Real estate most distressed sector in Europe in 2023
REAL estate was once again the most distressed sector in Europe in the last quarter of 2023, driven by stubbornly high interest rates, falling valuations, elevated energy and construction costs and increasingly expensive financing, according to a study by law firm Weil, Gotshal & Manges.
That makes it four consecutive quarters that real estate tops the Weil European Distress Index report. Poorer investment metrics reflect an increasingly challenging outlook for highly leveraged companies who may struggle to repay or refinance their debt in the coming months, according to the authors of the report, which aggregates data from more than 3,750 listed European firms.
Healthcare was the second most distressed sector in the last quarter of the year, followed by retail and consumer goods and industrials.
German corporates continued to see the highest levels of distress across the countries included in the study. Despite shrinking in 2023, Germany continued to dodge a recession in the wake of the energy crisis. This week, three days of releases are expected to show that monthly numbers for exports, factory orders and production in Europe’s biggest economy all fell in December, according to the median forecasts of economists.
The UK and France followed as the countries with the next highest levels of corporate distress, according to the study.
The high levels of distress haven’t necessarily translated into a sharp pickup of restructuring activity. That’s partly because there’s always a time lag, but also because many companies refinanced in the years of the Covid pandemic, so they pushed their maturity walls to 2025 and 2026, said Andrew Wilkinson, co-head of the London restructuring practice at Weil, in an interview. Many companies also had very favourable covenants that allowed for borrower friendly structures, he added.
When restructurings pick up this year and next, they will not look as amendments of the terms in exchange for extending the maturities, but as more comprehensive restructurings, according to Wilkinson.
“The era of amend and extend as a solution is coming to an end because banks typically want to extend at market rates, and that is very expensive now, so it would put a real pressure on cash flows,” he said. BLOOMBERG
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