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Modelling for Corporate Restructuring

A Practitioner’s guide

Green Finance Training Course

A two-day course

Video Overview

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  • Practical course by an experienced trainer, an M&A banker with years of divestitures experience in Europe and the Middle East
  • Comprehensive valuation material covering all different types of divestitures and restructuring
  • Step-by-step, easy to follow Excel models illustrating key forms of divestitures and corporate restructuring
  • Delegates encouraged to bring their own divestiture and restructuring modelling challenges to ‘solve’ during the session

  • Be introduced to why corporates restructure their assets both for going concern and gone concern scenarios
  • Get an overview of the key considerations and the types of divestitures
  • Review models of famous divestitures and corporate restructuring
  • Have explained to them the private market sale
  • Master the concept of a subsidiary IPO including the costs of listing and IPO discount pricing
  • Gain an understanding of spin-offs and equity carve-outs
  • Understand the valuation of a distressed company
  • Model the various options for the debt holders and creditors of a distressed company
  • Model the priority of debt repayment in a liquidation and a debt restructuring including debt forgiveness, debt-to-equity swaps

Going Concern - Disposals

  • Why do corporates divest or restructure their assets?
  • Review of key considerations
    • Strategic;
    • Liquidity;
    • Valuation;
    • Tax;
    • Regulatory and anti-competition;
  • Promoted by management, sometimes pushed for by shareholders
  • Types of divestitures
    • Private sale;
    • Spin-off/split-up;
    • Split-off;
    • Carve-out.
  • Financial analysis performed
    • Structural impact;
    • Balance sheet deconsolidation;
    • Earnings Per Share (EPS) accretion (dilution) and relative P/Es.

Private Market Sale

  • Structural considerations
    • Pre-deal and post-deal structures
  • Balance sheet deconsolidation
  • Tax impact of deconsolidation
  • EPS accretion (dilution)
  • Reinvesting the sales proceeds

Case study I – Participants model a telecom company’s disposal of its foreign subsidiary. This is a multi-billion cash and share transaction. The participants focus on the balance sheet impact and review the post-transaction leverage ratio impact.

Case study II – Participants analyse the EPS impact for a listed parent of the proceeds of its subsidiary under different reinvestment scenario (de-leveraging, operational investment, share buy-back, special dividend, etc).

Spin-Off

  • Definition, advantages & disadvantages
    • Existing shareholders receive a new share in spin-off entity
  • Adjustment of the capital structure prior to spin-off
  • Best executed with traded stock for valuation purposes
  • Ownership structure impact
  • Balance sheet impact - treatment as dividend-in-kind
  • EPS accretion (dilution)
  • Split-up similar to spin-off except old parent dissolved

Case study III – Participants model a three-way spin-off of a multinational engineering company. This includes a pre-transaction leveraging and intra-group dividend payment followed by the deconsolidation modelling of its two subsidiaries

Equity Carve-Out

  • Definition, advantages & disadvantages
    • Usually initial step of a two-step spin-off and split-off
    • IPO of subsidiary shares (primary/secondary shares)
  • Financial structures typically adjusted prior to the offering
  • Carve-out structure impact
  • Balance sheet impact treatment and non-controlling interests
  • EPS accretion (dilution)

Case study IV – Participants model an equity carve-out: the P&L and balance sheet impact through the creation of a non-controlled interest position

Distressed and Insolvency

  • Distressed vs. insolvency
  • Distressed refers to the situation where the company is in the hands of the creditors
  • Insolvency is a legal definition
    • Balance sheet insolvency
    • Cash flow insolvency
  • The link between Enterprise Value and debt value in a distressed scenario
    • Equity value is zero and debt trades below book values

Strategic Options for Distressed Companies

  • Raising capital (unlikely to be available)
  • Asset sales or partial disposal
  • Sell the business as a whole (pre-restructuring at discount)
  • Debt restructuring (out-of-courts)
  • Debt restructuring (in-court)
  • Liquidation

