Certificate in Restructuring

Fitch Learning

How long?

  • 5 days
  • online

Fitch Learning


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Who should attend

Credit risk managers, bond and mezzanine and equity investors, lending bankers, and other finance professionals working in credit risk management and problem loan areas, including restructuring, work-outs and special care units.

About the course

This certification is comprised of two courses: Advanced Corporate Credit - Warning Signals and Restructuring Problem Credits.

The aim of this five day certificate programme is to refine the analytic skills needed to appropriately identify and assess credit deterioration and select the most suitable restructuring solution. It will also help participants to determine a company’s ability to improve performance or repair the existing capital structure. This certificate programme will draw upon lessons learned from historical credit crises to determine sustainable levels of indebtedness, the robustness of deal structures, and what actions can be taken to limit losses. Current trends in the marketplace will be examined in order to highlight any potential risk trends.

Key Learning Outcomes:

  • Identify companies most susceptible to credit deterioration and the factors that will impact the likelihood of default or the need for distressed exchange of debt
  • Review a company’s funding structure in context of its sector and operating performance to determine whether the existing structure will effectively mitigate credit deterioration or the extent to which it has the potential to reduce lenders’ recovery rates
  • Appreciate the importance of safeguards to enable early intervention in deteriorating credits and the correlation between early intervention and ultimate recovery rates in distressed credits
  • Understand the role of covenants in credit management and crisis situations: covenant structures and the implications of breaches, waivers and amendments on the company and on all classes of creditors
  • Understand the process for managing exposures to a company in distress
  • Evaluate the business and operational decisions required by the company in order to place its business on a more solid foundation
  • Assess the available options to lenders/investors, benchmarking likely recovery against other alternatives and the current market price of the company’s debt, where applicable
  • Identify the restructuring alternatives, evaluate the possible choices and select the most appropriate restructuring solution, exit and/or workout options for companies in distressed situations

Analytic Overview

The goal of this section is to recognise early warning signals by applying a structured approach to evaluate credit risk.

Early warning signals

  • Symptoms of a deteriorating credit: financial, non-financial and market indicators
  • Credit migration and its impact on pricing and market access during turbulent times
  • Weakened versus problem credits
  • Current market conditions: impact of the credit crunch and economic downturn, default and recovery rates

Structured analytic approach

  • Application of the four-step approach to credit: exposing credits susceptible to deterioration (purpose, payback, risks and structure)
  • Risks to repayment: current market conditions and their impact on risk assessment
  • Exercise: identify the true purpose of borrowing and expected source of repayment in order to anticipate the key risks to repayment

Themes of Distress

This section aims to identify the themes of distress. The action(s) taken by the companies and/or lenders are explored through discussion and many real life examples of actual or potential distress. The focus is on concluding upon lessons learned in order to avoid future problems.

Macro-economic and sector indicators

  • Economic cyclicality in various markets and the sometimes disastrous effect on company performance
  • Vulnerability to foreign exchange movements and the effect of sudden fluctuations
  • Exposure to commodity price instability and the effect on profitability and cash flow
  • Exercise: evaluate a company’s vulnerability to foreign exchange and commodity price fluctuations
  • Country exposure: sovereign weakness, government intervention or cessation of government support
  • Exercise: identify the key measures of the strength of a sovereign entity

Challenged business models

  • Lack of sufficient scale in an increasing competitive environment
  • Excessive growth with inability to finance externally
  • Timing of expansion
  • Higher operating leverage when competitors are leaner operators
  • Dependency on a small numbers of customers and/or suppliers
  • Illustration case study: identify early indicators of deteriorating performance in earnings, asset management and cash flow

Disproportionate leverage

  • Excessive leverage at the top of the economic cycle
  • Debt servicing capability: anticipating the problem
  • New money needed to restructure or recapitalise
  • Exercise: assess which companies are vulnerable to credit deterioration due to inappropriate funding structures

Refinancing risk

  • Importance of maintenance of liquidity and payment readiness in turbulent financial markets
  • Relying on ‘committed’ bank facilities as sole source of liquidity
  • Refinancing challenges: longer term debt, equity injection, alternative sources of funding
  • Exercise: evaluate a company’s liquidity and identify strategies to improve a stressed situation

Poor loan structure and choice of financial instruments

  • Ineffective financial and non-financial covenants
  • Potential covenant breaches and actions when breached
  • Excessive off balance sheet obligations
  • Hybrid financial instruments or complex derivatives
  • Debt denominated in a 'hard currency' while domestic currency weakens
  • Exercise: identify risks in a company’s debt structure

Management and ownership strategy and behaviour

  • Poor management decisions and risk management
  • Deficient financial disclosure or reporting
  • Complex group structures and cross shareholdings
  • Lack of corporate governance, control of executive management
  • Failing of succession planning, management style
  • Lack of integrity: behaviour, relationships, social responsibility
  • Inability of shareholder to support during turbulent times
  • Exercise: assessment management strength and weaknesses and shareholder structure/support

Crossing the Threshold: Triggers for Action

This segment focuses on the most common events that trigger corporate distress and the need to take action.

