Distressed Debt Investing

Day One

Introduction and course outline
Foundations

• What is Distressed Debt?
• Distressed Debt market background – size, participants, historic returns, composition (corporate, financial institution, sovereign)
• Causes of and early warning signals for corporate financial distress and implications for resolution
• Outcomes for Distressed Debt – remain performing, liquidation or restructuring
• How to evaluated whether Distressed Debt will remain performing or whether impairment will occur:
  - Business assessment products, competition, customers, company
  - Financial assessment – financial statement analysis, forward looking financial modelling, key credit metrics, covenant compliance testing, liquidity analysis and debt service capacity
  - Instrument assessment – covenant, seniority, security and guarantor protection
  - Strategic flexibility – scope for asset sales, secured financing, sale and leaseback transactions and equity raising

Example: New World Resources Plc (Central European hard coal and coke producer)

Workshop: Evaluating whether Norske Skogindustrier ASA’s (Norwegian newsprint and magazine paper producer) senior unsecured bonds will remain performing

Distressed Debt Restructuring

• Approaches
  - Out of court restructurings voluntary and coercive exchanges, holdout problems
  - In court restructurings – pre packaged or pre negotiated vs post petition, process

• Key elements of bankruptcy law – UK, Europe, US
• How to estimate the sustainable level of debt for the business around which the restructuring will be designed
• Business valuation – EBITDA multiple and DCF approaches
• The importance of capital structure, group structure and intercreditor agreements in estimating recovery value
• Complexities arising in group structures spanning several legal jurisdictions

Example: Wind Hellas (Greek mobile operator)

Workshop: How is Codere SA (international gaming company) likely to be restructured and are its senior unsecured bonds a good investment opportunity?

Day Two

Distressed Debt Investing

• Distressed Debt Investing as scenario probabilistic investment
• Sought after characteristics in a distressed debt investment
• Active control vs. passive non control investors
• The interplay of different stakeholder objectives and conflicts – identifying the fulcrum capital and stakeholder tactics
• Due diligence – business, financial, instrument, legal

Example: Countrywide (UK estate agent)

Example: Truvo (European directories business)

Workshop: Are SolarWorld AG (solar power products company) bonds an attractive investment?

Special Topics in Distressed Debt Investing

• Financial Institutions Distressed Debt Investing – how are failed banks and insurance companies restructured and resolved? How will their restructuring and resolution change going forward in a new environment of special resolution regimes, bail in and contingent convertibles?

Example: Anglo Irish Bank (Irish commercial real estate lender)

Example: Groupama SA (French insurance company)

• Sovereign Distressed Debt Investing – dealing with sovereign liquidity and solvency problems; assessing sovereign debt sustainability; the role of politics

Example: Greece Private Sector Involvement

Workshop: Is there a good investment opportunity in Banca Monte Dei Paschi di Siena Spa’s (Italian retail bank) capital structure?