Advanced Restructuring - Step by Step

2 Part Course | Learn practical guidance on navigating the critical issues facing debtors, creditors, advisors & management at each stage of the process; strategies for managing existing and aggressive out-of-the-money creditors and the pros and cons of implementing the various restructuring options

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A one-day course presented over two-half days in a virtual class from 09:30 to 13:00 UK Time

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Download: Course Category Brochure | Course Outline

Part One

Restructuring Roadmap: Summary of the Major Milestones in Restructuring

Warning signals
Initial review: gather information on debt & financials -> what went wrong
Create Group structure
Review loan docs, the lender's & the lender’s rights, identify ranking
Valuation … where’s the fulcrum capital? Who will drive the restructuring?
Examine restructuring options and paths & create a credible plan … but can management deliver the plan
Implement the restructuring

Restructuring Triggers & Early Warning Signals

Early warning signals - summary:
- Macroeconomic factors (the virus)
- Financial performance indicators
- Management behaviour
- Operational issues
- Red flags
Payment breach – does this include de minimis exceptions?
Financial covenant:
- Role of equity cures
- Why & how deemed cures matter
- What are the borrowers' options if there is no equity cure?
Can lenders accelerate when an event of default is not ‘continuing’?
Case Study: Ideal Standard case
Other covenant breaches
“Insolvency” EoD – covers a range of issues
Case Study: Hotelero Urvasco case re Insolvency event
MACs – do they matter
Case Study: Hotelero Urvasco case re MAC
Refinancing cliff – potential strategies

Advising Lenders and Borrowers: How Best to Manage the Situation

Advising lenders:
- What steps can lenders take before covenants are breached?
- Steps after the borrower is in default
- Reservation of Rights letters
How effective are they?
Potential disadvantages for the lenders
Lessons from Tele2case:
- Advising Debtors/borrowers
What strategy should borrowers adopt?
Draw all facilities first or advise the lenders of potential EoDs?
Discussion on different scenarios

When is a Company insolvent? The Main Tests

The Cashflow test
The Balance sheet test
Case Study: Re Cheyne Finance case
Failing to comply with a Statutory Demand
Failing to satisfy the enforcement of a judgment debt.
Review of Directors’ statutory obligations
EU – Share Capital Test

Directors’ Liability in Distress (Why it Matters)

Directors’ duties under the Companies Act
Do they change when the Company is in the ‘zone of insolvency’?
Company indemnification
Pros & cons:
- The Companies Act - what is NOT covered
Review Directors’ & Officers (D&O) Insurance:
- Interaction with Directors’ statutory duties under the Companies Act
- Key areas of risk in distress
- What are the key issues to review in the D & O policy
- Meaning of “Loss”, “Damage(s)”, “Insured”, “Claim”, “Wrongful Act”
- D&O Policy Construction – Side A, B, C
- Typical exclusions

Checklist for In-House Lawyers When the Company Experiences Financial Distress

Are Directors in compliance with their statutory obligations in terms of financial and other matters?
How to respond to any final or other demands or other threats of litigation
Advice on the content of Board minutes & frequency of meetings
Remind directors of potential personal liability and advise on steps to avoid or mitigate this
Advise the board on any directors’ loans & reimbursement of expenses
Review any planned transactions which Liquidators/courts could later challenge
Encourage the Board to take immediate prompt and appropriate advice
Review D&O insurance

How to Advise the Board / Directors in Distress

Review the Articles of Association (does the Company have the powers to act swiftly):
- Meetings – frequency, on the phone?
- Committees – are they set up
Who is a Director & who can incur personal liability?
- Shadow Directors
- De facto Directors
- Non-Executive directors
- Protection for parent companies (§251.3 CA)
- Protection for Advisors (§251.2 CA)
- Supervisory boards in civil jurisdictions
When Lenders & other creditors are at risk of being deemed to be shadow directors
Wrongful trading:
- What is it
- Liability and remedies
What is "insolvent liquidation" or "insolvent administration" in the context of wrongful trading?
Advising directors when “wrongful trading” is a risk – key issues
Board meetings:
- Best-practice tips
- Dealing with conflicts of interest – directors on boards of multiple group companies
Financial information
What is required
When should the company cease trading?
Why resigning as a director may be dangerous?
Fraudulent Trading:
- Liability & Remedies
- When does liability accrue?
Misfeasance or breach of fiduciary duty
Fraud and misconduct offences:
- Fraud in anticipation of winding up
- Transactions in fraud of creditors
- Misconduct in the course of winding up
- Falsification of the company's books
- Material omissions from statements relating to the company's affairs
- False representations to creditors
Breach of common law duties
Reviewable transactions in the context of insolvency (summary):
- Transactions at an undervalue
- Preferences
- Extortionate credit transactions
- Invalid floating charges
- Transactions defrauding creditors
- Contribution from past directors and shareholders

