Debtwire

European
Forum Q4 2009

Post-event briefing

January 2010 publication

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CONTENTS

05 Chairman’s welcome speech

06 Morning keynote speech

08 Panel: Debt buybacks

10 Panel: Reinventing the CLO

11 P
 anel: Restructuring financial services in
emerging Europe

13 Afternoon chair’s remarks

15 Presentation: Insolvency as a restructuring tool

19 C
 ase Study: Using templates from completed deals
to maximise returns

20 Panel: Refinancing bank debt – the road to recovery

21 Historical data
Chairman’s Welcome Speech
Christopher Marks, Head of EMEA Debt Capital Markets, BNP Paribas
In his welcome speech, Marks pointed
to the reconstitution of investor bases,
particularly in the high yield space, as
among the most interesting features of
the current market. There are now asset
managers, insurance companies, retail and
private banks involved in these transactions,
rather than simply specialist investors.
This reflects the search for yield and
return, but also investors’ ability to select
defined market leaders, strategic assets
and growth opportunities not necessarily
available in large-cap G7 entities.
Looking at the European high yield space
this year, Marks highlighted the United
Pan-Europe Communication’s (UPC) deal
in April as the starting point for the market.
The deal had an amend-and-extend exercise
on the loan side and a bond exchange
on the debt side. It allowed the company
to flatten out refinancing peaks, extend
maturities and become a more viable entity
from a capital markets point of view.
Marks further noted how the exchange
allowed UPC to draw in existing investors,
while also attracting new investors for a
relatively modest amount. The transaction
was so successful that UPC was able to
once again tap the markets one month
later for additional money and a new dollar
tranche at the same time. The exchange
technology, the focus of the first panel
of the forum, was at the heart of both
transactions using different documentation
techniques to get investors into a more
attractive security for the company, but also
to revitalise the TMT sector for investors.
That the first deal to hit the market was
struck in this sector is not surprising given
its historical activity in the leveraged loan
market. Indeed, in early days the media and
cable niches enjoyed easy access to the
leveraged loan market thanks to stable cash
flows and predictable business models.
Casting a look toward the morning’s
second session on CLOs, Marks posed
several questions relevant to a recovery
in the market. For instance, where is
the investor base going to come from?
In the past, investor bases were largely
composed of banks and structured
investment vehicles, real money investors
were only about 25% of the buying base
said Marks. Today, for the large CLOs that
have come to market, the audience has
been the European Central Bank (ECB).
Marks noted that 70% of the liquidity in
the leverage loan market in the high days
was itself levered. Marks, therefore, asked
which of the CLO market's underpinnings
would allow it to reconstitute itself. He
said some liquidity is returning to the
institutional market, as evidenced by
recent IPOs and redemptions. But he
affirmed that revitalisation in the CLO
market will come on the back of existing
CLOs and virgin CLOs only when the
securitisation market, operating only in
fits at the moment, is back in form.
Turning to the final panel discussion
of the morning, Marks appraised the
restructuring situation in Emerging Europe’s
financial sector as a particularly thorny
challenge. He noted that the process
of getting those entities back into the
market is similar to the one followed by
financial institutions across Europe. In
such instances, governmental programmes
provided a floor under liquidity concerns
and attempted to prevent any kind of
systemic collapse in terms of solvency.
Marks commented that the process of
moving away from state sponsored entities
into non-guaranteed financing instruments
was dependent not only on the ECB – as
is the case of covered bonds, for instance
– but also on domestic investor bases.
Marks finalised his address by noting
that these domestic investors played a
large role in the rebirth of those financial
markets even as there remained a lack
of visibility in terms of information, bank
quality earnings and balance sheets.
DEBTWIRE EUROPEAN forum 5
OCTOber 2009
Morning keynote speech
Henry Nicholson & Gerry Loftus , Deloitte LLP
In the keynote morning speech, Henry
Nicholson and Gerry Loftus, Deloitte
LLP, gave a comprehensive overview
of the current restructuring market
and the outlook going forward.
Nicholson and Loftus identified three
key types of restructuring cases that
Deloitte is seeing presently: perfectly
sound but over-levered business;
essentially decent businesses albeit
in markets that have collapsed; and
lastly, underperforming businesses that
would struggle in any environment.
In the first case, these over-levered firms
may have been hit by diminishing growth
with concomitant falls in valuation multiples,
thereby threatening covenant thresholds.
In general, re-pricing and for a fee, those
businesses have generally been able to
receive covenant resets, while creditors
have focussed on more urgent situations.
Nicholson expects that some of these
situations may be revisited in the future,
but for the moment they will benefit from
a narrow degree of covenant headroom.
Looking at the second group of companies,
those in collapsed markets, Nicholson
pointed to the house building sector in
mid-2008, the meltdown of Iceland later
in the year and the automotive sector this
year as prime examples. In such instances,
these firms were and have been facing
urgent cash issues, so lenders have had to
engage with those companies early on to
get a solution. On the whole, lenders have
been generally supportive of management
