Carl Marks Advisors recently assembled a roundtable of its senior restructuring experts—Partner Jonathan Killion and Managing Directors Ben Godbout and Jeffrey Pielusko—to reflect on the first half of 2025, discuss key trends impacting middle-market businesses, and assess restructuring activity. The wide-ranging conversation covered tariffs, the evolution of the lending environment, and the macroeconomic factors impacting key sectors, including consumer goods, real estate, and healthcare.
Reflecting on the year so far, how would you characterize the restructuring environment?
Jonathan:
We are definitely seeing an uptick in restructuring activity, especially over the last several months. In January, when President Trump was about to take office, we weren’t sure what the tariff environment would look like or how the economic picture would evolve. But with businesses facing cost uncertainty and continuing inflationary pressures, there has been an increase in restructuring, though some of it is driven by longer-term factors.
Ben:
I agree with Jonathan. Businesses are facing a lot of uncertainty around operations and costs, and that has led to a wave of liability management transactions. Persistently high interest rates have also contributed to a slowdown in M&A, leaving companies with fewer options to transact their way out of challenges.
What are some of the factors at play? Tariffs have been in the news a lot this year. Has that been a major contributor to the uptick?
Jonathan:
We have yet to see the full effects of the tariffs in the restructuring world, but it’s something we will need to continue to watch closely. A more prominent factor is the maturity wave on five-year loans made during the pandemic, when the interest rate environment was more favorable. These obligations are now coming due at an unfortunate time for many companies.
Jeff:
The pandemic has been an underdiscussed driver of restructuring activity. A lot of companies, especially those in the grocery and consumer packaged goods space, made operational decisions to manage their business through the pandemic, which are now creating headwinds for the business in a post-pandemic operating environment. For every Del Monte making headlines today, there are several middle-market companies that took strategic steps three to five years ago—moves that were accretive at the time and met market demand, but are now weighing down profitability and cash flow in today’s high-interest-rate, rising-tariff environment. Those strategies included expanding capacity, strategic acquisitions, and diversifying into new sectors that may be outside of a company’s core competency. In terms of tariffs, I agree with Jonathan–given the dynamic and uncertain tariff environment, we probably won’t see the full impact until closer to the holiday shopping season.
What sectors are experiencing the most activity?
Ben:
Consumer goods stands out to me. Companies are being forced to quickly reassess sourcing strategies while simultaneously facing pressure from major distributors to keep prices low or renegotiate distribution margin economics by product. But they only have so much runway before the model becomes unsustainable.
Jonathan:
In addition to consumer products, real estate and healthcare are areas where we’re seeing a lot of activity. Declining reimbursement rates, budgetary cuts, and supply chain issues are challenges for the broader healthcare industry, but especially so for businesses that are managing real estate assets, such as skilled nursing facilities. We also expect companies that rely heavily on Medicaid reimbursements, such as elder care businesses, to feel the squeeze within the next year. In states where the reimbursement rates are lower, we’ve already seen a lot of activity, and that will only intensify. Finally, there are also some areas of stress driven by the evolution of care, such as bariatric surgery, where the growing popularity of GLP-1 treatments and the rise in consumer debt have negatively impacted demand.
Let’s talk about the lending environment. Are you seeing some of the dynamics we discussed impacting lender patience or the lender mix?
Ben:
Private credit providers are playing a more prominent role as traditional lenders seek to reduce exposure—a trend that has been developing gradually over the past several years. In the private equity market, sponsors are increasingly turning to private credit to extend the runway for underperforming portfolio companies. While this approach can provide valuable breathing room and flexibility, it often reflects a “wait-and-see” strategy that may ultimately postpone, rather than prevent, a necessary restructuring.
Jonathan:
With a tougher M&A environment and fewer options on the table, many sponsors are putting in just enough money to keep lenders from acting on parts of their portfolios. In turn, lenders feel that as long as a business continues to be funded, they’re better off sitting back and letting this happen rather than taking immediate action.
What trends will you be watching in the coming months?
Ben:
Two key macroeconomic indicators to watch in the coming months are CPI and unemployment figures, both of which will influence future Federal Reserve interest rate decisions. In the face of ongoing uncertainty, we expect companies to remain focused on strengthening their core businesses, reducing overhead, streamlining operations, and investing in innovation and technology. The extent to which companies execute on these priorities will significantly impact long-term performance.
Jeff:
Another factor that we’ll be looking at is how softness in margins and demand will impact middle market companies’ liquidation values. If lenders look at their annual appraisal and evaluate pricing, margins, and sales trends, they might say that instead of getting 75 cents on the dollar, you now get 65. Cash-strapped companies with limited pricing flexibility could find it challenging to navigate these situations.
Jonathan:
We are also keeping an eye out for more companies issuing financial restatements to previously reported lender data. This is an issue that is accelerating in the healthcare sector in particular, where financial statements can be unreliable due to a wide range of factors, including shifting reimbursement rates and claim denial rates. Sensitivity in these areas can have a big impact on cash flow projections and lead to poor or unrealistic forecasts.