The aim of the two-day workshop is to provide participants with the skills to identify key value drivers and distinguish different valuation methods and their impact on the value of distressed companies. The focus is on building the knowledge and skills needed to estimate the potential recovery of various classes of debt. This is a highly interactive workshop where exercises and case studies are used to illustrate key learning points.
Key Learning Outcomes:
- Use a structured approach to ascribe value to public and private distressed companies
- Select and apply the most appropriate valuation techniques to companies and sectors and appreciate how different valuation techniques might influence the ultimate valuation
- Understand how the key variables in both comparable and discounted cash flow valuation models can be applied to listed and unlisted companies
- Appreciate the available options to lenders / investors, benchmarking likely recovery against other alternatives and the current market prices of the company's debt, where applicable.
A brief overview of the equity valuation framework which is used to determine the likely recovery for creditors.
- A structured framework to equity valuation: value parameters, value drivers, corporate strategy, funding strategy, valuation
- Distinguishing features of distressed companies; what are the causes of distress?
- Market conditions and their influence on distressed valuations
- A first stab at understanding the capital structure
- Not all jurisdictions are equal: any impact on valuations?
- Exercise / Illustration case study: identify the true purpose of borrowing.
Develop an understanding of factors which drive management and shareholder decisions
- Shareholders, management and other stakeholders
- Cost of Capital (WACC): define, advantages, disadvantages and alternatives
- Factors to consider when determining cost of equity and cost of debt for distressed entities
- Exercise / Illustration case study: identify the key components and calculate the WACC.
Understand the key cash flow drivers of a business and anticipate its funding needs
- Macro and sector drivers: industry considerations and critical success factors
- Company specific drivers: changes required to the operating model to address operational problems and establish a sustainable EBITDA
- Overall operational, investment and other financial drivers required to sustain the business.
Does the current business strategy fit the (distressed) company?
- Divestments or Break up strategies.
Assess the impact of the funding structure on the recovery values
- Legal waterfalls and intercreditor agreements
- Pensions, leases and other commitments that may add to liabilities and thus impact the recovery
- Does new money requirements change the value of the company?
- Bankruptcy regimes and COMI
- Exercise / Illustration case study.
Methods used for valuing a company at the time of distress
- Overview of valuation methods
- Multiples: appropriate peers and multiples for distressed companies
- Valuing any non-operating businesses
- Discounted cash flow valuations: models, assumptions and output
- Alternative methods: break-up or liquidation values, adjusted present values
- Exercise / Illustration case study: calculate the valuation of the company using different methods.
Potential Recovery for Creditors
The relative position of each class of creditors and how the recovery may be affected by the financing structure
- The waterfalls revisited: 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
- Impact / influence of distressed funds on restructuring alternatives
- Exercise / Illustration case study: establish the waterfall and rate of recovery for different classes of debt holders.
Who should attend
This course is suitable for individuals involved in the analysis/investment of distressed debt assets or debt restructurings and workout; including analysts in investment banking, buy/sell side credit, hedge fund and private equity firms, etc.