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Restructuring the Operations, Liabilities and Capital Structures of Distressed Corporates

Learn how to manage and restructure credit exposures to corporate groups that are deteriorating, in distress or in default

Introduction to Financial Issues in Acquisition Agreements - ASPAC Training Course

A two-day course

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This course provides essential skills and learning points for:
  • Bank credit officers
  • Investment bankers, particularly those specialising in distressed debt reorganisations
  • Work-out specialists in banks and other lending organisations
  • Insolvency and restructuring specialists
  • Work-out specialists that advise lenders and investors on problem loans
  • Bond credit analysts
  • Fixed-income credit traders
  • Fixed-income credit sales people
  • Fixed-income fund managers
  • Treasurers and financial decision-makers in corporations

  • The course examines the key restructuring solutions for the operations, cashflow and capital structure of distressed credits
  • The course also considers standstill agreements, documentation, multi-creditor workouts and the impact of ownership
  • It combines financial theory with practical examples that should be relevant to delegates' actual NPLs and distressed credit situations
  • It uses up-to-date case studies of firms that are distressed and in restructuring
  • Delegates will be given a comprehensive forecasting model that incorporates the main financial restructuring solutions
  • The model also allows for the modelling of different operating scenarios and capital structures

By the end of this course, participants will be able to:
  • determine the causes of distress, as this will impact the restructuring solution
  • decide whether a business should be restructured, sold or liquidated
  • understand the common operating, cashflow, capital and M&A solutions for distressed firms, including debt write-offs and equity issuance
  • undertake financial forecasting for a distressed firm
  • understand key inter-creditor considerations

Day One

Background, Causes and Early Warning Signs

Session 1 – Terminology

  • Divergences in the definition of NPLs and distressed assets across countries, legal regime definitions, accounting regimes, banks and data sources
  • Overview of recent rating agency global default studies

Session 2 – What to do if a firm is in distress

Initial reactions to situations of corporate distress

  • Central Bank guidance
  • Moving distressed exposures to the workout group
  • Determining the real level of debt and other liabilities
  • How clear is the debt structure? Is the group liable for off-balance sheet debt?
  • Are there multi-obligors and structural subordination of debt?
  • How do hybrid securities perform in a distressed situation?
  • Is a standstill agreement required?
  • Stock exchange disclosures for listed firms that have or will breach their debt agreements
  • What can lenders do if the firm is deteriorating but has not yet breached a covenant?
  • Covenant waivers, resets and amendments
  • The advantages and disadvantages of calling an event of default
  • Is the firm requesting additional short and/or long-term funding?
  • Requesting an accountant’s viability and financial position report
  • Should the lender(s) give more time and/or lend more money?
  • Lender-led solutions

Session 3 – Standstill agreements

  • The standstill agreement – typical clauses
  • Who to include in a standstill
  • Company finance availability in a standstill
  • Considerations for entering a standstill
  • The steering committees; formal versus informal: rewards, risks and indemnities
  • Use and role of professional advisers

Restructuring Options

Session 4 - Exploring the work-out options

  • Should the firm be liquidated now or later?
  • Should the firm be rescued?
  • Should the lender sell at a discount or undertake a restructuring?

Option 1: Operational restructuring

  • Restructuring objectives
  • Rescuing a business; halting the decline and creating stability
  • Management – does the company require new directors? Should the current management leave?
  • Strategic analysis and development of a new strategy
  • Reviewing the business and external reports
  • Maximising cash flow generation
  • Disposals and asset sales

Option 2: M&A

  • Acquisition by another group
  • Asset disposals and break-ups

Option 3: New equity

  • Background considerations for capital restructurings
  • Equity injection from new or existing shareholders
  • Allocating ownership following an equity injection
  • Shareholder loans
  • Equity cures
  • Contributing additional cash-generating assets as new equity

Day Two

Restructuring Options Continued

Option 4: Revised debt terms

  • Amendment mechanisms in the financing documents
  • Amendment of financing terms - extended maturities, deferred amortisation, PIK, (Payment-in-kind), PIK toggle, PIYC (Pay-If-You-Can), cash sweeps
  • Evaluating the potential returns for revised financing terms - additional security, equity kicker/warrants, convertible loans, ratcheting exit fee, compounded PIK returns

Option 5: Debt restructuring/write-offs

  • Debt for debt swap, discounted debt buyback, debt write-off with full or partial debt for equity swap, lenders sell debt at a discount
  • Assessing debt for equity swaps, executing the transaction and exit strategies
  • Allocating equity to lenders in a debt-for-equity swap
  • Types of equity instrument, structuring and valuing
  • Other options - engage suppliers in the restructuring, cashflow ring-fencing
  • Why restructurings do not always work