Valuation Methodologies

  • Liquidation vs. going concern
  • Liquidation value
    • Recovery rate
  • Going concern
    • EBITDA multiples
  • Restructuring analysis
    • Cash flow and debt waterfall modelling with RCF, mandatory and accelerated repayment, cash vs. PIK interests

Liquidation Value

  • Net asset value methodology
  • Recovery rate (RR) and loss-given default (LGD)
    • Asset liquidation value usually estimated as a % of book value
    • Most liquid assets (cash and marketable securities): 100% recovery rate
    • For most assets only a fraction of book value recoverable
  • Liquidation fees, dismantling and decommissioning costs
  • Assessing payment priority of assets liquidated
  • Contractual subordination
    • Secured vs. unsecured
    • Senior, subordinated, preferred and equity
  • Structural subordination
    • Group-level or by borrowing entity
    • Maturity and guarantees

Case Study V: Modelling of different recovery values of an industrial company

Case Study VI: Modelling of payment priorities under different subordination scenarios

Debt Restructuring Modelling

  • Modelling of the debt package under different restructuring scenarios
    • Debt capacity and cash flow repayment capabilities
    • Debt forgiveness
    • Payment extensions
    • Debt-equity swaps

Case study VII – Detailed modelling, valuation and role-play of a distressed industrial company under different scenarios: sale as a going concern, liquidation value and modelling of debt restructuring

The trainer has more than 20 years of experience in accounting and investment banking. He is an experienced financial trainer who has delivered courses for leading financial institutions and central banks in the City of London, Wall Street and around the world in the areas of Corporate Finance, Valuation (Industrials and Banks), Financial Modelling, M&A, LBO, Financial Accounting, Capital Markets, Bank Regulatory Capital and Financial Risks, both in English and French.

He began his career as a Credit Analyst at Banque Continentale in Luxembourg, where he conducted credit analyses for short and long-term credits and participation in loan syndications. He then worked as a Senior Auditor for Deloitte & Touche in Luxembourg companies, auditing and preparing financial statements for a variety of banks, insurance, investment funds, venture capital and commercial companies.

He continued his career in Investment Banking at Citigroup (ex-Salomon Smith Barney) in London and New York where he worked on a variety of M&A, LBO and debt offerings, mainly for financial services clients. He was involved in the EUR 20 billion public offer of Crédit Lyonnais by Crédit Agricole, one of the largest European banking transactions.

He then worked as a Vice-President in the internal M&A department of Barclays Bank in London where his experience included the acquisition of ABSA for US$ 5 billion, one of the leading South African banks, the purchase of ING Private Banking in France and the failed acquisition of Banco Atlantico in Spain.

Recently, he was a Director in the Investment Banking department of Commercial International Bank (CIB), the largest non-government bank in Egypt, where he has successfully completed several transactions including two sell-side M&A deals, one follow-on equity offering and a delisting. He worked extensively with leading sovereign wealth funds, private equity firms and prominent families in the UAE, Qatar, Kuwait and Saudi Arabia.

The trainer is currently a senior advisor to an M&A practice based in Paris and focuses on buy-side and sell-side transactions, mainly in the technology sector.

The trainer has an MBA in Finance from the Kellogg School of Management in Chicago and a Bachelor of Science in Finance from Groupe INSEEC (“International Management Institute of Paris”). He also holds « Series 7 » and « Series 63 » US licenses.

This course covers the main divestiture options available to a firm as a going concern.

We focus on the private market sale, Initial Public Offering (IPO), spin-off and equity carve-out.  The motives, pros and cons of each structure are explained in detail in light of precedent transactions. We also discuss financial impact including balance sheet deconsolidation and EPS accretion (dilution). Spreadsheet work and real divestiture cases are used throughout the session.

Much of the course work involves Excel modelling and analysis, equipping participants with the tools to analyse divestiture and restructuring transactions:

  • Building up from partially-complete models on real case scenarios
  • Running scenarios, iterating and optimising

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