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Restructuring presentation _sept_20,_2010

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    Restructuring presentation _sept_20,_2010 Restructuring presentation _sept_20,_2010 Presentation Transcript

    • 2 years after Lehman The turning point for restructuring  FT Business Restructuring Conference September 21st , 2010
    • The base scenario in the fall of 2008  All LBO s would fail and go bust  CLO s and institutional players would have to be liquidated  Distressed debt market would be flooded with paper  Lenders would get hold of assets from Private Equity owners  Corporates would massively resort to rights issues 1
    • The facts An unprecedented surge in restructuring situations Distressed debt market in Europe (€bn) Global Default Rates 50 12.0% 38.7 10.0% 40 9.2% 8.0% 30 6.0% 20 4.0% 4.0% 5.8 10 2.0% 12.1 0.3% 0.8 1.2 0.7 9.5 5.3 0.6 -- 0.4 0.6 2.1 2.2 1.3 -- 1985 1989 1993 1997 2001 2005 2009 2004 2005 2006 2007 2008 2009 H1- Investment grade 2010 Speculative grade Defaults Restructurings Overall Source S&P Source S&P 2
    • The reality test in Europe Restructuring processes actually worked  1 out of 4 LBO existing loans was restructured (in the S&P sense)  c.40% including covenant reset  LBO structures proved extremely resistant and efficient: – 1 single documentation – 1 single pool of security  Processes became rapidly “industrialised” thanks to a pan European benchmarking of practices  The brutality of the economic shock meant immediate operational restructuring measures 3
    • Lenders’ attitudes Only a few transactions where they took control  Some flagship cases – Monier (total debt: €650m post restructuring) – IMO Car Wash (total debt: „185m post restructuring) – CPI (€123m senior debt post restructuring)  However private equity sponsors had to take their due: 2% to 6% of debt in new equity  Harsh for mezzanine holders to defend their positions 4
    • Rights issues for corporates Shareholders paid their share Rights issues by European corporates‚ since 2000 (€ bn) 334 112 125 129 149 108 95 92 94 84 91 67 34 27 24 24 23 22 17 21 19 15 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD Total # deals Source Thomson One Note 1 Excluding FIG 5
    • Significant refinancing risk ahead The refinancing wall Outstanding maturity profile of total European debt (in €bn) 1,250 In total 1,000 c.€1035bn to be 750 refinanced in 500 2012 (against 250 new bond -- primary activity 2010 2011 2012 2013 2014 2015 2016 2017 so far in 2009 of €394bn and Loans Bonds loan activity of Source Thomson €543bn) Outstanding maturity profile of European Leverage Buyouts (in €bn) 150 100 50 -- 2010 2011 2012 2013 2014 2015 2016 2017 LBO Source S&P 6
    • The “New Normal” More conservative pro-forma Debt/ EBITDA ratios Rolling avg. 3-month pro forma Debt/EBITDA ratio of primary LBO s 7.0x 6.0x 5.0x 4.0x 3.0x 2.0x 1.0x -- Jun-98 Jun-00 Jun-02 Jun-04 Jun-06 Jun-08 Jun-10 1st Lien/EBITDA 2nd Lien/EBITDA Other Debt/EBITDA Source S&P 7
    • Appetite for risk Leverage double as costly as any time in past decade Spread unit of leverage: Europe & US 200bps 180bps 160bps 140bps 120bps 100bps 80bps 60bps 40bps 20bps -- 2Q99 2Q00 2Q01 2Q02 2Q03 2Q04 2Q05 2Q06 2Q07 2Q08 2Q09 2Q10 Europe U.S. Source S&P 8
    • New issue spreads Europe & U.S. New issue spreads of BB/BB- Credits: Europe & U.S. New issue spreads of B+/B Credits: Europe & U.S. 500bps 600bps 450bps 550bps 500bps 400bps 450bps 350bps 400bps 300bps 350bps 250bps 300bps 200bps 250bps 150bps 200bps 2H00 2H02 2H04 2H06 2H08 2H10 2H00 2H02 2H04 2H06 2H08 2H10 EUROPE US EUROPE US Source LCD Source LCD 9
    • Voting rights Towards harder restructuring negotiations  Restructurings in 2008/2009 were mainly covenant restructurings where more flexibility was given to the credit. Maturity extensions were rare. Thus only a 2/3 votes was required  Upcoming restructurings will be near the maturity date (2012 wall for corporate loans and 2014 for LBOs)  Full refinancings  Maturity extension with current lenders -> need 100pct approval 10
    • Primary market investors CLO/CDO activity is not dead Weighted average proportion of institutional investors in primary markets 60% 57% 49% 50% 40% 40% 32% 30% 25% 25% 20% 20% 20% 10% N/A -- 2002 2003 2004 2005 2006 2007 2008 2009 LTM 30/06/10 Source S&P 11