Session 5 – How documentation can help firms avoid default

  • Cov-lite and Cov-loose documentation
  • Lien subordination
  • Structurally subordinating debt
  • Debt Dilution
  • Collateral transfers to support new debt issuance

Forecasting; Other Workout Considerations

Session 6 – Other factors that will impact the work-out

  • Will/can the parent support the operating company
  • The impact of guarantees, indemnities and other credit enhancements
  • Special purpose vehicles and bankruptcy remote entities
  • Pre-packs
  • Dealing with holdouts, cram-downs
  • Hardening periods
  • COMI (Centre of Main Interest)
  • Issuer group structure

Session 7 – Projections and modelling

  • What are the key earnings and cashflow drivers for the distressed entity?
  • Forecasting the income statement, cash flow statement and balance sheet
  • Sensitivity analysis – what is required for the firm to turn around? What could trigger further performance shortfalls?
  • The impact of asset disposals
  • Modelling the revised loan terms and equity contributions
  • Modelling PIK interest, amortisation deferrals, equity issuance, debt write-offs
  • Covenants - setting revised, cash flow-based covenants and forecasting headroom
  • Structuring cashflow sweeps/waterfalls
  • Use of liquidation models to assess each stakeholder’s economic interest

Session 8 - Different creditor classes

  • Dealing with other lenders and creditors
  • Subordination and ranking
  • inter-creditor agreements - agreements and provisions between creditors in a restructuring
  • The London Approach and InSol 8
  • Preferential claims and ranking/waterfall of claims
  • Loss sharing amongst creditors

For the last fifteen years, the trainer has worked as a financial trainer and consultant with major training firms, covering basic and advanced corporate credit analysis and valuation, distressed debt, financial analysis and financial modelling. Recent assignments have included the European Central Bank, the European Investment Bank, the European Bank for Reconstruction and Development (EBRD), DBS in Singapore, Siemens, Deloittes, HSBC, Carnegie Bank, Gibbs Business School in Johannesburg, Bahrain Institute of Business Finance, Bank of China, BBVA, the African Development Bank, Rand Merchant Bank, Hamburg Central Bank and Mizuho Bank. Delegates have ranged from graduate trainees to board members.

A former Executive Director of CSFB and Lehman Brothers, the trainer spent seventeen years working as an investment banker in Europe and the US. After graduating from the London School of Economics with a degree in Economics, she joined Kleinwort Benson Ltd as a graduate trainee. She worked initially on analysing, structuring and investing in US LBOs and MBOs and also US high-yield debt. Thereafter she worked in Kleinwort Benson’s European corporate finance department, gaining experience of IPOs, mergers, acquisitions, disposals and corporate restructurings, with a particular focus on receivership and bankruptcy situations. She then moved to CSFB’s fixed income department as the lead European corporate credit analyst, covering new issues and secondary trading and advising clients on their fixed income portfolios. She was then head-hunted to go to Lehman Brothers as lead corporate credit analyst. She specialised in high-grade and cross-over telecoms, including new issuance and advising proprietary traders and fund management clients on their investments. She has also worked as an expert witness on financial trials and as an advisor on private equity transactions.

This course comprises four interactive webinars of 3 1/4 hours each, spread over two days. There is a 15-minute break in the middle of each webinar. Delegates are invited to contact the trainer directly after the webinars if they have any outstanding questions.

This course is intended for bankers, bondholders and other debt investors who are dealing with actual or potential distressed debt investments.  We summarise the typical causes of distress, to enable lenders to adopt the optimal solution. We highlight the advantages and disadvantages of calling an event of default. We go through a restructuring case study and cash flow optimisation. We also review capital restructurings, including debt for debt swaps, full or partial debt for equity swaps, discounted debt buybacks, equity cures, benefits of a shareholder loan, M&A solutions etc. In some cases, the best outcome may be full or partial asset liquidation.

Cashflow forecasting is key to creating an optimal debt restructuring solution and the course covers distressed debt restructuring solutions in Excel to enable lenders to maximize their recovery rates and optimize their long-term returns, subject to prevailing insolvency laws, the lender’s capital situation and sometimes the wider interests of other stakeholders in the firm. We also give an overview of how documentation can impact the restructuring solution. Multi-creditor workouts and standstill agreements are also considered.

Case studies focus on a range of sectors, including property, retail, infrastructure, house building, media and industrial.

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