in hard hit sectors, not forcing sales to third
parties but rather swapping some debt
for equity or using other similar tools.
Creditors have been less forgiving for
6 DEBTWIRE EUROPEAN forum
OCTOber 2009
underperforming businesses that would,
in any instance, require a great deal of
work to rescue. However, Nicholson did
qualify this, noting that there has been a
willingness to engage and resolve difficulties
in situations where the outcome of an
insolvency scenario for such a firm would
be too disastrous to even contemplate.
Turning to solutions, Nicholson identified
four principle types in the current market.
Firstly, there were some opportunistic
debt buybacks around 6 to 12 months
ago by companies and sponsors taking
advantage of low prices in secondary
markets to enhance returns and gain
some covenant headroom – however, with
tax changes and a significant comeback
in secondary debt prices, there has
been much less of that more recently.
Another type of solution has been sponsor-
led covenant resets with workouts in
which sponsors pay a fee, re-pricing at the
margin and then potentially sweetening
the deal with some sort of debt buyback
or capital injection. Nicholson notes
that a number of these have gone
through the market recently and in
general with support from creditors.
For those firms where a covenant reset
is not sufficient due to the severity of
their problems, there have been full-
scale restructurings. In this third type of
solution, if sponsors have been prepared
to bring in new money, which has been a
very powerful force in the past 12 months,
they may have managed to strike a good
deal with creditors noted Nicholson,
adding that a number of these solutions
have also been seen in the market.
Conversely, in full-scale restructurings
where the sponsor is either unable or
not willing to support the business on
terms that are acceptable to the lenders,
Nicholson notes that they have seen
lender-led solutions. In such instances,
lenders are taking majority shareholdings
while pushing sponsors and juniors aside.
Loftus closed the morning keynote
speech by concentrating on some of the
detailed aspects of the current market. He
commented that in the past six months
senior lenders have become much better
placed to deal with debt situations, whereas
earlier they were less able to commit new
money or to wear impairment, resulting
in complete inertia in the market. During
this time, there were some sponsors
trying to take advantage of the disarray
among senior lenders and the limited
leadership among senior lender groups.
From a practitioner’s point of view, Loftus
noted they have had to scale up their teams
and learn quickly in the fast-changing
environment. This wave of unexpected
restructuring has presented a host of
expected and unforeseen challenges.
Loftus singles out the complexity of debt
structures and the diversity of lending
groups as particularly challenging aspects
– indeed, he noted uniting stakeholders
around one solution from the creditor
side has become very difficult. He went
on to say that, as expected, cross-border
issues have also been far from clear in
the current market. Finally, he concluded
that they have seen legal issues arise
as the documents have not necessarily
withstood the scrutiny they are being
subject to in restructuring situations.
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Panel: Debt Buybacks
Ali Allahbachani, Managing Director, Avoca Capital
Simon Davies, Managing Director, Blackstone
Richard Howell, Partner, PAI Partners
Richard Millward, Managing Director, Rothschild
Richard Nevins, Partner, Cadwalader, Wickersham & Taft LLP
Adelene Lee, Editor Restructuring, Debtwire
This panel was focused on debt repurchases
by sponsors or companies as part of
a larger balance sheet fix. Panellists
comprised restructuring professionals from
all parts of the spectrum – two financial
advisers who advised companies on such
transactions, a legal adviser who advised
creditors and an investor from a CLO.
From the company side’s standpoint,
debt buybacks at a discount to par is
opportunistic – it allows a sponsor to
deliver a company by buying back debt at a
discount, helps with covenant compliance,
provides good return on their investments
if prices are right and, if liquidity is
available, provides a chance to buy.
The panel went on to discuss the different
ways in which a sponsor may implement
a debt buyback. This covered the use of
company cash/sponsor injecting money to
buyback debt, differentiating between debt
repurchases on the quiet and buybacks in
the context of larger restructuring packages.
One example cited was the case of
German packaging group, Mauser.
8 DEBTWIRE EUROPEAN forum
OCTOber 2009
From an investor perspective, an improved
security package would be beneficial
because it would have the effect of lowering
the leverage of the company. However,
these transactions are often coercive, as
investors could be left with riskier bits of
paper if they do not consent. Investors
also often complain about the economics
as sponsors try to obtain lofty covenant
headroom. At the same time investors
may be challenged with documentation
problems, EBITDA cures, whether or
not the cancellation of debt occurs, as
well as problems surrounding creation
of SPVs to facilitate the debt buyback.
The panellists also discussed the
tax implications of debt buybacks. In
Germany, for example, such transactions
are not favourable for companies
as they face higher tax bills.
Recent changes in UK tax legislation on
debt buybacks whereby companies would
be taxed on the difference between the
price paid and the nominal value of the debt
could be discouraging for UK companies.
Finally, the panellists discussed the outlook
for debt buybacks. Most agreed that debt
buybacks are in vogue and we are likely to
see more of such transactions in the future.
Leading the way in Restructuring Advice

