Debt Finance, Valuation of Distressed Debt and Restructuring

Day One

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

Day Two

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
    • PIK, PIYC, PIYW
    • 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

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