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 b...
9.5
12.1
2.22.10.4 0.6 1.3
0.6 0.8 1.2 0.7
5.8
38.7
5.3
--
10
20
30
40
50
2004 2005 2006 2007 2008 2009 H1-
2010
Defaults ...
 1 out of 4 LBO existing loans was restructured (in the S&P sense)
 c.40% including covenant reset
 LBO structures prov...
 Some flagship cases
– Monier (total debt: €650m post restructuring)
– IMO Car Wash (total debt: „185m post restructuring...
Rights issues for corporates
Shareholders paid their share
Rights issues by European corporates‚ since 2000 (€ bn)
17 21 1...
Outstanding maturity profile of European Leverage Buyouts (in €bn)
The refinancing wall
Significant refinancing risk ahead...
The “New Normal”
More conservative pro-forma Debt/ EBITDA ratios
Rolling avg. 3-month pro forma Debt/EBITDA ratio of prima...
Appetite for risk
Leverage double as costly as any time in past decade
Spread unit of leverage: Europe & US
Source S&P
--
...
New issue spreads Europe & U.S.
New issue spreads of B+/B Credits: Europe & U.S.New issue spreads of BB/BB- Credits: Europ...
Voting rights
 Restructurings in 2008/2009 were mainly covenant restructurings where
more flexibility was given to the cr...
Primary market investors
Weighted average proportion of institutional investors in primary markets
CLO/CDO activity is not...
 NXP, after its restructuring process, taps high-yield for $1bn to finance sub par debt buybacks
 Ineos and Seat Pagine ...
Long term volatility of stock prices (Vstoxx)
--
25
50
75
100
Sep-
07
Mar-
08
Sep-
08
Mar-
09
Sep-
09
Mar-
10
Sep-
10
Sust...
Sustained volatility
Banks CDS prices
Source Bloomberg
--
50bps
100bps
150bps
200bps
250bps
300bps
sept-07 mars-08 sept-08...
Focus on Basel III
 Min. common equity requirement up from 2% to 4.5% in phases beginning January
1st, 2013
 New capital...
Germany
France
Italy
Italy Italy
UK
UK
UK
Spain
Spain
Spain
GermanyGermany
France France
(6.0%)
(5.0%)
(4.0%)
(3.0%)
(2.0%...
Harmonisation of insolvency laws in Europe still not there
Insolvency laws
Spain: Latest amendment
dated 27 March 2009
Fra...
Conclusion
 Debt is still high and will be costly
 Refinancing risk will only be addressed if debt capital markets play
...
Disclaimer
The information contained in the attached material has been prepared by Rothschild & Cie
(† Rothschild ‡) based...
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Restructuring presentation _sept_20,_2010

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Restructuring presentation _sept_20,_2010

  1. 1. 2 years after Lehman The turning point for restructuring FT Business Restructuring Conference September 21st , 2010 
  2. 2. 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
  3. 3. 9.5 12.1 2.22.10.4 0.6 1.3 0.6 0.8 1.2 0.7 5.8 38.7 5.3 -- 10 20 30 40 50 2004 2005 2006 2007 2008 2009 H1- 2010 Defaults Restructurings Source S&P An unprecedented surge in restructuring situations Global Default RatesDistressed debt market in Europe (€bn) Source S&P The facts 0.3% 9.2% 4.0% -- 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 1985 1989 1993 1997 2001 2005 2009 Investment grade Speculative grade Overall 2
  4. 4.  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 The reality test in Europe Restructuring processes actually worked 3
  5. 5.  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 Lenders’ attitudes Only a few transactions where they took control 4
  6. 6. Rights issues for corporates Shareholders paid their share Rights issues by European corporates‚ since 2000 (€ bn) 17 21 19 34 15 23 24 24 27 112 22 149 334 95 129 94 125 108 91 92 67 84 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD Total # deals Note 1 Excluding FIG Source Thomson One 5
  7. 7. Outstanding maturity profile of European Leverage Buyouts (in €bn) The refinancing wall Significant refinancing risk ahead Outstanding maturity profile of total European debt (in €bn) In total c.€1035bn to be refinanced in 2012 (against new bond primary activity so far in 2009 of €394bn and loan activity of €543bn) Source S&P Source Thomson -- 250 500 750 1,000 1,250 2010 2011 2012 2013 2014 2015 2016 2017 Loans Bonds -- 50 100 150 2010 2011 2012 2013 2014 2015 2016 2017 LBO 6