www.rothschild.com
Panel: Reinventing
the CLO

Neil Basu, CEO and Managing Partner, Pearl Diver Capital

Andrew Burke, Senior Portfolio Manager, Leveraged Loans, Cairn Capital
Philippe Jodin, Partner, Alegra Capital
Kyran McStay, Managing Director Capital Markets, Key Capital
Alexandre Martin-Min, Head of CDO Invest, AXA IM
Greg Branch, Managing Partner, SCIO Capital LLP
Chris Haffenden, Deputy Editor Restructuring, Debtwire (moderator)

The session began with a look back at
CLOs' fight for survival earlier this year,
before moving the focus on to the current
state of the market, and concluding with
thoughts on the future of the loan vehicles.
Plummeting secondary loan prices,
wholesale ratings downgrades and rising
defaults during the first quarter meant
many CLOs were bumping up against their
internal tests, with fears that growing
events of default would be triggered, leading
to control shifting to the AAA tranche
noteholders and eventual fund liquidations.
According to the panel, as well as re-jigging
their portfolios, managers attempted to
change test definitions and repurchase
their own AAA debt at a discount. The
measures were often resisted by funds
AAA investors. On a more positive note,
the robust nature of CLO structures meant
that most remained intact, despite the
unprecedented downturn in the underlying
loan market. A number of funds are still
paying dividends to their equity owners.
Surprisingly, the panellists were muted
in their criticism of the role of the ratings
agencies. One panellist noted that the
agencies were relatively conservative
in their assessment of shadow ratings
and, consequently, only around 10% of
leveraged loans were/are rated CCC
compared to expectations of a percentage
closer to 50. CCC buckets across the
industry are now around 10-15%,
compared to original limits of 5-7.5%.
A large number of CLOs are adjusting Following a dramatic run-up in the
to the loss of lucrative subordinated secondary market, the panellists saw
management fees. While they can survive limited value in CLO tranches at current
on just senior fees, they will not thrive. prices. Greg Branch observed that a
The problem is exacerbated for those lot of money had been raised earlier
with just a small number of funds and/ in the year for CLO investments, but
or late vintages. Many hope the recent few trades occurred when AAA paper
improvement in secondary loan prices will dipped into the 60s during the spring.
continue and fees will be switched back on. Prices are now in the 80s or above.
With their businesses under pressure, According to Greg Branch, new issuance
the issue of consolidation amongst CLO is still unlikely. With cost of funds/loan
managers has been on the agenda for pools still hovering around 200 basis
a number of months now, but hardly points (bps) for AAA tranches, it falls
anyone has pulled the trigger. Most short of the required 400 bps and above
managers are unwilling to contemplate for the CLO arbitrage to work. Philippe
it for now, as this will mean staff Jodin was more bullish, expecting a
redundancies and loss of equity. limited number of new deals next year
as pricing of AAA tranches drives tighter.
CLOs have been embroiled in the The panellists agreed that new structures
restructuring of a number of their loan would be much more simplistic than
portfolio companies during 2009, often at before, consisting of far fewer tranches.
odds with banks and distressed funds during
negotiations. The inability and unwillingness
of many banks and CLOs to accept equity
stakes or contemplate large debt reductions
has led to zombie debt structures. The
panellists conceded this could result in
future problems, but the immediate aim is
to ensure B-/B3 ratings for restructured
paper and to minimise debt write-offs.
CLOs have been at the forefront of
pushing back against ‘amend and pretend’
covenant requests from borrowers. The
aim is to boost margins and amend
deal economics to compensate for the
increased risk, explained Andrew Burke.