Valuation Issues: Why it Matters in Restructuring

Establishing the fulcrum capital & why it matters in restructuring
Valuation issues:
- Going concern vs. liquidation
- Intrinsic vs market value
IMO Carwash case:
- The different approaches to the valuation of distressed debt
- Pros and cons of each approach
- Best approach to restructuring
- Lessons learned
A closer look at the Stabilus case– is this more instructive?
Valuation methods - problems with “traditional approaches” in distress

Relevance and Impact of ESG on restructurings & Refinancings

Why and how it could affect a restructuring
Impact on existing & new Lenders
- Can / will existing lenders continue lending
- If so, at what cost (credit ratings, ESG compliance?)
- What about new providers of debt?

Part Two

Conduct a Review of the Loan, Intercreditor & Security Documentation

First – make sure you have the correct, up-to-date documents:
- Execution copy plus any subsequent amendments
Issues to consider regarding ALL loan facility agreements (senior & junior):
- Do they have the same or different Restricted Groups?
- Governing law - this could influence the forum (can this be changed q.v. Apcoacase)
- The key Events of default / MAC
- Acceleration and cross acceleration provisions – carve-outs
- Parental, sister or cross-guarantees
- Enforcement mechanisms
- (Voting) Consent is required to amend lending terms (this may vary for different kinds of amendments)
- Financial Covenants & cures rights (identify any which have been/are about to be breached and any which can be cured)
- Review Guarantor Coverage Test
Issues to consider regarding the security documentation:
- What are the assets & where are they located (jurisdiction issues)?
- Check if the security has been properly registered (is security valid and enforceable)
- Which assets are secured?
- Which assets are unsecured (they can be used to secure further debt on advantageous terms)
- Share pledges/mortgages
- Parental, subsidiary guarantees / cross-guarantees
Intercreditor issues:
- Is there an existing Intercreditor – if so, who are the parties
- How will it affect the new/additional debt?
- Will junior lenders’ approval (waivers) be required for the new debt?
- Will it affect the ranking of the new debt?

Key Impediments to Implementing Restructuring

Does the Group have sufficient liquidity/time to implement a restructuring (see below)?
Management competence/experience in restructuring:
- Are they competent to see the firm through the problems or are they the problem?
- Potential solutions
- CROs – the good news and the dangers
- Dealing with aggressive, out-of-the-money creditors
Key commercial contracts (the ipso facto issue):
- Prohibition on ipso facto clauses (UK Corporate Insolvency and Governance Act)
Coverage
Exclusions

Strategies for Getting a Seat at the (Restructuring) Table

Summary of players with potential influence
In-the-money creditors vs out-of-the-money creditors
Importance of collateral
Issues with shared collateral:
- Pari passu lenders
- Senior vs junior lenders
Intercreditor How can out-of-the-money creditors gain influence
Differing scenarios:
- Bilateral loans
- Club deals
- Syndicated loans
Loan to own strategies and tactics
Credit bidding:
- Use and application (jurisdictions)
- Key steps
Tactics for dealing with key stakeholders

The Liquidity Trap: It's Either New Equity or Incremental Debt

Potential new equity sources – is this available and from whom?
Review the group’s ability to raise additional debt finance:
- Incremental facilities / Accordions
- Other “permitted” debt baskets – how are they structured – grower or hard cap
- Review historical reclassification of debt
- Can the debtor reclassify debt between baskets to free up debt capacity?
Review ‘Permitted Security” and 'Permitted Guarantees':
- Can the debtor group secure or guarantee any additional debt finance?
- Review the “Negative pledge”
- Review Guarantor Coverage Test
- Permitted liens vs permitted collateral liens