  8. 8. The “New Normal” More conservative pro-forma Debt/ EBITDA ratios Rolling avg. 3-month pro forma Debt/EBITDA ratio of primary LBO s Source S&P -- 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 7.0x Jun-98 Jun-00 Jun-02 Jun-04 Jun-06 Jun-08 Jun-10 1st Lien/EBITDA 2nd Lien/EBITDA Other Debt/EBITDA 7
  9. 9. Appetite for risk Leverage double as costly as any time in past decade Spread unit of leverage: Europe & US Source S&P -- 20bps 40bps 60bps 80bps 100bps 120bps 140bps 160bps 180bps 200bps 2Q99 2Q00 2Q01 2Q02 2Q03 2Q04 2Q05 2Q06 2Q07 2Q08 2Q09 2Q10 Europe U.S. 8
  10. 10. New issue spreads Europe & U.S. New issue spreads of B+/B Credits: Europe & U.S.New issue spreads of BB/BB- Credits: Europe & U.S. Source LCD Source LCD 150bps 200bps 250bps 300bps 350bps 400bps 450bps 500bps 2H00 2H02 2H04 2H06 2H08 2H10 EUROPE US 200bps 250bps 300bps 350bps 400bps 450bps 500bps 550bps 600bps 2H00 2H02 2H04 2H06 2H08 2H10 EUROPE US 9
  11. 11. Voting rights  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 Towards harder restructuring negotiations 10
  12. 12. Primary market investors Weighted average proportion of institutional investors in primary markets CLO/CDO activity is not dead Source S&P 20% 20% 25% 40% 49% 57% 25% N/A 32% -- 10% 20% 30% 40% 50% 60% 2002 2003 2004 2005 2006 2007 2008 2009 LTM 30/06/10 11
  13. 13.  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% Debt capital markets will be key for refinancings Debt capital markets European High Yield bond issuance since 2007 (€bn) Source S&P 2 4 20 27 3 23 -- 5 10 15 20 25 30 H1-07 H2-07 H1-08 H2-08 H1-09 H2-09 H1-10 12
  14. 14. Long term volatility of stock prices (Vstoxx) -- 25 50 75 100 Sep- 07 Mar- 08 Sep- 08 Mar- 09 Sep- 09 Mar- 10 Sep- 10 Sustained volatility Itraxx index Source Bloomberg Source Bloomberg -- 300 600 900 1,200 Sep- 07 Mar- 08 Sep- 08 Mar- 09 Sep- 09 Mar- 10 Sep- 10 13 Capital markets will remain fragile
  15. 15. Sustained volatility Banks CDS prices Source Bloomberg -- 50bps 100bps 150bps 200bps 250bps 300bps 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 14 The environment for banks’ refinancing will also be key
  16. 16. Focus on Basel III  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 – In essence:  Test and implement Net Stable Funding Ratio by January 1st, 2018 – In essence: New regulation to be gradually implemented with likely impact on banks starting in 2012/2013 >= 100% Stock of high liquid assets (mainly government paper) Net cash outflows over a 30-day time period > 100% Available amount of stable funding (capital + <1 yr liability + <1 yr deposit) Required amount of stable funding (assets <1 yr) 15
  17. 17. Germany France Italy Italy Italy UK UK UK Spain Spain Spain GermanyGermany France France (6.0%) (5.0%) (4.0%) (3.0%) (2.0%) (1.0%) -- 1.0% 2.0% 3.0% 2009a 2010e 2011e Germany France France Italy UK UK Spain Spain Germany Italy (6.0%) (5.0%) (4.0%) (3.0%) (2.0%) (1.0%) -- 1.0% 2009e 2010e Macro-economic scenarios Mid-2009 GDP growth forecasts Mid-2010 GDP growth forecasts The shape of recovery will also be key Source IMF Source IMF 16
  18. 18. Harmonisation of insolvency laws in Europe still not there Insolvency laws Spain: Latest amendment dated 27 March 2009 France: Safeguard law, latest amendment dated 8th April 2010. “Express safeguard” law in discussion. UK: Insolvency law 1986 and Company Act 2006 Germany: New political coalition in October 2009 announced new insolvency law soon to be implemented Italy: Latest amendment 31 May 2010 EU regulation on cross border regulation is dated 29th May 2000 17
  19. 19. Conclusion  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 The turning point 18
  20. 20. 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
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