Problem Loans & Distressed Debt Restructuring

3 days 18-20 Oct 2017, Johannesburg South Africa $35,000.00 Download brochure Add to basket
4 days 27-30 Nov 2017, Hong Kong Hong Kong $6,150.00 Download brochure Add to basket

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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


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


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.

Hong Kong
Andrew Regan

Andrew, CFA, started in investment banking at Merrill Lynch; serving as a financial advisor to municipal entities and directing their efforts in raising public capital in the tax-exempt debt markets. After business school, he became a Retailing Analyst at Donaldson, Lufkin, and Jenrette in New York, where he counseled large institutional investors on their retail sector holdings. In addition to these conventional sell-side equity research duties, he was centrally engaged while at DLJ in a number of banking transactions involving merchants, including LBOs, IPOs, primary and secondary equity offerings, and private placements.

He then returned to Harvard Business School as a Charles M. Williams Fellow and Dean’s Doctoral Award Winner. His research interests included the performance of LBOs, privatization in emerging markets, competition in the securities markets, and capital availability in the airline industry. In 1994-95 he served as Secretary to Professor Samuel Hayes, Warren Buffet, GE Chairman John Welch, former Merrill Lynch Chairman Daniel Tully, and other members of the Compensation Practices Committee, a blue-ribbon panel of securities industry experts appointed by SEC Chairman Arthur Levitt to look at remuneration in the retail brokerage business.

Andrew provides consulting support to financial service organizations looking for organisational and staff development in the theory, practice, and products of corporate finance and financial markets. This includes both the sell-side process of such activity (advisory, M&A, and capital markets) as well as the concomitant buy-side analysis (investors and their analytical approaches).

He has delivered projects for clients in North America as well as Europe, Latin America, Asia, Africa, and the Middle East. Those clients include all the U.S. Bulge Bracket firms, as well as several Persian Gulf and Chinese financial institutions, and he has worked with private firms on a variety of financial and strategic issues. He has also worked with financial staff at China Petroleum and Chemical (Sinopec), the large Chinese downstream/integrated firm, on analysis and valuation.

Andrew received his A.B. magna cum laude with Highest Honors in Modern European History from Harvard College in 1983, his M.Sc., with Distinction, in West European Politics from the London School of Economics in 1986, and his M.B.A., with High Honors, from HBS, where he was a George F. Baker Scholar, in 1988. He holds the CFA Charter.


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.



Johannesburg Hotel

This programme takes place on a non-residential basis at a central Johannesburg hotel. Non-residential course fees include training facilities, documentation, lunches and refreshments for the duration of the programme. Delegates are responsible for arranging their own accommodation, however, a list of convenient hotels (many at specially negotiated rates) is available upon registration.

Hong Kong

4-5 Star Hotel in Hong Kong

All of our courses are held in 4 – 5 star hotels, chosen for their location, facilities and level of service. You can be assured of a comfortable, convenient learning environment throughout the duration of the course.

Due to the variation in delegate numbers, we will send confirmation of the venue to you approximately 2 weeks before the start of the course. Course fees include training facilities, documentation, lunches and refreshments for the duration of the programme. Delegates are responsible for arranging their own accommodation, however, a list of convenient hotels (many at specially negotiated rates) is available upon registration.

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Do you have five or more people interested in attending this course? Do you want to tailor it to meet your company's exact requirements? If you'd like to do either of these, we can bring this course to your company's office. You could even save up to 50% on the cost of sending delegates to a public course.

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

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We produce learning solutions that are completely unique to your business. We'll guide you through the whole process, from the initial consultancy to evaluating the success of the full learning experience. Our learning specialists ensure you get the maximum return on your training investment.


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

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Agendas are localised, please select your preferred location.