Creditors’ (Ad-hoc/Steering) Committees

Role and purpose of the Committee
Different types of creditor committees:
- Senior
- Junior
- Bondholders
- Unsecured creditors
When to form a Committee:
- Dealing with uncooperative Debtors
Who should be on the Committee (primary, secondary, distressed)
Obstacles to specific parties being on the committee:
- Reconciling conflicts and tensions in the Committee
- public vs private (confidentiality)
- Sub-participations

Standstill Agreements

Purpose and rationale
The parties - which companies in the group are affected?
Which lenders are involved - senior (sub-participants?), second lien, mezzanine
Issues to consider - voting thresholds, enforcement standstills
Duration and extension
Key terms (summary)
Company undertakings
Termination
Potential problems

Financial Restructuring Options

Debt for Debt swap – What types of debt (pros and cons of each):
- PIK - PIYW, PIYC
- Convertibles
- Preference shares (Convertible, Redeemable etc)
- How the lender can protect their position in a D4D
Debt for Equity swap:
- Equity, warrants or both
- Solutions if the lender cannot take equity or warrants?
New money from existing shareholders:
- Form
- Ranking?
New money from new stakeholders:
- Form
- Ranking?
- Other issues

This Advanced Restructuring trainer is a consultant, public speaker and author with expertise in private equity, infrastructure, debt advisory, and restructuring. He is a Senior Advisor to KPMG Finland and a Senior Consultant to Grant Thornton UK.

Training programmes are provided to a wide range of blue-chip clients in Europe, Africa, the Middle and Far East, North America and Australasia. In-house clients include banks (BNP Paribas, Société Générale, ING, Barclays Capital, Bank of China, RBS, SEB); lawyers (Baker & McKenzie, Skadden Arps, Sullivan & Cromwell, Cadwalader, Latham & Watkins, Weil, White & Case); advisory firms (Lazard, PWC, M&A International, KPMG, EY, Deloitte); PE firms (Cinven, Advent, Barings Asia, Waterland); corporates (Siemens, Airbus, Turkcell, Candy Crush, Gunvor, Statkraft) and governmental bodies (the UKLA, the EBRD, the ECGD, Omani Oil Corp.)

He qualified in South Africa both as a Chartered Accountant, with Deloitte and as a lawyer with Hofmeyr where he was involved in structuring several high-profile project financings including BMW 3 Series, Ford Sierra, GM, Sappi and Mondi.

When he moved to London and joined Lazard Brothers as a corporate finance executive he was involved in a wide range of public and private transactions. Subsequently, he joined Hoare Govett as an assistant director where he acted as an advisor to smaller listed companies and was involved in several syndicated Euro-Equity Initial Public Offerings.

In 1991 he joined ABN Amro’s cross-border M&A team before being transferred to MeesPierson Corporate Finance as a Director in Cross-Border M&A where he was also involved in many deals in Central Europe. During this time he was a member of the EU-PHARE programme and advised the Estonian government on their privatisation programme.

He is the Programme Director at the City Business School, London, for Infrastructure Finance for the M. Sc. programme in Business Administration and Finance.

He is a member of the Institute of Chartered Accountants in England & Wales and the South African Institute of Chartered Accountants. He completed a BA and an LLB at the University of Natal and a B. Compt. (Hons) at UNISA.

