NEW YORK (TheStreet) -- Banks will become very selective with credit in 2012, giving up on the "amend and extend" approach on loans of the past three years and forcing some businesses -- especially in retail and restaurants -- to restructure debt.
Approximately $912 billion of high-yield debt is expected to mature between 2012 and 2014, according to Fitch Ratings, which is expected to trigger significant refinancing activity as companies seek to roll over their debt.
But "periods that experience a greater amount of refinancing needs often face instability, as lenders are forced to reevaluate where to lend," Fitch analysts noted in their report.
Over the past two years, companies have been able to easily refinance their debt taking advantage of low interest rates and pushing out their maturities.Banks have also been willing to "amend and extend" loans in expectations that the economy will recover and borrowers will be able to meet their obligations. In an amend- and- extend agreement, a lender extends the maturity of a portion of a loan in exchange for better spreads and tougher covenants. But with the economic outlook remaining cloudy and mounting regulatory pressure to build capital and curtail risky assets, banks might be forced to make some tough calls on which loans they will refinance or restructure, according to Benjamin Schrag, vice president of business development at Kurtzman Carson Consultants, which provides administrative support solutions to companies through their corporate restructuring process. "Amend and extend deals were done based on expectations of economic improvement that have not happened," said Schrag. "It can't go on forever. The economic situation hasn't improved. While a lot of companies have focused on refinancing their debt, they have not really focused on restructuring their operations." While few restructuring advisors predict bankruptcies among the large companies, which have successfully de-levered and are cash rich, there is trouble looming for middle-market companies that have high debt levels, especially those that are in the retail, restaurant and media business. Those sectors have already seen their share of bankruptcies in 2011. Sbarro filed for bankruptcy in April while Friendly's ice cream parlor and Mexican restaurant chain Real Mex are two examples of recent bankruptcies in the restaurant business. Borders (BGP) was among the high profile bankruptcies in the retail business in 2011.
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