10 DEBTWIRE EUROPEAN forum

OCTOber 2009
Panel: Restructuring Financial
Services in Emerging Europe
Nazar Chernyavsky, Partner, Sayenko Kharenko
Stewart Wakeman, Head of International Finance Department, Mizuho Corporate Bank
Mike Wilcox, Vice President, Blackstone
Eric Zimny, Head of DCM Origination FI, Commerzbank
Nick Briggs, Editor – Emerging Europe, Debtwire (moderator)
Some of Emerging Europe’s most regular
and hitherto reliable bank borrowers
made an unwelcome return to debt
capital markets in 2009, turning to their
lenders to ask for the extensions and
write-downs needed to keep them afloat.
The forum’s Restructuring Financial
Services in Emerging Europe panel met
to discuss some of the region’s most
pertinent cases – among them BTA,
Alliance Bank and Parex banka – as well
as their intricacies and idiosyncrasies.
The attitudes now being established towards
International Monetary Fund (IMF) bailouts
and in relation to the political and legislative
changes for bank reorganisations will be
carried forward into future credit cycles,
according to Mike Wilcox at Blackstone. A
case in point, the panellists agreed, was
Parex banka, which is now in the hands of
the Latvian government and was the first
successful bank restructuring of 2009.
Parex had to organise funding from the
state, which in turn was arranging funding
from the IMF and EU members, and that
funding then needed to be divided fairly
between Parex’s creditor base, Wilcox noted.
Mizuho Corporate Bank’s Stewart Wakeman
worked on the Parex banka deal as well and
said there was an early recognition by all
parties that the bank needed to be saved
and contagion avoided. “Parex’s immediate
problem was a consequence of the wider
global crisis and the lack of confidence surrounding Parex banka, agreed
following the collapse of Lehman Brothers, Commerzbank’s Eric Zimny. “There
and not poor management,” he added. are many more creditor classes with
competing interests in Kazakhstan,”
Parex took just three months to end-March he noted. “The authorities there are
2009 to renegotiate two syndicated loans stressing the need for purely market-
worth €775m, but it became clear during the driven solutions and a new cram-down
panel discussion that few restructurings in law has been introduced in Kazakhstan
the region have proved that straightforward. in August so only two thirds of creditors
Negotiations with Kazakhstani and need approve a restructuring plan.”
Ukrainian banks have become mired in
arguments over considerable loan-loss Parex banka was a noteworthy success
provisions, the preferential treatment (or this year, but the more complicated of
otherwise) of trade-finance creditors and Emerging Europe’s bank restructurings
the role of government in capital injections. look set to continue on into 2010.
According to Nazar Chernyavsky at Sayenko
Kharenko, during 2009 several legislative
gaps were identified in Ukraine and new
legislation has allowed for decisions on
share-capital increases to be taken in just
a few days and for the National Bank of
Ukraine to unilaterally transfer assets from
distressed banks. “The restructuring of
bank debt in Ukraine has been a very hot
and controversial topic in 2009,” he said.
“We have already seen the recapitalisation
or distressed sale of some banks, beginning
with Prominvestbank and, like Latvia, these
have been highly politicised processes.”
The restructurings underway in
the banking sectors of Ukraine and
Kazakhstan are much more controversial
and time-consuming than the events
DEBTWIRE EUROPEAN forum 11
OCTOber 2009
UK
Ken Baird
T +44 20 7832 7168
E ken.baird@freshfields.com
restructuring
Richard Tett
T +44 20 7832 7627
E richard.tett@freshfields.com your future...
GErMAny
Lars Westpfahl
T +49 40 36 90 62 51
Freshfields Bruckhaus Deringer is a leading international law firm,
E lars.westpfahl@freshfields.com with offices across Europe, Asia, the Middle East and the US.
FrAncE Our international restructuring and insolvency team has a wealth of
Tony Besse
T +33 1 44 56 44 44
experience on both the domestic and the international stage. We
E antonin.besse@freshfields.com represent lenders, corporates, creditors, insolvency practitioners and
S pA i n
regulators to find commercial, innovative solutions.
Iñaki Gabilondo
T +34 91 700 3756
Our 100-strong group, including 30 dedicated partners, brings
E inaki.gabilondo@freshfields.com together lawyers from across our network skilled in all aspects of
MEnA
business rescue and restructuring work.
David Higgins
Freshfields Bruckhaus Deringer LLP

