Five Questions With … Brad Erens, Restructuring Partner, Jones Day

1. Six months ago, one of your partners was somewhat facetiously complaining of not having enough to do. That still true?

We’re substantially more busy than we were six motnhs ago. 2007 has two months left, but it will still go down as one of the years that had the least number of bankruptcies. But the activity behind the scenes has picked up dramatically, certainly for us and I suspect for most people.

2. Given the loose lending terms of the last cycle, have LBO firms given their portfolio companies a long enough runway to avoid default?

It’s a case-by-case issue. We are certainly seeing some companies that are highly levered and that will continue to need new capital. At some point, the investors and sponsors will decide to stop throwing good money after bad, and those companies will pile into bankruptcy pretty quickly.

3. With the coming wave of restructurings, how contentious is the issue of second-lien loans going to be?

There are a lot of complexities associated with how second-lien loans work vs. first-lien loans in a bankruptcy. There have been some decisions on that over the last couple of years, but there are still a lot more issues that need to be vetted. So those disputes will arise in cases and will tie up cases. The main point I’d make is if you’re a first-lien lender with a week intercreditor agreement, you will regret having that agreement going into a bankruptcy.

4. Is this an issue that’s going to have to play out in the courts or can it be hammered out at a negotiating table?

I think we’ll see both. It’s unlikely that it will play out only in the conference rooms and not in the courtrooms.

5. We here at Buyouts have been hearing that this will be a different wave of restructurings given how diverse the debt markets have become. Do you agree?

No one has a crystal ball. I don’t tend to think that restructuring cycles are dramatically different from one to the next. We see revolving five-year cycles of higher activity and lower activity. And while there are always new issues—such as hedge funds and second-lien debt this time around—at the end of the day, the restructurings are in many large respects the same.

Edited for clarity.