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: analysing 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
  • Analysing 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: analysing 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

Course summary and close 

Topic 1: Situation Audit – Integrating Business and Financial Strategies

Firms get into financial trouble because of poor business performance, often exacerbated by an unsustainable capital structure. Diagnosing the most important source of stress – business weakness or capital structure – is a critical first step in restructuring. 
Business Stresses

  • Sector
    - Sector consolidation or excessive capacity
    - New competitor entry or heightened rivalry from existing competition
    - Long-term sector problems: Product obsolescence, competitiveness
  • Firm-level
    - Product/service problems
          Excessive product offerings or SKUs
          Weak distribution or lack of pricing power
    - Costs
          Lack of discipline and competitiveness
          Unhedged cost exposures
          Insufficient R&D spending
    - Assets
         Poor working capital management
         Insufficient capital spending and investment
    - Labour
         Collective bargaining issues
         Lack of ability to hire, develop, motivate, and retain talent
    - Agency problems:
        Self-seeking, unethical, or illegal management behaviour
        Fraud: Aggressive or fraudulent accounting or representation

Financial Stresses

  • Asset/Liability Mismatch: Short-term Assets funded with Long-term Liabilities
    - Excessive short-term debt vs long-term debt
    - Excessive floating rate vs fixed-rate debt
    - Foreign currency mismatch
  • Inappropriate Capital Structure:
     - Excessive debt
     - Excessive dependence on one kind of debt: bank debt, bonded debt
     - Excessive dependence on one source of debt: banks, bond investors
  • Non-interest Bearing Liabilities
     - Pension or post-retirement healthcare liabilities
     - Tax liabilities
     - Legal judgments or penalties: product recalls, worker compensation
     - Contingent claims: Derivatives Contracts, Warrantee liabilities

Case Firm
: Transportation Displays (A), with Excel model

Topic 2: Financial Claims and Capacity Assessment

When firms experience financial distress, creditors and other stakeholders have to develop a strong understanding of the existing hierarchy of claimants, as well as the future debt capacity of the firm.

Claims Hierarchy

  • Secured claims: secured bank debt and mortgage bonds
  • Super priority claims: D-I-P financing
  • Priority Claims
     - Restructuring professionals: Legal, accounting Wages, salaries commissions
     - Employee benefit claims
     - Alimony/child support
     - Customer deposits
     - Tax claims
  • General unsecured claims: Unsecured debt, trade creditors
  • Preferred stock
  • Common stock
  • Jurisdictional Differences: U.S. bankruptcy law vs. UK, European law

Debt Capacity

  • Forecasted income statement
     - Revenues, costs, margins
  • Forecasted cashflow statement
     - Working capital needs, capital expenditure
  • Free cashflow generation vs existing claims: interest, principal, other
  • Forward-looking debt capacity

Case Firm:
Transportation Displays (B), with Excel model


Topic 3: Restructuring Options - Operational and Organizational

When firms experience financial distress, often there are opportunities to make operational and organizational changes – independent of the impaired capital structure or the claims hierarchy – that can greatly improve financial condition.
Operational Restructuring Options

  • SKU “editing” and product-line “trimming”
  • Process redesign: Streamlining operational processes to improve productivity
  • Cost reductions: Procurement and supplier consolidation, labor rates, overhead, R&D, maintenance – “zero-based budgeting”
  • Elimination of redundant capacity and staff and plant and office consolidation
  • Reduction of capital outlays
  • Shift of production to lower-cost jurisdictions
  • Outsourcing of non-critical functions: IT, security, transportation
  • Common IT infrastructure

Organizational Restructuring Options

  • Redrawing divisional boundaries
  • Flattening hierarchies, reduction of management layers
  • Revising compensation, especially sales compensation
  • Changing business unit structures and reporting responsibilities – increased P&L accountability
  • Revised performance measurement schemes
  • More frequent, more intensive management oversight, e.g. weekly sales calls
  • Change of pension benefits
  • Reduced use of ex-patriots
  • New Leadership from Outside the Firm

Case Firm:
Transportation Displays (C), with Excel Model

Topic 4: Restructuring Options – Operational Financial Changes

When firms experience financial distress, often there are opportunities to make changes in the operational fnancing of the firm – again, independently of the impaired capital structure or the claims hierarchy – that can greatly improve financial condition.
Short-Term Balance Sheet Management Options

  • Accounts Receivable: More aggressive collections
  • Inventories: Reduction
  • Prepaid Expenses: Reduction
  • Accounts Payable: Expansion
  • Accrued Liabilities: Expansion
Topic 5: Restructuring Options – Changes in the Claims Hierarchy and the Nature of the Claims

Firms experiencing financial distress will almost always have to restructure the outstanding claims against their assets, and often the very nature of those claims themselves.