T +971 4 5099 100

...in our hands

E david.higgins@freshfields.com

www.freshfields.com
Afternoon chair’s remarks
Ian Hazelton, CEO, Babson Capital Europe
Ian Hazelton began the afternoon session
setting out the historical antecedents to the
current market, commenting that before
the events in the autumn of 2008, mid-2007
was another watershed period for European
debt capital markets. Hazelton noted that
in that period, leveraged loans traded at par
or at a premium and there was huge growth
in a market that seemed to know no end,
driven largely by CLOs and hedge funds.
He noted that a large part of the CLO
element of that growth was bolstered by
the many banks running warehouses.
He added, however, that as it turned out,
banks were also financing the hedge
fund industry. Hazelton pointed out that
at the time there were many recaps in
the leveraged loan market, clearly on
higher leverage terms and with looser
control than in previous years.
In the period after that watershed a few
things happened, said Hazelton. The
subprime business spilled over into the
structured finance paper market which
effectively ended the CLO bid over a pretty
short space of time. In turn, that then
translated into a sell off by the banks
as they tried to clear their positions.
Hazelton then touched upon the introduction
of FAS 157 at the beginning of 2008,
which gave holders of assets little option
but to record assets at market values.
This combined with the massive selloff
by banks, many of which were long in
the product in an over-bloated market
remarked Hazelton, led to a tumbling in
leveraged loan asset prices and corporate
loan asset prices across the market.
The conundrum, said Hazelton, is that the
impact on the real economy was hardly
felt throughout the period leading up to
September 2008, after which point the
effects were certainly more pronounced.
As a result, restructuring situations and
the need for new money appeared. Private
equity was an early mover in this trend
when no others were willing to part with
liquidity. Banks were seemingly paralysed
and private equity stepped forward with
both funding and industry knowledge.
At present, the first wave of restructurings
by those cyclical businesses hit by the
crisis is being worked through. Hazelton
said that cash flow for these businesses
has proven to be more resilient than
anticipated and there is clearly a degree
of competition in the market by both bank
and non-bank entities to be involved in
these rescue and restructuring deals.
Hazelton expects more sedate requirements
to appear over the next few years. There
is a lot of money out there that will need
refinancing, but nobody wants to be
coming to the market at the same time
as everybody else he said. He concludes
that the real crisis in the leverage market
is still probably three or four years away.
DEBTWIRE EUROPEAN forum 13
OCTOber 2009
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Presentation: Insolvency
as a restructuring tool
Phil Bowers, Deloitte, & Richard Tett, Freshfields Bruckhaus Deringer LLP
Phil Bowers and Richard Tett’s afternoon
presentation addressed the use of insolvency
as a restructuring tool with a detailed
look at the advantages and disadvantages
associated with such a strategy.
Among the chief advantages, Bowers points
out the ability of an insolvency to deliver a
restructuring. For instance, insolvencies
have the ability to leave behind out-of-
money creditors, cram down in-the-money
minority holdouts, preserve value through
immediate sales such as pre-packs while
even leaving some loss-making parts
of the business or contingent liabilities
behind. Lastly, an insolvency can be
used to deliver the business to secured
lenders free of subordinated claims.
A looming insolvency can always be
used as leverage in a work out situation,
while also being extremely effective in
bringing different stakeholders to the
table. Of course, there are also risks
involved with insolvency proceedings that
need to be clearly thought through from
a legal, practical, commercial and tax
perspective as insolvency solutions may
not go the direction first anticipated.
Bowers and Tett then gave an overview
of insolvency regimes across different
European jurisdictions. In England and
Wales, the regime is considered creditor-
friendly, providing a fairly predictable
outcome with less politicisation than
other jurisdictions and few legal process
uncertainties. In addition, companies can
pursue an insolvency process that really fits
their specific needs. For example, there are
pre-pack sales, Schemes of Arrangement,
Company Voluntary Arrangements (CVA)
and Section 426. These factors make it
the jurisdiction of choice for HoldCo or
OpCo restructurings for many firms.
Bowers and Tett commented in more detail
on the different processes in England and
Wales. With respect to the pre-pack sales,
they noted several benefits. Specifically,
pre-packs mitigate value destruction risks
of trading in involvency and administrators
have to demonstrate that the best price
and fair market value for assets has been
achieved. In addition, a pre-pack can
be implemented as a HoldCo solution
delivering OpCos as share sales or it can
sell business and assets out of OpCos.
In terms of Schemes of Arrangement, Tett
and Bowers point out that it is pretty much
the only corporate process in the UK to deal
with secured lenders. Rather than being an
insolvency, it is a Companies Act procedure
that requires court sanction. Once the
arrangement is court approved it becomes
binding on all creditors in the scheme.
CVAs are also an insolvency process