*Cash shortfalls and liquidity problems *

  • Define and assess liquidity
  • Quantify the degree of refinancing risk and the potential challenges and costs of raising new capital
  • Reliance on existing ‘committed’ bank facilities or cash as the sole source of liquidity

Covenant breaches

  • Characteristics of effective covenants
  • Financial vs. non-financial covenants: ability to quantify and assess the degree of protection
  • Exercise: identify alternatives when companies face refinancing problems

Debt Structure

This section will evaluate the strengths and weaknesses of debt structures in protecting lenders / investors when a company reaches crisis point.

  • Purpose: Who is the borrower? Where are the assets and the cash-flows?
  • Ranking: structural subordination concerns for holding company lenders; challenges of hold co/opco debt restructurings and multiple tranches of debt
  • What protection has been negotiated; strong and weak forms of protection
  • Monitoring credit indicators: deciding that the credit is indeed ‘heading south’ and at which point watch-listing is required
  • Evaluating exit options ahead of covenant breaching or other events of default
  • Covenants: predictive qualities of standard leverage loan covenants

Crisis Management

The goal of this segment is to understand the process for managing exposures to a company in distress: the short-term crisis management and the medium term business revisions required to manage the situation.

Triggers to distress

  • Covenant breach: characteristics of effective covenants
  • Liquidity crunch: refinancing challenges, other calls on liquidity
  • Insolvent trading: defining insolvency – balance sheet and cash-flow methodologies, differences by jurisdiction

Managing crisis

  • Response options to covenant breach: differences between large and small companies
  • Stabilizing the financing situation: standstill agreement, covenant waiver
  • Majority decision issues
  • Appointing advisers: role of lead bankers, accountants, lawyers and business advisers
  • Cash management: ensuring ability to continue trading, headroom in the revolving credit facilities, need for new money
  • Establishing and certifying the company’s going concern status

Legal framework

  • Insolvency regimes: responsibility of directors, judicial oversight
  • Contrasting debtor vs. creditor friendly regimes
  • Brief overview of EU regulation on Insolvency Proceedings: establishing center of main interests (COMI), main and secondary proceedings
  • Pre-pack sales as a means to maximizing value: associated benefits and risks
  • US models: Chapter 11 (reorganization) and Chapter 7 (liquidation)
  • Parties to a legal restructuring: trustee, secured, unsecured and preferred creditors

Remedial Business Plan

The goal of this segment is to evaluate the business and operational decisions required by the company in order to place its business on a more solid foundation.

  • Required changes to operating model to address the critical success factors of the industry and internal operational problems
  • Quantifying performance: establishing and sensitizing a sustainable EBITDA run rate
  • Obstacles to restructuring: legal, social, regulatory, operational and financing challenges that arise when a company is in distress
  • ## Debt Restructuring Alternatives

The goal of this segment is to evaluate the available options, benchmarking likely recovery against other alternatives and the current market price of the company’s debt, where applicable.

Exit options

  • Sale of exposure: secondary loan market
  • Hedging of exposure: CDS, credit insurance

Payback options

  • Assessing a viable level of debt: forecasting and quantifying payback from different sources
    • Cash-flow payback: present value of sensitized cash-flows
    • Refinance – debt: evaluating sustainable levels of debt for refinancing at maturity
    • Refinance – equity: secondary equity issues – assessing appropriate price and discount requirements
    • Asset sales: downsizing of operating assets; sale of business, monetizing assets (e.g. factoring, securitisation, sale and leaseback)

Quantifying potential recovery for creditors

  • Establishing the relative claims and negotiating positions of various creditors
  • Stakeholders with special negotiating positions: employees, suppliers, pension deficits, regulators, leaseholders, bonding lines, shareholders etc
  • Situations where claims are not pro-rata: structural subordination, cross guarantees, blocking powers of special interests (e.g. supplier)
  • Impact/influence of distressed/vulture funds on restructuring alternatives
  • Cram down rights: forcing confirmation of a plan over the objections of dissenting classes e.g. shareholders with voting rights

Break-up and liquidation options

  • Liquidation: estimating potential recovery value from assets for different classes of creditors in the event of liquidation
  • Going concern valuations: using discounted cash-flows or EBITDA multiples to assess the value of subsidiaries and the group

Debt/equity swaps

  • Unsustainable levels of debt requiring debt forgiveness and/or conversion to equity
  • Valuing the equity in a distressed situation
  • Allocating equity according to the relative claims of creditors and existing shareholders

Videos and materials

Certificate in Restructuring at Fitch Learning

From  GBP 4 595$5,495
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Coursalytics is an independent platform to find, compare, and book executive courses. Coursalytics is not endorsed by, sponsored by, or otherwise affiliated with any business school or university.

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