This year, Europe emerges from the deepest recession in a generation. But this has not been a normal recession. Perversely, the number of insolvencies has fallen in the last year and non-performing loans are still near a historic low. As the numerous government support measures come to an end, this is bound to change.
Firms’ liquidity buffers are depleted, and many sectors will need to confront a fundamental reshaping of their business models. The European Systemic Risk Board, tasked with the big financial stability issues in Europe, speaks of a coming tsunami of insolvencies. Banks now need to gear up for this inevitable wave of loan defaults. The past crisis has taught us that unsustainable debt should not linger on balance sheets. Bank supervisors will keep a close eye on how this process unfolds.
Non-performing loans (NPLs), insolvencies and business restructuring are the regular features of renewal in the market economy. The inevitable debt reduction also presents plenty of opportunity where sound businesses and innovative entrepreneurs are offered a fresh start once capital is re-deployed.
But NPL management and investment requires skills that are rarely available to the extent required once insolvencies emerge in large numbers. Such skills will now be in high demand in the recovery. Compared to the last crisis in 2009, the European distressed debt market has fundamentally changed. Innovative solutions, such as portfolio sales and securitisations, play a much more prominent role. ‘Dry powder’ in private equity and credit funds remains near all-time highs and large pools of capital are waiting to be deployed in distressed debt.
Together with the team of Frankfurt School’s Executive Education, we created the programme Certified Expert in NPL Management and Investment.
The vision for this course is to equip a new cohort of restructuring professionals with the necessary skills for the upcoming recovery: adept in judging the distressed portfolios and designing the right restructuring solutions, while being mindful of the borrower’s perspective, the economic ramifications of debt distress, and of the context in insolvency law, regulation and bank supervision. All actors in this field will need to combine financial acumen with responsible business practices.
The course looks at restructuring practices in Europe as well as in emerging markets. We expect there is much to learn from both regions that can be relevant elsewhere. Loan sales and securitisations for instance are innovative tools that will present new opportunities for lenders, investors, and their servicers.