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About the course
The purpose of this course is to identify the key analytic, structuring and restructuring lessons to be learned from deteriorating/failed credits. This is a highly interactive course where case studies and exercises are used to reinforce key learning points.
Key Learning Outcomes:
- Understand the role of covenants in credit management and crisis situations
- Understand the process for managing exposures to a company in distress
- Discuss the business and operational decisions required in order to place its business on a more solid foundation
- Assess the available options to lenders / investors, compare 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.
Introduction / revisit the four-step analytical approach and evaluate the strengths and weaknesses of debt structures in protecting lenders / investors when a company reaches crisis point.
- Purpose: identify the borrower and where the assets and cash flow are
- Risks: macro, sector, business and financial, management and owners
- Debt profile: amount, currency, tenor, drawdown and repayment
- Ranking: legal, structural, and effective
- Covenants: predictive qualities of standard leverage loan covenants
- Credit pricing and recovery rates.
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
Liquidity crunch / Refinancing difficulty
- Defining insolvency
- Jurisdictional considerations
Exercise: Covenant breach and actions taken
- Management response to covenant breaches
- Exercise: Exchange offers
- Options for lenders
- Potential parties to a restructuring
- Appointment of external advisors
- Cash management
- Majority decision issues
- Establish and certify the company's going concern status
- Responsibility of directors
- Recovery rates
US models: Chapter 11 (reorganisation) and Chapter 7 (liquidation)
Exercise: Impact of Chapter 11 on Global companies
Overview of EU Insolvency Regulation
- Establishing centre of main interest (COMI) and secondary proceedings
- Summary of insolvency procedures in UK, Germany, France, Spain
Exercise: Jurisdiction selection for insolvency proceedings.
Remedial Business Plan
Evaluate the key business and operational decisions required by the company in order to place the business on a more solid foundation.
- Identify underlying cause for the need to restructure
- Over indebtedness
- Operational issues
- Determine a sustainable EBITDA
- Assess viable level of debt
- Overview of valuation methods: multiples, discounted cash flow or asset valuation
- Obstacles to restructuring.
Debt Restructuring Alternatives
- Examine the available options, compare likely recovery against other alternatives and the current market price of the company's debt, where applicable
Exit Options for the Lender
- Sale of exposure, hedge (CDS, credit insurance)
- Negotiate: waive covenants, debt / equity swap, debt / debt swap, amend and extend
- Accelerate: enforce, bankruptcy filing
- Cost of financial distress
- Cyclicality on firm values
Illustration Case Study:
Identify the pros and cons of the restructuring options presented.
Quantify potential recovery for creditors
- Relative claims and negotiating positions creditors
- Stakeholders with special negotiating positions
- Claims are not pro-rata
- Intercreditor agreements and terms
- 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.
Final Case Study:
Participants will work in groups to apply the key concepts learned during the two-day workshop and apply these to a real restructuring situation.
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.