Modelling for Restructuring

£1,800.00 +VAT

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This course can also be presented face to face in-house or via live in-house webinar.

Modelling for Restructuring Course Objectives:

Participants will:

  • Learn why corporates divest or restucture their assets
  • Get an overview of the key considerations and the types of divestitures
  • Attempt the modelling of the above type of divestitures
  • Review models of famous divestitures
  • 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 & split-ups and split-off and carve outs
  • Review financial models regarding the above methodologies
  • Learn about stressed and distressed companies including capital structure analysis &  financing issues
  • Be appraised of using credit ratios to assess credit risk and understanding structural issues
  • Get to grips with assessing refinancing risk, market data, debt terms & conditions including different debt products and which companies realistically have access to them
  • Gain an understanding of insolvency and valuation modelling the link between enterprise value and equity value
  • Be taught about  strategic options, subordination, valuation methodologies including valuation issues
  • Have explained to them recovery values, recognising priority ranking
  • Be taught about the modelling of the debt under restructuring scenarios and Valuation of companies under different options

Modelling for Restructuring Course Content:

DAY ONE

Introduction

  • 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;
    • Initial Public Offering (IPO);
    • 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 – T-Mobile USA divestiture to AT&T

Subsidiary IPO

  • Minority vs. majority stake IPO
  • Size of the offering
  • Cost of listing and disclosure requirements
  • Trading multiples as main valuation benchmark
  • IPO discount pricing

Case study II Citigroup listing of Primerica

Spin-Off & Split-Up

  • Definition, advantages & disadvantages
    • Existing shareholders receive a new share in spun-off entity
  • Adjustment of 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 ITT three-way spin-off in Exelis, Xylem and “old” ITT

Split-Off

  • Definition, advantages & disadvantages
    • Choice between keeping shares in parent company or swapping parent company shares for subsidiary shares
  • Different treatments in over vs. under subscription scenarios
  • Split-off structure impact
  • Balance sheet impact treatment as own shares repurchased
  • EPS accretion (dilution)

Case study IV Kraft split-off of post cereals business

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 V Mead Johnson separation from Bristol-Myers Squibb as a two-step process: equity carve-out followed by split-off

Conclusion

  • Review of all strategic alternatives, structures, balance sheet and EPS impacts

DAY TWO

STRESSED COMPANIES
This module focuses on the analysis of companies that are solvent, but might become distressed should trading or financing circumstances deteriorate. We focus on operating cash flow dynamics (e.g. cash conversion), capital structure issues (e.g. understanding structural issues and assessing refinancing risk) and valuation implications.

Introduction

  • Definition and review of stressed companies
  • Introduction to Dominos Pizza stressed situation

Capital structure analysis

  • Using credit ratios to assess credit risk (e.g. debt / EBITDA, EBITDA / interest)
  • Understanding structural issues
    • Cash flow upstreaming issues and structural subordiantion issue
    • Intercompany debt guarantees, multiple borrowers with joint & several liability, intercompany loans, etc.
  • Assessing refinancing risk
  • Market data (credit “spread” to measure credit risk, bond prices & bond yields, CDS and credit indices), sources and reliability of data

Financing issues

  • Different debt products and which companies realistically have access to them and what creditors look for in re-financing / new financing
  • Debt terms & conditions including credit ratio covenants and the potential to trigger early debt repayment

Case study I – Dominos Pizza – detailed modelling and full credit analysis

DISTRESSED COMPANIES

Objective

This module focuses on the analysis of companies that have become distressed. We focus on reviewing the capital structures and model different alternatives, including liquidation and restruturing the debt package taking into acccunt the perspectives of the different equity and debt holders.

Insolvency and Valuation

  • Balance sheet involvency
  • Cash flow insolvency
  • Link between Entreprise Value and Equity Value
    • Equity value is zero and debt trades below book values

Subordination

  • Secured vs. unsecured
  • Contractual
  • Structural
  • Guarantees

Strategic Options

  • Raising capital
  • Debt restructuring (out-of-courts)
  • Debt restructuring (in-court)
  • Asset sales
  • Sell the business
  • Liquidation

Valuation Methodologies

  • Liquidation vs. going concern
  • Liquidation value
    • Recovery rate
  • Going concern
    • EBITDA multiples

Valuation issues

  • Limited time for due diligence
  • Usefulness of historical record as a proxy for the future
  • Management issues

DAY THREE

Recovery Values

  • 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

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

Priority Ranking

  • Contractual subordination
    • Senior, subordinated, preferred and equity
  • Security
  • Structural subordination
    • Borrowing entity
    • Maturity
    • Guarantees

Distressed Companies – Financial Modelling

  • Workout of Schefenacker, a German auto-parts manufactuer
  • Valuation of companies under different options
    • Going concern, liquidation and restructuring
  • Modelling of the debt under restructuring scenarios
    • Debt forgiveness, payment extensions, debt-equity swaps

Case study III Detailed modelling of Schefenacker workout

Background of the Trainer:

The trainer has more than 20 years of experience in accounting and investment banking at leading firms and is an experienced financial trainer who has delivered courses for financial institutions in the City of London 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, Financial Risks, both in English and French.

Modelling for Restructuring Course Summary:

Day one of the Modelling for Restructuring course covers the main divestiture options available to a firm as a going concern.

We focus on private market sale, Initial Public Offering (IPO), spin-off, split-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 transactions:

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

Day two and three of the Modelling for Restructuring course focuses on modelling restructuring for stressed and distressed companies.

First, we analyse stressed corporate from a credit analysis perspective and model the debt payment and key credit ratios. We then look at gone-concern scenarios and review distressed companies. We explore and model the steps facing distressed corporates, including debt restructuring packages, in-court and out-of-court settlements and liquidation. We look at the perspective of distressed corporates, debt holders and creditors.

At the end of the Modelling for Restructuring course, the participants will be able to:

  • Explain the differences between a stressed and a distressed company
  • Understand the valuation of a distressed company
  • Model the various options for the debt holders and creditors of a distressed company
  • Model the pecking order of debt repayment in a liquidation

Each participant should bring a laptop to the course to facilitate modelling work.

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25-27 March 2019, 21-23 October 2019