    • Debt capital markets Debt capital markets will be key for refinancings European High Yield bond issuance since 2007 (€bn) 30 27 23 25 20 20 15 10 4 5 3 2 -- H1-07 H2-07 H1-08 H2-08 H1-09 H2-09 H1-10 Source S&P  NXP, after its restructuring process, taps high-yield for $1bn to finance sub par debt buybacks  Ineos and Seat Pagine Gialle tapped the high-yield market to take out senior debt at par at the end of restructuring processes  A pattern soon to be followed by Gala Coral  Conti recently refinanced €1bn at 7.25% 12
    • Sustained volatility Capital markets will remain fragile Long term volatility of stock prices (Vstoxx) Itraxx index 100 1,200 75 900 50 600 25 300 -- -- Sep- Mar- Sep- Mar- Sep- Mar- Sep- Sep- Mar- Sep- Mar- Sep- Mar- Sep- 07 08 08 09 09 10 10 07 08 08 09 09 10 10 Source Bloomberg Source Bloomberg 13
    • Sustained volatility The environment for banks’ refinancing will also be key Banks CDS prices 300bps 250bps 200bps 150bps 100bps 50bps -- sept-07 mars-08 sept-08 mars-09 sept-09 mars-10 sept-10 BNP 5yr CDS DB 5yr CDS Barclays 5yr CDS Santander 5yr CDS Source Bloomberg 14
    • Focus on Basel III New regulation to be gradually implemented with likely impact on banks starting in 2012/2013  Min. common equity requirement up from 2% to 4.5% in phases beginning January 1st, 2013  New capital conservation buffer of 2.5% Introduced in phases beginning January 1st, 2016  Possible countercyclical capital buffer of 0%-2.5% (supervisor’s option). No dates  Limits/phase-in for certain deductions, grandfathering of public sector capital injections  Test and implement Leverage Ratio by January 1st, 2018 – In essence: no more than 33 times Tier 1 capital  Test and implement Liquidity Coverage Ratio by January 1st, 2015. This is the most fundamental item of regulation which aims at ensuring bank liquidity Stock of high liquid assets (mainly government paper) – In essence: Net cash outflows over a 30-day time period >= 100%  Test and implement Net Stable Funding Ratio by January 1st, 2018 Available amount of stable funding (capital + <1 yr liability + <1 yr deposit) – In essence: Required amount of stable funding (assets <1 yr) > 100% 15
    • Macro-economic scenarios The shape of recovery will also be key Mid-2009 GDP growth forecasts 1.0% France -- (1.0%) 2009e 2010e UK Spain (2.0%) Italy Germany (3.0%) France Spain (4.0%) (5.0%) Italy UK (6.0%) Germany Source IMF Mid-2010 GDP growth forecasts 3.0% France France UK 2.0% Germany UK Germany Italy Italy Spain 1.0% -- (1.0%) 2009a 2010e Spain 2011e (2.0%) (3.0%) France (4.0%) Spain (5.0%) (6.0%) Germany Italy UK Source IMF 16
    • Insolvency laws Harmonisation of insolvency laws in Europe still not there UK: Insolvency law 1986 Germany: New political EU regulation and Company Act 2006 coalition in October 2009 on cross border regulation is announced new dated 29th May insolvency law soon to 2000 be implemented France: Safeguard law, latest amendment dated 8th April 2010. “Express safeguard” law in Italy: Latest discussion. amendment 31 May 2010 Spain: Latest amendment dated 27 March 2009 17
    • Conclusion The turning point  Debt is still high and will be costly  Refinancing risk will only be addressed if debt capital markets play their role  Markets will be volatile and subject to shocks  Anticipation will be necessary 18
    • Disclaimer The information contained in the attached material has been prepared by Rothschild & Cie († Rothschild ‡) based on public sources. While the information contained herein is believed to be reliable, no representation or warranty is made by Rothschild (nor its Partners, Managing Directors, Directors and employees), as to the accuracy or completeness of such information. Rothschild has not been able to verify independently the information contained herein. By receipt of this information, the recipient agrees that Rothschild shall have no liability for any misstatement or omission or fact or any opinion expressed herein, nor for the consequences of any reliance upon any statement, conclusion or opinion contained herein. Distribution or disclosure of this material to any third party is subject to the prior written permission of Rothschild. 19