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Euromoney Learning Solutions

Early Warning Signals, Distressed Debt & Restructuring

Sep 24—27, 2019
4 days
USD 4995
USD 1248 per day
Nov 25—28, 2019
4 days
London, United Kingdom
GBP 4195 ≈USD 5150
GBP 1048 per day

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Discover the key identifiers of distressed debt & restructuring

Many lending institutions across the world are still burdened with a high level of actual or potential non-performing loans or other credit exposures. In these situations, lenders need to maximize their recovery rates and optimize their long term returns, subject to prevailing insolvency laws, the lender’s own capital situation and sometimes to the wider interests of other stakeholders in the firm. Specialist knowledge is required to analyse the cause of the borrower’s problems and to design and implement an optimal restructuring solution. These can involve both operational and capital restructurings, including debt for debt swaps, full or partial debt for equity swaps, discounted debt buybacks, equity cures, shareholder loans etc. In some cases, the best outcome may be full or partial asset liquidation. Cash flow forecasting is key to creating an optimal debt restructuring solution and the course covers distressed debt restructuring solutions in Excel. Case studies focus on a range of sectors including property, retail, infrastructure, house building, media and industrial


The teaching methodology used on this course combines formal theoretical instruction with frequent reference to market data, use of exercises and case studies. Case studies are based on real situations and are designed to help delegates implement new valuation techniques and to learn from empirical experience. Delegates are expected to know how to use Excel at a basic level and should bring a personal computer with them. The course is intended to be practical and interactive, with delegates encouraged to ask questions. The techniques taught to delegates are intended to be of immediate practical use in the workplace.


Day 1

Setting the scene

  • Definitions of NPLs and distressed debt
  • Overview of recent trends in default and distress rates

Causes of distress and common early warning signs

  • Causes of distress
    • Is it a liquidity problem, a leverage problem or a viability problem?
    • Sovereign, macro-economic, cyclicality
    • Industry/market specific challenges and deterioration
    • Firm specific – management, operations, financial
  • Warning signs of distress
    • Market based signs
    • Operational signs
    • Cashflow signs - prospective and actual liquidity
    • Balance sheet signs
    • Speculative grade liquidity ratings

Case studies: looking for early warning signs of distress in economic data, industry reports and firms across a range of sectors

Analysing the income statement of distressed firms

  • Understanding the sources and sustainability of revenues and earnings
  • Can the firm generate in future sufficient earnings to service debt?
  • How the firm can hide negative trends – identifying creative accounting issues
  • Adjusting for exceptionals, non-core earnings, discontinued items, operating leases, NCI and joint ventures
  • What constitutes finance charges, incl charges for derivatives and quasi-debt?
  • Calculating adjusted margins, EBITDAR and EBITDA interest cover
  • Analysing operating leverage and the scope for cost cuts to improve earnings

Case study: analysing the early warning signs in the income statements of retailers, oil firms and industrial firms Case study: calculating underlying earnings of deteriorating and weak firms

Analysing the cashflow statement of distressed firms

  • Identifying warning signs of cashflow shortfalls
  • Can the firm generate sufficient cash to service interest and meet other obligations?
  • Forecasting cash available for debt repayment and cash available for debt service
  • Payback and debt service analysis
  • Identifying new sources of cash for debt service
  • Analysing the scope for improving operating cashflow and for reducing NWC and other investment spending
  • Cashflow vs asset based lending
  • Analyzing high growth firms that over-trade and run out of cash

Case study: analyzing the cashflow statements of firms in distress and in default

Day 2

Analysing the balance sheet of distressed firms

  • The nature of the asset base – is the firm worth more as a going concern or liquidated?
  • Balance sheet values versus market and liquidation values
  • Structural subordination and double leverage
  • Consolidation policies – are debt/costs/losses hidden in off balance sheet vehicles?
  • What constitutes debt – including derivatives, pensions, quasi-debt and off balance sheet liabilities
  • Adjusting for factored receivables, operating leases, contingent liabilities
  • What other liabilities might crystalise in a default?
  • ROIC analysis and ROIC vs WACC
  • Liquidity analysis
  • Analysing the scope for new equity issuance
  • Z-scores
  • Ratio analysis – leverage, liquidity, asset coverage, working capital, ROIC, ROE, asset turnover

Case study: analyzing the balance sheet of weak and distressed firms

Initial reactions to early warning signs of distress

  • Role of the Board, regulators, stock exchanges, trustees
  • ECB Guidance, March 2017
  • Stock exchange disclosures for listed entities in distress
  • Acting on early warning signs if there is no covenant breach
  • Advantages and disadvantages of calling an event of default
  • Does the company need additional funding?
  • Should the lender(s) give more time and/or lend more money?
  • Forebearance agreements and debt moratorium
  • Rescue vs liquidation, now or later
  • Assessing recovery rates
  • Using CDS to hedge credit exposure

