Problem Loans & Distressed Debt Restructuring

3 days 8-10 May 2017, London UK £3,645.00 + VAT* Download brochure Add to basket

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Overview

Course Overview

Many lending institutions across the world are still burdened with a high level of actual or potential non-performing loans or other credit exposures. In these situations, lenders need to maximize their recovery rates and optimize their long term returns, subject to prevailing insolvency laws, the lender’s own capital situation and sometimes to the wider interests of other stakeholders in the firm.  

Specialist knowledge is required to analyse the cause of the borrower’s problems and to design and implement an optimal restructuring solution.  These can involve both operational and capital restructurings, including debt for debt swaps, full or partial debt for equity swaps, discounted debt buybacks, equity cures, shareholder loans etc. In some cases, the best outcome may be full or partial asset liquidation. Cashflow forecasting is key to creating an optimal debt restructuring solution and the course covers distressed debt restructuring solutions in Excel. Case studies focus on a range of sectors including property, retail, infrastructure, house building, media and industrial

Methodology

The teaching methodology used on this course combines formal theoretical instruction with frequent reference to market data, use of exercises and case studies. Case studies are based on real situations and are designed to help delegates implement new valuation techniques and to learn from empirical experience. Delegates are expected to know how to use Excel at a basic level and should bring a personal computer with them. The course is intended to be practical and interactive, with delegates encouraged to ask questions. The techniques taught to delegates are intended to be of immediate practical use in the workplace.


 

Who should attend

  • Bank credit officers
  • Investment bankers
  • Management consultants
  • Bond credit analysts
  • Fixed income/credit traders
  • Fixed income/credit sales people
  • Fund managers
  • Treasurers
  • Compliance officers
  • Financial decision makers in corporations
  • Instructors

    We work with a series of expert instructors, please select the course location of interest to review the credentials of who will be delivering the programme.

    London
    Sarah Martin

    Former Executive Director of CSFB and Lehman Brothers, the Course Director has spent seventeen years working as an investment banker in Europe and the US. She has principally worked in the credit markets and has experience of the US and European high grade and high yield markets, the European new issue markets, the Asian convertible bond markets and of corporate restructurings of distressed credits. She specialised in the telecoms sector and was closely involved in the structuring, raising and/or trading of bank and public debt for telecoms companies in many countries, including Europe, South Africa, Asia and Latin America. She also has extensive experience of corporate finance transactions, including mergers, disposals, privatisations, IPOs and capital raisings. Until 2003, she was an Executive Director at Lehman Brothers in Fixed Income Research in London, having also worked for CS First Boston and Kleinwort Benson. She now works on an independent basis advising the legal and private equity professions on credit analysis and company valuation. She has a degree in economics from the London School of Economics and stock exchange qualifications from London and New York.

    Venue

    London

    Central London Hotel Venue

    All courses are held at four or five star venues in Central London, Zone 1. We strive to provide you with a training environment of the highest quality, to ensure that the whole learning experience exceeds your expectations.

    Your training venue will be confirmed by one of our course administrators approximately 3-4 weeks before the course start date.

    Related Courses

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    To find out more about running this course in-house:





    Our Tailored Learning Offering

    If you want to run this course at a location convenient to you or if you want a completely customised learning solution, we can help.

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    We can offer any of our public courses delivered at your office or we can devise completely tailored solutions:


    Read more about our offering or complete a call back request to speak to a learning specialist.

     

    Agenda

    Day 1

    Section 1

    • Definitions of NPLs and distressed debt
    • Typical causes of distress – sovereign, industrial, cyclical and firm specific
    • Introduction to financial analysis for distressed firms

    Section 2

    Common early warning signs that a firm is becoming distressed

    • Market/economic based signs
    • Income statement/operational signs
    • Cashflow signs
    • Balance sheet signs
    • Acting on early warning signs if there is no covenant breach
    • Should the lender give more time and/or lend more money?
    • Should the lender foreclose?