Financing Alternatives: Debt

  • Introduction of DIP financing
  • Extension of Debt Maturities
  • Increased or Decreased Coupons
  • Reduction or “zeroing” of junior claims
  • Shift to PIK or partial PIK interest instruments
  • Debt-for-Debt Swaps
  • Debt-for-Equity Swaps or Introduction of “Equity Kickers”
  • New Debt from Distressed Lenders: Mezzanine, Convertible Loans, Warrants
  • Restructuring fees and Success fees
  • Factoring of Receivables
  • Securitization of Assets and/or Revenue Streams
  • Strategic or Private Equity Investment
  • Rights offerings
  • A Caveat: “Nuisance Value” of Equity holders

Case Firms:
Infinity Carpets: Negotiating Claims Changes in Bankruptcy, with Excel model Lyondell Chemical Restructuring

Topic 6: Financial Restructuring – Valuation

Financial restructuring of distressed firms virtually always involves enterprise valuation, if only to attribute and allocate the firm’s value among a reconfigured claims hierarchy. The restructured firm generally has to be sound from a credit standpoint in order for claimants to realize recovery, over time, from that value.
Enterprise Valuation

  • DCF Approaches:
     - Appropriate discount rates
     - Sound terminal value assumptions
  • Comparable firm valuation
     - Identifying the relevant peer firms: “Dimensions of Comparability”
     - Identifying relevant valuation metric
          Price/Cash Earnings
          Price / FCF
          Replacement Cost
  • Comparable transaction valuation
     - Identifying the relevant comparable transactions
     - Identifying relevant valuation metric
  • Post-restructuring Creditworthiness
     - Credit assessment
     - Ratings of publicly-traded instruments
     - Financial flexibility going forward

Case Firms:
Restructuring Navigator Gas Transport PLC and Delaware Worldwide

Topic 7: Restructuring Options – Strategic

Sometimes financial restructurings, or the recovery of value following such restructuring, involve strategic changes such as major asset sales or selective re-leveraging.
Strategic Restructuring via Asset Sales

  • Which Assets to Sell? How to Decide?
  • How to Maximize Disposal Proceeds without Selling All the Most Attractive Assets
  • Integration of Financial Recovery with Future Enterprise Strategy: forward/backward integration
  • Bundling of Assets


  • Outright Sale of Discrete Operating Assets to Strategic Buyer
  • Outright Sale of Operating Units to Strategic Buyer
  • Outright Sale of Discrete Operating Assets to Opportunistic Buyer
  • Outright Sale of Operating Units to Opportunistic Buyer
  • Sale of Assets via Capital Markets
     - IPO of Equity in Operating Units
     - Sale of Securities Convertible into Ownership in Operating Unit
  • Realization of Latent Value in Real Estate
     - Outright Sale
     - Sale/leaseback
     - Securitization
  • Leveraged Sales of Operating Assets/Units
     - Leveraged Buyout
     - Management Buy-out
     - Management Buy-in
  • Reconciling Asset Sales and Disposals with Covenants on Existing Debt
  • Laying-off Liabilities to Buyers in Disposals
     - Lease liabilities
     - Pension and Other Benefits-related Liabilities
     - Environmental Liabilities
     - Contingent Claims
  • Impacts of Asset Sales on Shareholder Value
     - Ratings Impact
     - Cost of Capital
     - Financing Flexibility for Future Growth
     - Enterprise Valuation
     - Equity Valuation

Case Firm:
Donald Salter Communications PLC

Topic 8: Distressed Debt Investing and Investors

Often existing creditors in a distressed firm have to contest their claims with newer arrivals, namely distressed debt investors. Such hedge funds and specialized “special situation” private equity funds often purchase debt claims in troubled firms at big discounts, and then enter the resolution process to try to earn out-sized returns. Conventional creditors should have familiarity with their organization and tactics, as such investors can be adversaries in the restructuring process.
Case Firms: Oaktree Capital Management and Countrywide PLC, Oaktree Capital Management and Diamond Foods

Course summary and close

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