The Distressed Debt 2018 Conference

Recent Deals, Latest Trends & The Road Ahead
Contact Us
Contact Us

    Speaking Companies

    Welcoming note from the conference chairman

    There can have been few so challenging years for predicting markets as the immediate future. Only the realities of Brexit, the Trump Presidency and this year’s wave of elections in Europe can now show us the way forward. The economic, business and legal changes they bring come at a time when bankruptcy, corporate reorganisation and the distressed debt it generates in Europe have matured into part of mainstream corporate finance and law, growing more rapidly than either M&A or private equity and achieving double digit returns over more than a decade, which stands up well in a very low interest rate environment.

    This, and the cross-border funds the market now sees, is all the more remarkable considering the continuing lack of homogeneity in European insolvency law across such issues as valuation frameworks, the role of creditors, and the availability of debtor-in-possession financing – and just as importantly, how bankruptcies are handled in the courts – all of which mean that contrasts in results and how they are achieved vary significantly across European jurisdictions.

    In surmounting these persistent difficulties, more European and US firms have launched initiatives, resulting in competition in the European restructuring market being now intense, with distressed debt fund managers having record levels of capital available for investment. Most recently, tough conditions in Europe have seen funds raised more narrowly for specific opportunities, including direct lending, in particular to distressed commodity, real estate and energy firms. Smaller funds in particular have needed clear differentiation in strategy to succeed.

    The managers of this record level of investment to place, and the funds jockeying for position, have a complex environment with which to reckon. On the one hand, the market has seen borrowers refinancing, repricing and dividend recapitalising, driving up high yield bond issuance to record levels even as still low interest rates are creating opportunities for switches into bank debt, often with few covenants and considerable risk. Indeed, cov-lite is establishing itself as the market standard, reaching down to smaller deals and driving convergence between the capital and loan markets.

    There are plenty of non-performing loans that represent opportunities, for example for debt-equity swaps. On the other hand, recent months have seen a flight to quality in debt issuance in an otherwise resilient market, driving down pricing and increasing the appetite for intensive due diligence even as default levels remain significantly lower (at around 2%) than the average of the last decade, and even than in the United States where they are running at twice that level. This has been reinforced by the need for restructuring operations to continue at businesses that will need the long haul to generate renewed profitability.

    Going forward, spotting the losers will involve analysing macro funding dynamics, the comparative prospects of UK and Eurozone economic growth and the implications of Brexit: those UK businesses with high leverage yet especially dependent on EU funding will obviously be particularly at risk. Experts have concurred that loan sizes will allow mid-sized funds to enter the market, whilst the servicing industry is developing.

    There is little doubt either about the enthusiasm of both banks and governments which are eager to jumpstart in Europe for the further development of the market. Equally, countries throughout Europe are very likely to face further pressure on key sectors – retail especially, pushed by technology and pulled by currency volatility and inflation, notwithstanding much cov-lite bond finance - but also construction, especially building suppliers and sub-contractors, commodities, particularly still oil and gas but also steel, and trading organisations, as well as shipping, where dry bulk and container segments especially are experiencing idle capacity with freight rates under pressure. 

    In the UK oil and gas sector, for example, which has been generally highly geared, restructuring choices made by both exploration & production and oilfield services companies that were hastily adopted in the past two years in the expectation, or at least the fervent hope, that the decline in commodity prices would prove temporary, must now be unwound and replaced by ‘lower for longer’ regimes – more enduring solutions that better forecasting and more realistic expectations could have brought about earlier.

    Similar problems have been experienced by the mining and waste sectors. Meanwhile banks throughout Europe have continued to divest themselves of assets, a trend which has grown every year since 2010, all of which seem highly likely to continue. This will combine with legal and interest rate uncertainty, declining asset prices in some cases, and higher hedging costs into dollars with volatility on both sides of the Atlantic greater than in previous years.

    In this demanding and challenging environment, restructuring professionals will need all the expertise they can muster to surmount the many challenges that will continue to emerge for the sector. The importance of listening to and questioning those at the forefront of the profession has never been greater. This conference therefore draws together key practitioners and experts who will share their expertise and point the way forward and I am delighted to have the opportunity of chairing what will I am sure be an exciting and rewarding day.

    I very much look forward to welcoming you at what will undoubtedly be an important and influential conference.

    Conference Agenda

    Richard Tett, Partner, Freshfields Bruckhaus Deringer

    The Regulatory Environment

    • An end to COMI? Are we evolving towards a cross-border protocol? (e.g. progress with UNCITRAL)
    • Historical schemes of rearrangement and the sale of assets
    • Current (2016) UK consultation on moratoria, trading whilst insolvent, flexible restructuring plans and rescue financing
    • Cross-border developments within the EU (including minimum standards for pre-insolvency restructuring procedures and the BRD)
    • UK regulation framework immediately post-Brexit – hypotheses
    • The scope of any potential UK legislative changes after Brexit

    The UK/European economy, Restructuring Markets and Key Issues  

    • The big picture: an excess of capital chasing too few opportunities? Losses from ‘jumping in too early’ during 2016
    • Default rates (historical, surge and current), credit migration, market liquidity (including central bank policy) and political/economic developments (e.g. Brexit and trade deal cancellations, the future of Dodd-Frank, commodity price declines, the strong US$ and exchange rate volatility) – impact on restructuring and distressed debt
    • Projected market size and methodologies for estimation
    • Recent developments: precedent-setting deals & the trend towards greater complexity in restructuring


    Countries and Sectors to Watch

    • Nations to watch – the Spanish, Italian, Greek and Balkan markets in 2017
    • A comparison between EU countries’ restructuring opportunities – Brexit vs the potential implosion of the EU
    • Comparison of sectors – growth, sustainable debt levels, key challenges default rates, restructuring activities and potential
    • Case Studies of individual defaults in specific industries


