Loan Workouts and Debt for Equity Swaps: A Framework for Successful Corporate Rescues (Wiley Finance)

CONTENTS......Page 8
FOREWORD......Page 14
PART I: INTRODUCTION AND BACKGROUND......Page 22
1 INTRODUCTION......Page 24
The environment for loan workouts......Page 25
Objectives of this book......Page 27
Structure of the book......Page 28
Acknowledgements......Page 31
Background to statutory insolvency frameworks and loan workouts......Page 34
The need for corporate recovery and rescue frameworks......Page 35
Statutory and voluntary frameworks for corporate distress......Page 36
Statutory insolvency frameworks......Page 37
Voluntary rescue frameworks......Page 41
The benefits and disadvantages of loan workouts......Page 42
Factors affecting the effectiveness of loan workouts......Page 44
PART II: STRATEGY, PARTIES AND THE PROCESS......Page 48
SECTION A: LOAN WORKOUT STRATEGIES AND STRUCTURES......Page 50
Introduction......Page 52
Elements of a non-performing loan strategy......Page 53
Prevention and control......Page 54
Timely identification......Page 55
The role of specialist teams......Page 56
Communication channels and feedback loops......Page 57
Impact of the bank’s wider strategy......Page 58
Positioning the loan workout unit......Page 60
Responsibility and authority......Page 63
Transfer of responsibility for cases......Page 64
Loan workout unit structure and resources......Page 65
Early warning systems......Page 67
Problem loan classification......Page 69
Asset management companies......Page 70
Business philosophy and integrity......Page 72
Transaction management......Page 76
Controlling transaction-related costs......Page 78
SECTION B: THE PARTICIPANTS......Page 82
Company features conducive to loan workouts......Page 84
Directors and management......Page 86
Shareholders......Page 89
Employees and trade unions......Page 91
The bank group......Page 92
The co-ordinator......Page 93
The steering committee......Page 97
Facility agents and security trustees......Page 99
Position of individual banks......Page 100
Factors limiting participation in loan workouts......Page 102
Non-bank financial creditors......Page 103
Debt traders and investors in distressed debt......Page 105
Suppliers and other creditors......Page 107
Customers......Page 108
Governmental and other agencies......Page 109
Reasons for engaging external advisors......Page 110
Independent advisors......Page 112
Reporting accountants......Page 113
The company’s external auditors......Page 116
Legal advisors......Page 117
Investment banking advisors......Page 118
Other advisors and experts......Page 119
SECTION C: THE LOAN WORKOUT PROCESS......Page 120
Loan workouts in context......Page 122
Anatomy of a financial restructuring transaction......Page 123
Implementing the framework......Page 128
The moratorium, restructuring and refinancing......Page 129
Internal causes of corporate decline......Page 130
Symptoms of corporate decline......Page 133
Achieving short-term operational stability......Page 135
Components of enterprise restructuring......Page 136
Sequencing restructuring activities......Page 138
Interaction between business restructuring and loan workouts......Page 139
Initial internal appraisal......Page 140
Obtaining information externally......Page 142
Reports of reporting accountants......Page 143
Other advisors’ reports......Page 147
Review of debt workout options from the lenders’ perspective......Page 148
Short-term ‘exit’ strategies......Page 149
Medium-term ‘controlled exit’ strategies......Page 151
Long-term `financial restructuring’ strategies......Page 153
Introduction......Page 156
Types of risk in a loan workout......Page 157
Assessing the risk of a financial restructuring proposal......Page 160
Returns from loan workouts......Page 161
Evaluation......Page 163
Developing financial restructuring proposals......Page 165
Ingredients of an effective negotiating process......Page 168
Negotiating strategy......Page 170
Bank lenders......Page 171
Holders of bonds......Page 172
Completing the transaction......Page 173
Documentation and agreements......Page 174
Loan workout information memorandum......Page 175
PART III:THE MORATORIUM AND FINANCIAL RESTRUCTURING......Page 178
SECTION A: THE MORATORIUM......Page 180
Causes of a moratorium......Page 182
Principal features of a moratorium......Page 183
Advantages and disadvantages of moratoriums......Page 185
Underlying principles......Page 186
Key provisions of moratorium agreements......Page 187
Documentation structure......Page 190
Determining who to include in a moratorium......Page 192
The position of different financial creditors in a moratorium......Page 194
Determining commitment levels......Page 200
Issues relating to different types of facility......Page 201
On-going operation of facilities......Page 203
The importance of loss-sharing......Page 212
Definition and framework......Page 213
Why is a loss-sharing arrangement necessary?......Page 214
Loss-sharing provisions and documentation......Page 215
Sharing the reward as well as the risk......Page 217
Loss-sharing provisions in a restructuring agreement......Page 218
Causes of currency-related complications......Page 220
Limits and utilisation......Page 221
Distributions and loss-sharing......Page 223
Hedging......Page 228
SECTION B: FINANCIAL RESTRUCTURING......Page 230
Objectives of a financial restructuring......Page 232
Developing financial restructuring proposals......Page 233
Key information needs......Page 234
Entity priority and ringfence structures......Page 236
New financing......Page 237
Security-related issues......Page 240
Priority rankings......Page 244
Pre-enforcement distributions......Page 247
Decision-making and voting......Page 252
Undertakings......Page 254
Financial covenants......Page 256
Term and commitment......Page 260
Remuneration......Page 261
SECTION C: DEBT FOR EQUITY SWAPS......Page 264
Introduction......Page 266
Definition......Page 267
Advantages of debt for equity swaps......Page 268
Disadvantages of debt for equity swaps......Page 269
When is it appropriate?......Page 270
Principal transaction parameters......Page 271
The need for specialist advisors......Page 274
Transaction-related considerations......Page 275
Impact on information gathering and assessment......Page 276
Evaluating debt for equity swap proposals......Page 277
Negotiations......Page 279
Exit-related considerations......Page 282
Introduction......Page 284
Ordinary shares......Page 285
Preference shares......Page 287
Warrants......Page 291
Other equity instruments......Page 292
Structuring principles......Page 293
Valuing equity instruments......Page 297
Proportion of debt converted into equity......Page 300
Proportion of equity for lenders......Page 306
Accounting-related matters......Page 310
Selected legal and regulatory issues......Page 312
Transaction mechanics......Page 313
Swap of debts in subsidiaries......Page 314
PART IV: CASE STUDY......Page 316
Background......Page 318
Moratorium......Page 319
Causes and impact of the financial crisis......Page 321
Business restructuring......Page 322
Financial restructuring......Page 323
Debt restructuring......Page 324
Debt for equity swap......Page 326
Evaluation......Page 328
INDEX......Page 330