Triggers & Smoke signals– being able to identify the early warning signals of distress will enable parties to prepare for the restructuring process and steps. The Loan has various EoDs which could enable a lender to Accelerate and Enforce their collateral so gaining control of the debtor but identifying early signals of distress is vital to both lender and borrower to maximise the chance of a recovery
What is insolvency and the “zone of insolvency”- Directors are most vulnerable at risk of personal loss when the company enters the zone of insolvency. Identifying these two inflexion points is vital to avoiding Moreover, many loans contain legal terms that directors might not fully appreciate (e.g. the definition of ’Insolvency’ in the LMA leveraged precedent).
Advising the Board– The Board faces enhanced personal risk when firms enter the ‘zone of insolvency’. Taking the wrong approach can entail both civil and criminal liability. Lawyers play a key role in identifying those risks and advising management on how best to mitigate these risks. Note: Wrongful Trading rules have been suspended wef. 1 March 2020
Advising the Lenders- An overly aggressive approach by lenders (e.g., a draw-stop on the RCF) can jolt management into filing for formal protection to avoid personal liability which will destroy value and reduce recovery. Conversely, adopting a timid approach can increase losses as the debtor falls into insolvency with no prospect of recovery. Striking the right balance requires judgement
The Liquidity challenge- Liquidity is one of the main challenges facing debtors in distress. Lawyers can assist the financial advisors by reviewing the existing relevant documents to ascertain whether and to what extent the company/group can; (a) incur incremental debt, (b) secure or guarantee the additional debt (c) approach new other / lenders and (d) sell assets (free of collateral) to raise cash
Intercreditor issues– Intercreditor agreements play a vital role in restructuring and lawyers are best placed to advise the various lenders on their rights and options to maximise recovery (q.v. European Directories case)
Creditors’ Committees and Standstills- Creditors’ committees make restructuring more efficient and less costly for both creditors and debtors. Lawyers are best placed to advise on a range of issues, including conflicts of interest and documenting the Creditors committee agreement. Standstill agreements play a valuable role in allowing a debtor and creditors the opportunity to collate information, form a plan of action and implement the restructuring but Lawyers play a key role as there is no standard and each one is tailored to the specific situation
Why & how ESG issues can affect restructurings - in considering restructuring options, ESG has moved up the agenda and is now a key issue for all stakeholders; staff and owners and especially lenders (can they continue to lend and if so at what cost, credit rating impact?)
Financial Restructuring options– the programme considers the main steps in financial restructuring options, Debt for Equity and Debt for Debt swaps along with the pros, cons and other issues to consider. Sticking plaster options (e.g. covenant and amortisation resets are not covered)
Restructuring pathways– the last 12 months have witnessed major innovations in restructuring tools available in Germany, Holland and France which, to some extent, have adopted and, in some cases, surpassed the advantages of English schemes. Meanwhile, the UK introduced Restructuring Plans as another tool to facilitate the restructuring

NOTE: The key legal and commercial issues of Schemes of Arrangement and Restructuring Plans are covered in a separate course: “Schemes of Arrangements”

Because our course trainer has over 30 years of experience in restructurings, this restructuring course is in-depth and has ‘in-the-trenches’ advice to help you better understand.
Our trainer has had exposure to restructuring from a global perspective, having been involved in restructurings in the UK, Europe and Africa.
They have also been involved in restructuring from both the debtor and creditor sides. His career also includes stints in commercial and investment banking, accountancy, tax and law thus providing insight from a wide range of perspectives.
The trainer has provided advanced training to a wide range of blue-chip clients including the EIB, the EBRD, Deloitte, and Robeco.
Through the trainer's role as a Senior Consultant to Grant Thornton and as a Senior Advisor to KPMG Finland, he retains first-hand exposure to restructurings.

Advanced restructuring training is an absolute must for lawyers. They occupy a central role throughout the entire restructuring process, from preparing the distressed debtor for the storms ahead (reviewing D&O insurance), identifying the various restructuring options (e.g. COMI, Chapter 11) and the legal impediments to each, through to advising on the implementation of the restructuring itself (e.g. Prepack, Scheme).

Their role also means they could be called upon to provide advice to all the players in the process; lenders (senior, junior and even differing factions within the same loan), bondholders (insider trading), the debtor, other companies in the group (e.g., can they support the distressed debtor with guarantees or additional loans?), the management of other group companies, financial advisors (do the existing loans permit the debtor or group to raise new debt ) and ancillary staff (e.g., Facility Agents). Our restructuring course provides practical guidance to lawyers on the key legal issues and optimal strategy for each of these parties.

Engaging presenter, challenging material, enough so that we were not losing focus, but not too hard so that we could understand everything. The new terms were explained clearly. I am usually not able to follow a 30-minute training because I lose interest but I was able to be focused for 3h30, twice. That's a first for me!
Very knowledgeable tutor and he shared that knowledge well, tailoring the course to each of the participants. The course was very useful to my restructuring practice and will help me to support clients/borrowers looking to restructure and re-finance.

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