Standstill agreements

  • The standstill agreement – typical clauses
  • Who to include in a standstill
  • Company finance availability in standstill
  • Considerations for entering a standstill
  • Steering committees; formal versus informal: rewards, risks and indemnities
  • Use and role of professional advisers

Day 3

Structural issues affecting the work-out

  • Issuer group structure
  • Impact of the creditworthiness of HoldCos, OpCos and off-balance sheet entities
  • Special purpose vehicles and bankruptcy remote entities
  • Will/can the parent support the OpCo?
  • Senior claims versus subordinated claims
  • Collateral and security considerations
  • The impact of guarantees, indemnities and other credit enhancements

Option 1: Operational restructuring for distressed entities

  • Restructuring objectives
  • Rescuing a business; halting decline and creating stability
  • Management – does the firm need new or additional directors?
  • Strategic analysis and new strategy
  • Reviewing the business and external reports
  • How to maximise cashflow generation

Option 2: New equity

  • Background considerations to capital restructurings
  • Equity injection
  • Shareholder loan
  • Equity cure

Option 3: Revised debt terms

  • Amendment of financing terms - extended maturities, deferred amortisation, PIK, PIK toggle, cash sweeps
  • Evaluating the potential returns for revised financing terms - additional security, equity kicker/warrants, convertible loans, ratcheting exit fee, compounded PIK returns

Option 4: Debt restructuring/write-offs

  • Haircuts - debt for debt swap, discounted debt buyback, debt write-off with full or partial debt for equity swap, lenders sell debt at a discount
  • Assessing debt for equity swaps, executing the transaction and exit strategies
  • Allocating equity to lenders and new investors in a debt for equity swap
  • Types of equity instrument, structuring and valuing
  • Tax, legal and regulatory concerns for debt/equity swaps
  • Other options - engage suppliers in rthe restructuring, cashflow ring-fencing
  • Restructuring and M&A activity
  • Why restructurings do not always work

Case studies Examples of distressed firms that have implemented these solutions; working out optimal solutions for distressed firms

Modelling for distressed credits in Excel

  • Introduction to comprehensive forecasting model
  • Forecasting assumptions for the IS, CF and BS
  • What are the key earnings and cashflow drivers for the distressed entity?
  • Tools and key indicators to help with forecasting for distressed firms
  • Covenants - setting revised, cashflow-based covenants and forecasting headroom
  • Structuring cashflow sweeps
  • Scenario analysis – what is required for the firm to turn-around? What could trigger further performance short-falls?
  • Use of liquidation models to assess each stakeholder’s economic interest

Case study: Modelling distressed firms and restructuring solutions in Excel, including different scenarios

Day 4

Valuation of the firm and its assets

  • Valuing the firm on a break up basis or a going concern basis
  • DCF, multiples and NAV
  • Current value versus future value
  • Where does the value break?
  • Implications for enforcement action and recovery rates of unsecured and subordinated tranches

Other considerations affecting the work-out

  • Different types of rescues under English Law
  • Pre-packs
  • Dealing with holdouts, cram-downs
  • Hardening periods
  • COMI
  • Issuer group structure
  • Will/can the parent support the OpCo?
  • The impact of guarantees, indemnities and other credit enhancements
  • Special purpose vehicles and bankruptcy remote entities   Different creditor classes

  • Dealing with other banks - multi-creditor workouts

  • The London Approach and InSol 8

  • Bank groups and bond syndicates and their inter-action with borrowers

  • Individual actions with permission of other debt providers

  • Who has authority to act in syndications or lender groups

  • Conflicting interests among participants in group credits

  • Restructuring uni-tranche debt

  • Preferential claims and ranking of claims

Collateral and security enforcement

  • Rights of subordinated and non-secured creditors
  • What happens to collateral value during a default situation?
  • Maintaining collateral value
  • Can collateral have a negative value?

Monitoring distressed and non-performing debt

  • Agreeing forecasts with the borrower
  • Reporting requirements for the borrower
  • Agreeing new Heads of Terms with the borrower
  • Setting covenants and covenant testing
  • Board seats and management influence

Who should attend

  • Bank credit officers
  • Investment bankers
  • Management consultants
  • Bond credit analysts
  • Fixed income/credit traders
  • Fixed income/credit sales people
  • Fund managers
  • Treasurers
  • Compliance officers
  • Financial decision makers in corporations


Adrian brings over 30 years’ experience in banking and financial services to a highly interactive approach to training & facilitating learning interventions. Key roles in his financial career included: VP Loan Workout for Lloyds International Corp., New York; Senior Consultant and Team Leader...


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Next dates

Sep 24—27, 2019
4 days
USD 4995
USD 1248 per day
Nov 25—28, 2019
4 days
London, United Kingdom
GBP 4195 ≈USD 5150
GBP 1048 per day

How it works

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