option appearing nowadays to cram
down unsecured creditors, notably
in the retail sector where there are a
lot of liabilities on the leases. CVAs
often result in the continuation of
the company rather than a sale.
The final process option is available
under Section 426 of the UK Insolvency
Act, which permits a company to put an
administrator into place in a designated
overseas territory – such as Jersey or
Guernsey for example. The key here is
to have assets predominately based in
England and Wales or a good reason for
any application to be made for the assets to
be in England and Wales. What this allows
is for the COMI to be maintained within
say Jersey or Guernsey but an England
and Wales administration process to be
used essentially to deal with the assets.
Turning to other jurisdictions, Bowers
and Tett looked at insolvency processes
available in continental Europe. As noted
earlier, an insolvency is essentially a tool
for delivering a restructuring not an end
in itself. What you are looking for is speed
and certainty of process and you want
to get a reflection of the pre-existing,
DEBTWIRE EUROPEAN forum 15
OCTOber 2009
pre-agreed ranking and priorities. The
presenters noted that, unfortunately, all
of those are problems when you come to
looking at processes around Europe.
Processes in Europe as in the UK really fall
into two main categories, court and out-of-
court driven processes. Court adjudicated
insolvency processes in Europe can be
disastrous for a firm. If one looks at the
different processes in the larger European
markets such as Suavegarde in France,
extraordinary administration in Italy and
the Insolvency Plan in Germany they can
all be considered relatively debtor friendly.
These examples are all processes that you
might go to as a company if you wanted
the process to take a long time. That said,
if you want speed, certainty and a process
reflecting ranking, the in-court process
in these jurisdictions is not really where
you want to be, particularly as a creditor.
On the other hand, there are out-of-
court options in Europe. Essentially,
in such situations one would be
looking to have some sort of security
enforcement, and of course the best
way of achieving this is through a share
pledge enforcement – ideally high up the
group structure as a HoldCo if possible.
16 DEBTWIRE EUROPEAN forum
OCTOber 2009
However, the ease of managing a share
pledge enforcement varies widely across
Europe. For instance, in Germany and
France it is much more difficult than in
the UK, though it is easier in jurisdictions
such as the Netherlands and Luxembourg.
Ultimately, people look to whether they can
change the COMI as a result, possibly to
the UK where it pre-packs and schemes
of arraignment may be more favourable.
The final note about jurisdictions and
insolvency processes is that of single
versus multiple processes. Obviously, a
lot of groups have structures that spread
their assets and operations across the
whole of Europe. In such situations,
it is key to avoid multiple insolvencies
which can be a complete disaster when
you have multiple insolvency office
holders who all have their own idea
about how to carry out the insolvency.
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registered trademarks of IntraLinks, Inc. in the United States and/or other countries. DEBTWIRE EUROPEAN forum 17
OCTOber 2009
“Hopefully the improvement in secondary
market prices and consequent improvement
in liquidity will allow debt to trade into
more concentrated hands.”
Justin Bickle, Senior Vice President, Oaktree Capital
Case Study: Using Templates
from Completed Deals to
Maximise Returns
Ken Baird, Partner, Freshfields Bruckhaus Deringer
Edward Bridges, Managing Director, FD
Justin Bickle, Senior Vice President, Oaktree Capital
Alistair Dick, Director, Rothschild
Richard Nevins, Partner, Cadwalader, Wickersham & Taft LLP
Chris Haffenden, Deputy Editor Restructuring, Debtwire (moderator)
The panel began by continuing on the
practical applications of the previous
presentation – insolvency as a restructuring
tool. Echoing comments from Phil Bowers
and Richard Tett, the panel unanimously
chose the UK as their jurisdiction of choice.
UK schemes of arrangement and Company
Voluntary Arrangements (CVAs) were
examined from a practical standpoint, with
Ken Baird and Alistair Dick using McCarthy
& Stone and IMO Car Wash as examples.
Schemes of arrangement are the preferred
tool for cramming down junior creditors.
Asked if the IMO valuation challenge
could have been handled better by the
mezzanine, most said no - if value broke
in their class, they should have been
prepared to take out the seniors at par.
Aside from Luxembourg and Dutch share
enforcements - seen as workable from a
practical standpoint, asset enforcements
and other legal jurisdictions were widely
panned. French Sauvegarde is good
for a pre-pack, but otherwise it is seen
as just a good way for debtors to hide
away from their creditors. Meanwhile,
Spain, and to a lesser extent Italy, are
considered jurisdictions best avoided.
The discussion then moved on to the
contentious sponsor-led restructuring
proposals witnessed earlier in 2009,
as private equity firms sought to take
advantage of urgent new money needs
and the inability of lenders to provide
fresh finance. In these instances, new
money providers were able to secure a
disproportionate amount of the spoils.
In many aspects, the Monier restructuring
was a seminal moment for the market.
Agreed in early July, it was the first example
of lenders taking control of a large LBO, with
a group of hedge funds leading the way.
