicted at the beginning of this year. In the firm's Q2 earnings call this month, Blackstone
