Debt Finance, Valuation of Distressed Debt and Restructuring

Agenda Program
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Prague, NH Hotel Prague
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Debt Funding Tools and Techniques
Corporate Bonds and Leveraged Debt
Credit Ratings and Debt Capacity
The Lender's / Investors' Perspective
Approaches for Valuation of Distressed Debt
Catalyst and Triggers for Restructuring
Restructuring Options and Issues
The purpose of this course is to give you a good understanding of various debt funding tools and techniques. We start with a general introduction to the concepts of capital structure from both a theoretical and practical approach.

After this, we demonstrate the various debt funding options through the prism of the Board's perspective and the impact these funding options would have on shareholder (i.e. equity) value as it is impossible to consider debt funding instruments in isolation of the impact these might have on the equity.

The main body of the programme will focus on the various debt funding alternatives, how and where these might be applied, the pros and cons of each option and the typical terms and conditions which are currently available. At the same time other, relevant issues will also be addressed such as credit ratings, debt capacity, corporate strategy, etc.

We explore practical issues, options and tactics which will face parties in leveraged and unleveraged deals and, drawing on the trainer's experience, offers a practical template on how to respond to the issues they are likely to face.

We then take a closer look at the valuation of a distressed debt security. We show how the valuation of a distressed debt security requires significant judgment. We also explain many factors which play an important role in the valuation process, including the reason for distress, the status of distress and placement of the distressed security within the capital structure of the entity.

Finally, we look at the debt restructurings and discuss the various triggers for restructuring, restructuring options and methods, and issues that arise from the business nature of the debt restructuring.

The programme is aimed at lenders, sponsors, lawyers, accountants and other advisers involved in this sector, management and other professions (investment advisers) operating in the European environment who require a greater insight into the key issues which arise in general debt finance.

Program of the seminar: Debt Finance, Valuation of Distressed Debt and Restructuring

The seminar timetable follows Central European Time (CET).

Introduction to the Theory of Capital Structure

  • Theory of capital structure
  • Gearing generally
    • Capital vs income gearing
    • Impact of gearing – the good and the bad
  • Interaction of Gearing with Corporate strategy
  • Leveraged (High yield) vs. Non-Leveraged (Investment Grade) deals
  • Overview of funding sources

Corporate Bonds

  • Characteristics of Bonds generally
  • Types of bonds - FRNS vs Fixed rate vs Index-linked
  • Typical terms and conditions - Tenor, amortisation
  • Issuance process overview
  • Key sections of the prospectus
  • Approach to pricing
  • Bonds vs. Loans - pros and cons

Leveraged Debt (Sponsored & Sponsor-less)

  • Key drivers for sponsors in LBOs (value creation model – new vs old)
  • Spectrum of Financing Instruments in leveraged deals
  • Key Structuring issues
  • The 3 key structuring parameters
  • First Lien Debt - Key terms, conditions, pricing & structures
    • Senior Loans
    • Senior Notes/ FRNs
  • Second Lien - Key terms, conditions, pricing & structures
  • Mezzanine - Key terms, conditions, pricing & structures
    • Warranted vs Warrantless
    • Other key issues
  • High yield Bonds - Key terms, conditions, pricing & structures
  • PIK loans and Notes - Key terms, conditions, pricing & structures
  • Equity in Leveraged deals

Hybrid Securities (Convertible Securities)

  • Types of Hybrid securities
  • Rationale for issuance
  • Pros and Cons
  • Convertible Bonds – typical terms and pricing
  • Convertible Preference shares
  • Typical terms and conditions and features - Redeemable, Participating, cumulative
  • Typical risks - redemption risk, conversion risk, yield risk, regulatory risk

MTN Programmes

  • Overview
  • Use and application
  • Pros and Cons
  • Anatomy of a typical structure

Asset Based Lending (“ABL”)

  • Development and characteristics
  • Typical use and application
    • Factoring vs Confidential Invoice discounting
    • Working Capital
    • Borrowing Base Facility
  • Lender’s criteria
  • Pros & Cons

Structured Finance

  • Whole Business Securitisation
    • Key issues
    • Typical sectors
    • Pros and Cons
    • Anatomy of a typical structure
  • OpCo-PropCo structures
    • Key issues
    • Typical sectors
    • Pros and Cons
    • Anatomy of a typical structure

The Lender’s / Investors' perspective

  • Key concerns for the lender
  • Debt capacity, Rating and ability to repay
  • Security over assets (if relevant)
  • Exit routes
  • Relationship issues

Valuing Distressed Debt

  • Traditional approach for valuing debt
    • IRR / DCF
    • Yield approach
  • Problems with using DCF for valuing distressed debt
  • Review of the approaches used in IMO Carwash case (Bluebrook)
  • Problems with using Multiples for valuing distressed debt
    • Terminal value & truncation of cash flows
    • Finding acceptable comparatives
  • Critical issues in valuing distressed firms
    • Cash flow forecasts
    • Importance of working capital (why it really matters)
  • Potential approaches for valuation of distressed debt
    • Revised DCF approach
    • Revised multiple approach
    • LBO/Debt Capacity approach
    • Liquidation approach

Other aspects affecting Valuation of Distressed debt

  • Overview of extraneous issues affecting valuation
    • Forum shopping: CoMi / Jurisdiction
    • Position in the Capital structure
    • Reason for distress
    • Status of distress
    • Role of Security over assets
    • Hidden/unrecorded liabilities
    • Syndication issues
    • Nature of the security: Loans vs Bonds
    • Public vs Private securities

Jurisdiction issues (Forum shopping)

  • EU Insolvency regulations (UNCITRAL Model Law)
  • CoMI Defined & impact on valuation
  • Key Requirements to move CoMI

Position in the Capital Structure (Ranking)

  • Concept of the fulcrum capital
    • What it is and how to find it
    • Why & how it can affect value
  • Issues impacting the ranking (senior, junior)
    • Secured vs. Unsecured obligations
    • Contractual Subordination
    • Structural subordination
    • Equitable Subordination
  • Inter-creditor issues
    • Summary of the key issues
    • Current topical matters (IMO Carwash deal)
      • Interaction of Loans & Bonds
      • Issues specific to laminated structures in restructurings
    • Review of European Directories case

Triggers for restructuring

  • Typical early warning signals of distress
    • External / Generic factors
    • Internal- company specific factors
  • Triggers for non-leveraged corporates (non I-grade)
  • Triggers & issues specific to leveraged deals
  • The main catalyst for restructuring
    • Insolvency defined
    • Directors’ liability

Restructuring overview ; 6 steps, 4 ingredients, 10 options

  • The Restructuring routemap – 6 key steps
  • Four key ingredients for successful turnaround in crisis
  • Ten key options for restructuring

Restructuring Options and Issues: 10 or more options

  • Sticking plaster methods
    • Amortisation changes, Covenant waivers / resets
  • Debt buyback & Equity cure
  • Hamburger strategy
  • M&A, Demergers
  • New money (internal & external)
  • Debt for Debt swaps
  • Debt for Equity swaps

Debt for Debt & Debt for Equity swaps

  • Mechanics – formal vs informal procedures
  • Form of new & old money
    • Warrants,
    • Preference shares
    • Convertibles
    • Equity (ranking, types)
  • Issues for new equity/debt
    • Shareholder protection
    • Information issues
    • Exit issues
    • Priority and ranking
    • Other matters

Evaluation and Termination of the Course

Training catalogue in PDF
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