Emboldened by their success, senior
lenders became increasingly prepared
to take the lead, prompting a change
of tack by equity sponsors towards
a more conciliatory stance.
Third party sale processes accompanying
restructuring negotiations were widely
criticised by the panel, with many seen
as valuation exercises. The M&A is real,
but there are difficulties in convincing
bidders, with only Saeco resulting in
a trade sale so far during 2009.
Banks, and to a lesser extent CLOs, remain
unwilling to take the necessary debt
haircuts, preferring to switch off interest
and tranche the debt, creating ‘zombie
structures’. Alistair Dick and Ken Baird
were charged with defending the zombies
– the view was that it is better to wait for
improved earnings visibility and the return
of bank financing. Justin Bickle and Richard
Nevins, on the other hand, were cast as
zombie slayers – with these situations
seeing unsustainable debt structures and
the storing up of problems for the future.
The latest restructurings cases are
exhibiting far fewer calls for new money,
this coupled with improvement in secondary
market prices, is causing lender inertia
as the sense of urgency wanes. This
is proving a challenge to restructuring
advisers, trying to maintain impetus.
Hopefully the improvement in secondary
market prices and consequent
improvement in liquidity will allow
debt to trade into more concentrated
hands, suggested Justin Bickle.
Junior creditors have suffered badly
during the year, often squeezed out by
a combination of sponsors and senior
creditors. In recent months, they have
started to become more proactive.
Gala Coral is the latest high profile
example, with mezzanine lenders
willing to take equity stakes in return for
writing off or subordinating their debt
claims. The key is to act early before
seniors have a breach to act upon.
In 2010, the number of ‘amend and pretend’
covenant requests are set to rise, noted the
panellists. Sponsors will take advantage
of the inertia to seek additional covenant
headroom in return for increased margins
and fees. A number of companies that
should go into full blown restructuring
such as KION have gone down this
route. This is destroying future value.
The curse of the zombies could be
a theme for 2010 and 2011.
DEBTWIRE EUROPEAN forum 19
OCTOber 2009
Panel: Refinancing Bank Debt –
The Road to Recovery
Ben Booth, Managing Director, European Credit Research, Credit Suisse
Henrik Johnsson, Director, Head of European High Yield Capital Markets, Deutsche Bank
Eugene Regis, Vice President, European High Yield & Leverage Finance Credit Strategy, Barclays Capital
Simon Richards, Managing Partner, New Amsterdam Capital
Mark Wauton, Head of Credit, Aviva Investors
Julie Miecamp, Reporter, Debtwire (moderator)
The panel started with participants
drawing a general picture of the High
yield primary market’s features over the
past two years. A defining aspect of the
credit market over the period has been the
lack of activity in the primary leveraged
loan segment, coupled, until recently,
with an absence of High yield issuance.
The panel agreed that with the credit crisis
crippling CLOs, and with banks on the loan
market less likely to underwrite new deals,
the High yield market was set to benefit
from pent up demand. The absence of a
leveraged loan pipeline and the necessity
to refinance loan deals will provide a
route for corporate groups or private
equity sponsors to come and refinance.
Loan refinancing will, therefore, likely be
a key driver of issuance in the near term,
the panel pointed out. The example of
Wind Telecomunicazione pricing €2.67bn
equivalent 2017 notes at 11.75% 2009
this summer was mentioned to underline
the point. The group's €1.203bn and
US$1.950bn proceeds went to prepay all
of the group’s outstanding PIK loans and
upstream up to €500m of proceeds to
parent company Weather Investments.
Such issuances demonstrated investors’
appetite for sizeable High yield transactions
intended to refinance bank debt.  
20 DEBTWIRE EUROPEAN forum
OCTOber 2009
As investors have been starved of issuance At the time of the panel, the market
for an extended period, demand for High had not yet seen the wall of issuance
yield notes is strong, but the market still expected through the summer or as
has preferences for certain types of issuers. experienced in the US. Issuers were
The days of CCC rated credits are not still waiting for the right time to tap the
quite back yet as investors will look more market on the best possible terms.
favourably at fallen angels and better-
rated new issuers, panellists agreed. Demand has so far come from investors
hungry high yield return, but demand
With the crisis still fresh in everyone’s has also picked up from retail investors
mind and the bad memories of dividend looking to invest in well-known
recap deals, investors can afford to pick champions such as Fiat, for instance.
and choose deals. The new issues that
priced at the time of the roundtable
came with adequate new premiums as
investors are in a position to push for an
adequate risk reward. Investors are likely
to be discerning on pricing as well as
documentation and, to an extent, on the
relationship with potential equity sponsors
tapping the High yield market to refinance.
With many new bonds replacing existing
bank debt or coming alongside it, senior
secured notes are likely to be favoured. The
market has, however, welcomed unsecured
paper for new issuers such as Campofrio.
Although M&A-related new issues could
re-appear going forward, the panel agreed it
would not constitute the brunt of issuance.
 historical data

