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(Bloomberg) — Corporate distress is rising faster in the UK than in Europe to reach a two-year high, as Brexit and the pandemic continue to weigh on the economy, according to a study by law firm Weill, Gottschal & Menges.
The gap between the UK and Europe widened in the three months to November, according to the Weill European Distress Index – which broadly defines distress as uncertainty about the fundamental value of financial assets, volatility and an increase in perceived risk. It said European markets saw conditions worsen following slower growth, higher inflation, tightening central bank policy, China’s Covid-19 sanctions and Russia’s invasion of Ukraine.
German corporates are the second most distressed after the UK, citing weak investment metrics, valuations and squeezed liquidity, the index report found.
While the sectors that concentrated the highest levels of distress in the region were retail and consumer goods, real estate and industrials, large corporates – companies with more than €25 billion ($26.5 billion) in market cap – saw the highest level of distress since then. December 2016 amid rising borrowing costs, currency weakness against the dollar and supply chain issues.
“It shows that this is a more challenging environment in macro fundamentals than what large corporates faced during the pandemic,” said Neil Devaney, restructuring partner at Weill in London, during the report’s release on Thursday.
However, according to the index, listed European companies with a market cap below €5 billion are struggling more than larger companies.
With liquidity still available for companies and maturities, “we expect restructuring activity towards the end of 2023, as corporates will need to restructure sooner than they would like”, Devani said.
©2022 Bloomberg LP
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