      Case study: property/construction firms with early warning signs of distress
      Case study: cyclical industrial firm with early warning signs of distress

    Section 3

    Analysing the income statement of distressed firms

    • Understanding the sources and sustainability of revenues and earnings
    • Can the firm generate in future sufficient earnings to service debt?
    • What constitutes interest charges, incl charges for derivatives and quasi-debt?
    • Adjusting for exceptionals, non-core earnings, discontinued items
    • Calculating adjusted margins, EBITDAR and EBITDA interest cover
    • Adjustments for operating leases, joint ventures, minority interests
    • Analysing the scope for cost cuts to improve earnings

      Case study 1a: analyzing the early warning signs in the income statements of retailers, oil firms and industrial firms
      Case study 2: calculating underlying earnings of Balfour Beatty, a weak infrastructure company

    Section 4

    Analysing the cashflow statement of distressed firms

    • Identifying warning signs of cashflow shortfalls
    • Can the firm generate sufficient cash to service interest and meet other obligations?
    • Forecasting cash available for debt repayment and cash available for debt service
    • Payback and debt service analysis
    • Identifying new sources of cash for debt service
    • Analysing the scope for improving operating cashflow and for reducing NWC and other investment spending
    • Cashflow vs asset based lending
    • Analyzing high growth firms that over-trade and run out of cash

      Case study 3: analyzing the cashflow statements of firms in distress and in default

     


    Section 5

    Analysing the balance sheet of distressed firms

    • The nature of the asset base – is the firm worth more as a going concern or liquidated?
    • Balance sheet values versus market and liquidation values
    • Structural subordination and double leverage
    • Consolidation policies – are debt/costs/losses hidden in off balance sheet vehicles?
    • What constitutes debt – including derivatives, quasi-debt and off balance sheet liabilities
    • Adjusting for factored receivables, operating leases, contingent liabilities
    • What other liabilities might crystalise in a default?
    • ROIC analysis and ROIC vs WACC
    • Liquidity analysis
    • Analysing the scope for new equity issuance
    • Ratio analysis – leverage, liquidity, asset coverage, working capital, ROIC, ROE, asset turnover

      Case study 1b: analyzing the balance sheet of weak and distressed firms

    Day 2

    Section 6

    Modelling for distressed credits in Excel

    • Introduction to comprehensive forecasting model
    • Forecasting assumptions for the IS, CF and BS
    • What are the key earnings and cashflow drivers for the distressed entity?
    • Tools and key indicators to help with forecasting for distressed firms
    • Covenants - setting revised, cashflow-based covenants and forecasting headroom
    • Structuring cashflow sweeps
    • Scenario analysis – what is required for the firm to turn-around? What could trigger further performance short-falls?
    • Use of liquidation models to assess each stakeholder’s economic interest

      Case study: Modelling in Excel

    Section 7

    Debt restructuring overview

    • Guidelines from Central Banks
    • Aims of the restructuring for lenders
    • Does the company need additional funding?
    • Rescue vs liquidation, now or later
    • Other liabilities that might crystalise in an event of default
    • What happens to collateral value during a default situation?
    • Dealing with other banks - multi-creditor workouts
    • Preferential claims and ranking of claims

    Section 8

    Option 1: Operational restructuring for distressed entities

    • Should this take place before capital structure changes or at the same time?
    • Management – does the firm need new or additional directors?
    • Strategic analysis and new strategy
    • How to maximise cashflow generation

    Day 3

    Section 9

    Options 2-4: Restructuring of loans and of the capital base

    • Option 2 – equity injection, shareholder loan, equity cure
    • Option 3 – amendment of financing terms - PIK, PIK toggle, cash sweeps, extended maturities,
    • Rewards for amended financing terms - additional security, warrants, convertible loans
    • Return analysis – equity kickers, warrants, compounded PIK returns
    • Option 4 – debt restructuring
    • Debt for debt swap, discounted debt buyback, full or partial debt for equity swap, lenders sell
    • Debt at a discount, engage suppliers in restructuring, cashflow ring-fencing
    • Why restructurings do not always work

      Case studies

      Examples of distressed firms that have implemented these solutions
      Modelling these changes in Excel

    Section 10

    Monitoring distressed and non-performing debt

    • Agreeing forecasts with the borrower
    • Reporting requirements for the borrower
    • Agreeing new Heads of Terms with the borrower
    • Setting covenants and covenant testing
    • Board seats and management influence

    Section 11

    Overview of default predictor models

    • Z-scores
    • Credit scoring
    • Merton and KMV models







     

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