FEWER firms are going to the wall despite the longest recession on record as lenders seize large chunks of those businesses in danger of drowning under their debts.
Familiar names turning to so-called debt-for-equity swaps with lenders include camera chain Jessops and hardware group Robert Dyas, while Gala Coral - the UK’s biggest gaming group - is closing in on a similar deal.
Rather than pushing companies into administration - commonplace during the last recession - lenders are increasingly swapping loans for an equity stake to help businesses weather the storm ahead of any recovery.
Listed companies such as Jessops and shopfitting firm Styles & Wood - now owned 47% and 17% respectively by banks - have played out their financial woes in the public gaze, but such swaps are mostly employed by private equity-backed firms saddled with huge debts.
Although some such as Gala Coral want to ease the pressure on its balance sheet and grow the business, the worst-hit players - bought when markets were awash with cheap money - can no longer generate the cash to support their over-stretched finances.
The only way to avert collapse is to cede some or all control to the owners of the debt - if a deal can be agreed between often diverse groups such as bondholders and banks.
But along with record low interest rates, the greater willingness to consider the option has helped avert corporate insolvencies spiking to the levels seen in the early 1990s - despite the current recession being more than twice as deep. Building materials firm Heywood Williams was the latest to be saved last week by a deal which gives Lloyds 80% of the business.
Insolvency Service data from the early 1990s recession show corporate failures more than doubling from 9,400 to 24,400 between 1988 and 1992. This time the figures show a smaller jump from 12,000 to around 20,000 and a slowing failure rate quarter-on-quarter.
But the swaps also mean current shareholders are heavily diluted or even wiped out. And with vast sums of corporate debt due for refinancing amid a sluggish recovery, lenders seem likely to be left with even greater slabs of equity in the years ahead.
The private equity deals currently being carried out are far fewer in number and more conservatively structured than at the height of the boom, with as much as 60% on average being pumped in as equity, according to Nottingham University’s Centre for Management Buyout Research (CMBOR).
This is an even more cautious deal structuring than the average 46% of equity last year, its figures show.
CMBOR has no firm figures on debt for equity swaps being carried out, but chief Rod Ball said of the deals being done at the top of the market: "More and more (swaps) seem to be happening - not just in the UK but on the Continent as well - although they tend to keep quite quiet about it. They should not be doing it but they do not want to write off the debt.
"We could end up with a situation where banks are holding a big part of the private equity sector which is not something they are good at."
Estimates from ratings agency Standard and Poor’s (S&P) warn of the huge refinancing burden laying ahead for much of the private equity sector - peaking at around £110 billion in 2013 and 2014 on deals agreed in 2006 and 2007.
Analyst Taron Wade at S&P said: "These transactions were based on structures that assumed a high level of underlying earnings growth because of the necessity to provide for material deleveraging.
"This was necessary to attract investors, as the debt multiples on these transactions were high due to high purchase price multiples. However, that growth has not typically materialised, making deleveraging in many cases impossible."
Barring an economic miracle, this makes more debt for equity swaps all but inevitable - especially with the Bank of England estimating that UK banks will have to find an extra £500 billion in the next five years as state support is gradually withdrawn.
Another firm in the restructuring spotlight is Millets and Blacks owner Blacks Leisure - the group is in talks over more "radical" action with banker Lloyds over a way of turning around the business.
The group is said to be looking at a Company Voluntary Arrangement to dump its underperforming stores, but Lloyds could decide to take an equity stake if this falls through, as landlords and the bank look to avoid the nuclear option of administration.
Banks such as Royal Bank of Scotland have specialist teams to help turn businesses around, but restructuring expert Tony Groom - a past president of the Turnaround Management Association and head of restructuring outfit K2 - sounds a warning against lenders in "ivory towers" trying to run businesses from afar.
"One of the major concerns is that it is the banks and lenders that are trying to turn around companies and as a result they have been disenfranchising management."
The increasing debt-for-equity phenomenon exemplifies the old adage: if you owe your bank £500, you’re in trouble - but if you owe it £50 million, they’re in trouble. The reality is when banks agree to such deals, they are effectively admitting it will be a very long time before they get their money back on the original loan.
With an anaemic economy recovery in prospect, finding the right climate to exit these investments - either through trade sales, stock market flotations or a sale to management - is a headache likely to be dogging banks for years to come.