    The Distressed Debt Market

    • How mainstream is distressed debt investment now?
    • UK and European activity and trends – high-yield and distressed debt volumes and characteristics (e.g. bond type, value fluctuation, credit spreads, covenant-lite European high yield bonds, exchange offers)
    • High-yield bond rating, default rates and performance accuracy
    • The HFR and Barclays distressed and restructuring indices – structure, accuracy and use compared
    • Performance of key funds in distressed debt investment (including recovery rates)
    • Forecasts for the distressed debt market in 2017 and beyond (including size of funds, type of deals, pricing and exits)


    Predicting and Analysing Default

    • Are historical early warning signals (like the Z-score, Merton and KMV) still relevant?
    • Analysing the accounts of distressed companies
    • Alternative metrics to track investment opportunities
    • Has there been improvement in forecasting capabilities?
    • Using distressed debt pricing to analyse default probabilities
    • Default event definitions and flexibility
    • Reactions to and heading off default events
    • International data handling, privacy laws and default registration 

    Bankruptcy and Insolvency Law

    • Comparative analysis of out-of-court restructuring agreements
    • Review of recent insolvency case law – how well are bondholders and investors protected?
    • Focus on information retrieval for creditors, including privacy law
    • Timelines and virtual data room access
    • Issues involving trusts in restructuring and insolvency
    • Risks for creditors and trust busting
    • Inter-creditor liability
    • Local law issues and their cross-border application (e.g. US Chapter 15, environmental law in developing countries)
    • International comparisons (e.g. SE Europe compared to India ) – is the Western advantage slipping?
    • Does the choice of lawyer matter?


    The Role of the Bank in Contemporary Restructuring

    • The regulatory environment – Basel III and restructuring activity
    • The IMF’s three pillars for galvanising restructuring/NPL loans in Europe
    • Intervention points for banks
    • Processes prior to formal insolvency
    • The identification and management of deteriorating credit risk inside the lender
    • Bank covenants and director flexibility
    • Enforcement decisions and corporate responses
    • Recent enforcement and workout decisions – motivations and results
    • Investor/lender in single-credit corporate restructurings
    • Focus on alternative lenders in the restructuring space: how much pressure on banks?
    • Can alternative lenders perform effective due diligence on restructuring opportunities?


    The Mechanics of Capital Restructuring

    • Competing debt and equity claims – determination of claim status
    • Support from investors and advisers for good asset/bad asset SPV or other asset management structures
    • Trends and changes in the structure of new equity investment – trends in PIK, PIK toggle, higher interest, deferred success fees, cash sweeps, extended maturities, additional security, warrants, and convertible loans.
    • Reformulation of debt: debt for debt swaps, discounted debt buyback, full or partial debt for equity swap, selling debt at a discount, bringing in other stakeholders (e.g. suppliers, lessors) and cash-flow ring-fencing – how successful?
    • How can cram-downs be implemented in the UK?
    • Will a rescue plan structure make a difference?
    • Concerns of fresh investors – the private equity/hedge fund perspective
    • Allocating returns to existing and new capital providers (e.g. through equity kickers, warrants, compounded PIK returns).
    • Blocking and other demands by private equity investors
    • Loan-to-Own securities, Tender Offers and other unusual debt structures
    • Subordination and security considerations
    • Capital and group structure, impact on restructuring
    • How critical is creditor flexibility?


    The Valuation of Distressed Assets

    • Changes in methodologies and emphasis in distressed asset valuation (e.g. valuation timing, continuous reporting and final account approaches)
    • Perfection/enforcement, validity, regulatory enforcement, assignor/assignee, debt class and other risks
    • Asset price trajectories and distressed debt
    • Energy prices and high yield bond valuations
    • The choice: equity, debt, bonds or assets?
    • The impact of covenants and lock-ups
    • Valuation of IP and Intangible Assets in Distressed deals


    Restructured Loan Analysis

    • Structuring loan repayment
    • How much have the rating agencies upped their game?
    • Where have models gone wrong (e.g. capex, working capital)?
    • Risk analysis for the financial model
    • Stress testing distressed debt portfolios
    • Assessing performance: how have key ratios moved in 2016?
    • Restructuring leveraged credits and convertibles – how to generate value?


    Distressed Debt Market Investors

    • Key players in the distressed debt market (including private equity and hedge funds) and their objectives/strategy
    • Likely size and balance of future sources of funds for distressed debt investing
    • Sources of origination for distressed debt investment
    • Fund structures and their potential benefits (e.g. committed equity drawdown funds, credit-oriented hedge funds)
    • Obstacles to exits/secondary market liquidity in distressed debt
    • The threat of high leverage in private equity distressed investment funds
    • Operational portfolio management issues
    • Covenant reset, covenant amendments and maturity extensions in recent practice
    • Methods of portfolio company refinancing
    • Equity injection requirements, negotiations with lenders and evidence
    • Methods of future restructuring (operational and financial)


    Distressed Debt Accounting

    • Making provisions for distressed debt
    • Mark-to-market losses and impact on accounting performance
    • Impact of foreign exchange transactions on distressed debt accounts
    • IFRS and distressed debt: where is accounting headed?


    Managing for Profitability

    • Cross-referencing corporate management and distressed debt investing: which landmarks to look out for
    • Restructuring turnaround and business plans – any changes?
    • Which is the best investment – operational or financial distress?
    • Process risk and mitigants
    • Interaction between distressed debt, restructuring and M&A transactions
    • Projected returns from different kinds of investment structure (including ordinary and preferred equity, super senior debt, subordinated PIK)
    • Avoiding future restructuring events
    2013 - 2017 Redcliffe Training Associates Ltd.