Houlihan Lokey Expects Default Surge in a Crisis Worse Than 2008

One of the world’s top restructuring bankers sees an economic crisis looming that will be worse than the last recession.

“In some ways, it’s much more severe than what we experienced in ’08 and ’09,” Irwin Gold, executive chairman of Houlihan Lokey Inc., said in a Bloomberg Television interview Tuesday. “You saw that in the incredible volatility and revenue destruction we saw, which will lead to cash-flow destruction, liquidity destruction and knock-on effects,” he said, adding that the coronavirus pandemic and shocks in oil prices have “revealed excesses in corporate credit and direct lending.”

WATCH: Houlihan Lokey’s Irwin Gold says he sees an economic crisis looming that will be worse than the last recession.

(Source: Bloomberg)

While U.S. lawmakers passed a historic rescue package and the Federal Reserve has been injecting more liquidity into the system, Gold expressed a concern that echoes those of his banking peers: More than half of investment-grade debt outstanding is at risk of becoming junk-rated. Leveraged loans and high-yield bonds outstanding totaled $2.7 trillion at the end of February -- double the amount during the last crisis, Gold estimates.

Economists have been abandoning their expectations for a strong snapback in growth, while Goldman Sachs Group Inc. said on Tuesday that unemployment in the U.S. is likely to soar to 15%. That compares with 7.2% in December 2009.

Gold expects bankruptcies. He said more firms will be unable to pay back their debt in in the wake of government-ordered lock-downs -- but also that lenders may be more lenient in order to help companies survive. Retailers, airlines and movie theaters are particularly hard-hit, as are hospitality, gaming and fitness companies.

“Unfortunately, what will happen is likely a spike in defaults,” Gold said. “The bigger question is what sectors aren’t negatively affected by this.”

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Sonali Basak in New York at sbasak7@bloomberg.net

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Michael J. Moore at mmoore55@bloomberg.net

Daniel Taub, Dan Reichl

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