Outstanding debt of Debtwire Universes – By Debt Size

400,000 Stressed
Distressed
350,000
Expected
Live
300,000
Post Restructuring
Debt size (€m)

250,000

200000

150,000

100,000

50,000

0
Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
07 07 08 08 08 08 08 08 08 08 08 08 08 08 09 09 09 09 09 09 09 09 09 09 09

Source: Debtwire, a part of the Mergermarket Group

Companies and outstanding debt in Debtwire Universes –

By No. of Companies

250
400,000 Stressed
Distressed
350,000
Expected
200
Live
300,000
Post Restructuring
of Companies
companies
(€m)

250,000
150
of size

200000
Number
Debt
Number

100
150,000

100,000
50

50,000

00
Nov
Nov Dec
Dec Jan
Jan Feb
Feb Mar
Mar Apr
Apr May
May Jun
Jun Jul
Jul Aug
Aug Sep
Sep Oct
Oct Nov
Nov Dec
Dec Jan
Jan Feb
Feb Mar
Mar Apr
Apr May
May Jun
Jun Jul
Jul Aug
Aug Sep
Sep Oct
Oct Nov
Nov
07
07 07
07 0808 0808 08
08 08
08 0808 0808 08
08 08 08 0808 08
08 0808 0808 0909 0909 0909 0909 0909 0909 0909 0909 0909 0909 0909

Source: Debtwire, a part of the Mergermarket Group

DEBTWIRE EUROPEAN forum 21

OCTOber 2009
Industry Breakdown

Financial services
Automotive
Real estate
Manufacturing (other)
Industrial
Construction
Chemicals and materials
Consumer:Retail
Leisure
Transportation
Consumer: Other
Consumer: Foods
Energy
Media
Industrial: Electronics
Services (other)
Telecommunications: Carriers
Computer: Semiconductors
Telecommunications: Hardware
Medical: Pharmaceuticals
Computer: Software
Internet/ecommerce
Biotechnology
Utilities (other)
Computer: Hardware

0 5 10 15 20 25 30
Number of situations

Stressed Distressed Expected

Live Post Restructuring

Source: Debtwire, a part of the Mergermarket Group

22 DEBTWIRE EUROPEAN forum

OCTOber 2009
 For more information please contact:
Karina Cooper
Publisher
T: +44 207 059 6324
E: karina.cooper@mergermarket.com
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