Economic fallout from the coronavirus pandemic slowed M&A announcements earlier in 2020, but for some middle-market investment banks, restructuring assignments have helped keep advisory revenue afloat.

Total advisory revenue for these investment banks grew 12.8% on aggregate from the second quarter and eked out a 1.1% gain year over year, compared with double-digit drops for advisory revenue at the bulge bracket investment banks. The middle-market firms that have historically focused on restructuring, such as Moelis & Co., PJT Partners Inc. and Houlihan Lokey Inc., reported sharp increases in revenue from the second quarter. Corporate defaults in the U.S. are the highest they have been since 2009.

At PJT Partners, advisory revenue soared 79.6% year over year, driven by what the company called a "substantial increase" in completed restructurings during the quarter. Houlihan Lokey reported $125.4 million in financial restructuring-specific revenue for the quarter, a 62% bump over the third quarter of 2019. Its restructuring team closed almost twice as many transactions despite adding only two managing directors to the staff.

As a countercyclical business, restructuring will continue to play a big role in financial results, according to transcripts of executives' comments during third-quarter earnings calls.

"There are a significant number of companies and industries whose businesses have been meaningfully, and in some cases, permanently compromised by dislocations caused by the pandemic. Accordingly, we expect to see an active restructuring environment for the foreseeable future," PJT Chairman and CEO Paul Taubman said during the company's call.

Houlihan Lokey's Scott Beiser had a similarly positive outlook.

"Our financial restructuring results are at record levels, and we expect to experience elevated levels for some time," the CEO and senior managing director said Oct. 29. "We have more mandates today than we did during the Great Recession."

While restructurings are picking up, many large companies have turned to the capital markets throughout the past six months to issue debt or equity, building cash reserves to weather the pandemic. The bulge-bracket investment banks — Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley — have netted a huge year for underwriting assignments as a result. Underwriting revenue was down from a historic second quarter but still showed growth from 2019, with three of the five firms doubling their equity underwriting revenue year over year.

Shoring up capital levels with issuance will not be a long-term solution for companies wrestling with the pandemic economy, though, executives at the advisory firms said.

"Even if there is robust alternatives in the capital markets in the near term, there's a limit to how much debt you can put on to keep a challenged business operating indefinitely," PJT's Taubman said. "And at some point, those businesses, they need to be restructured."

But companies are also starting to return to the M&A market, either as opportunistic buyers or as sellers grappling with changing consumer preferences, decreased foot traffic and the shift to online spending. That could spell relief for the investment banks that rely more heavily on M&A advising.

"The third quarter saw a sharp increase in M&A activity, particularly in the many sectors that have not been adversely affected by the pandemic," Greenhill & Co. Inc. Chairman and CEO Scott Bok said during the company's latest earnings call, according to a transcript. Greenhill saw a pickup in restructuring business during the quarter, but management noted it was not enough to offset the lack of M&A deal advisory revenue.

Evercore Inc. has also seen a steady decline in revenue this year, and though its advisory revenue has historically picked up in the fourth quarter due to year-end deal completions, the dearth of M&A in 2020 could make its restructuring business a bigger contributor to revenue.

"We believe there will be further opportunities to advise our clients throughout what we expect to be an elongated restructuring cycle," Co-Chairman and Co-CEO John Weinberg said.