Your SlideShare is downloading. ×
Corporate Bankruptcy: Significant Issues for 2014 and Beyond LIVE Webcast
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Corporate Bankruptcy: Significant Issues for 2014 and Beyond LIVE Webcast

270
views

Published on

In a volatile and unpredictable economic environment, companies and industry watchers must be in the know with respect to the latest trends and issues in corporate bankruptcy. The Knowledge Group is …

In a volatile and unpredictable economic environment, companies and industry watchers must be in the know with respect to the latest trends and issues in corporate bankruptcy. The Knowledge Group is assembling a panel of practitioners and thought leaders to offer insights and key takeaways. In a two-hour live webcast, speakers will address:

- Bankruptcy System: An Overview
- Recent Bankruptcy Cases and Lessons Learned
- Bankruptcy and Restructuring Litigation
- The Timeline For Bankruptcy Filings and Steps Involved
- Alternatives to Bankruptcy
- Secured claims and claim priorities
- Bankruptcy and Unexpired Leases, Executory, and Other Contracts
- Preference and Fraudulent Transfer Avoiding Powers and How Prosecute and Defend Them
- The Chapter 11 Plan: Drafting, Solicitation and Confirmation
- Procedural Requirements For Debtors, Creditors and Their Attorneys In Bankruptcy
- Bankruptcy Professionals and The Requirements For Their Employment and Compensation
- The Company After Bankruptcy
- Up-to-the-Minute Regulatory Updates
- Private equity and insolvent portfolio companies
- Healthcare in bankruptcy

This course is a must attend for attorneys who want to learn or re-learn how to counsel their clients on corporate bankruptcy issues in the most effective manner.


To view the webcast go to this link : http://youtu.be/9pLjh3OxABE
To learn more about the webcast please visit our website: http://theknowledgegroup.org/

Published in: Education

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
270
On Slideshare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
0
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. Speaker Firms and Organization: BDO Consulting David E. Berliner Partner Mesirow Financial Consulting, LLC Stephen B. Darr Senior Managing Director Gordian Group LLC Peter Kaufman President and Head of Restructuring and Distressed M&A Thank you for logging into today’s event. Please note we are in standby mode. All Microphones will be muted until the event starts. We will be back with speaker instructions @ 9:55am. Any Questions? Please email: Info@knowledgecongress.org Group Registration Policy Please note ALL participants must be registered or they will not be able to access the event. If you have more than one person from your company attending, you must fill out the group registration form. We reserve the right to disconnect any unauthorized users from this event and to deny violators admission to future events. To obtain a group registration please send a note to info@knowledgecongress.org or call 646.202.9344. Presented By: March 14, 2014 1 Partner Firms:
  • 2. March 14, 2014 2  If you experience any technical difficulties during today’s WebEx session, please contact our Technical Support @ 866-779-3239.  You may ask a question at anytime throughout the presentation today via the chat window on the lower right hand side of your screen. Questions will be aggregated and addressed during the Q&A segment.  Please note, this call is being recorded for playback purposes.  If anyone was unable to log in to the online webcast and needs to download a copy of the PowerPoint presentation for today’s event, please send an email to: info@knowledgecongress.org. If you’re already logged in to the online webcast, we will post a link to download the files shortly.  If you are listening on a laptop, you may need to use headphones as some laptops speakers are not sufficiently amplified enough to hear the presentations. If you do not have headphones and cannot hear the webcast send an email to info@knowledgecongress.org and we will send you the dial in phone number.
  • 3. March 14, 2014 3  About an hour or so after the event, you'll be sent a survey via email asking you for your feedback on your experience with this event today - it's designed to take less than two minutes to complete, and it helps us to understand how to wisely invest your time in future events. Your feedback is greatly appreciated. If you are applying for continuing education credit, completions of the surveys are mandatory as per your state boards and bars. 6 secret words (3 for each credit hour) will be given throughout the presentation. We will ask you to fill these words into the survey as proof of your attendance. Please stay tuned for the secret word.  Speakers, I will be giving out the secret words at randomly selected times. I may have to break into your presentation briefly to read the secret word. Pardon the interruption.
  • 4. March 14, 2014 4 Welcome to the Knowledge Group Unlimited Subscription Programs. We have Two Options Available for You: FREE UNLIMITED: This program is free of charge with no further costs or obligations. It includes:  Unlimited access to over 15,000 pages of course material from all Knowledge Group Webcasts.  Subscribers to this program can download any slides, white papers, or supplemental material covered during all live webcasts.  50% discount for purchase of all Live webcasts and downloaded recordings. PAID UNLIMITED: Our most comprehensive and cost-effective plan, for a one-time fee:  Access to all LIVE Webcasts (Normally $199 to $349 for each event without a subscription). Including: Bring-a-Friend – Invite a client or associate outside your firm to attend for FREE. Sign up for as many webcasts as you wish.  Access to all of Recorded/Archived Events & Course Material includes 1,500+ hours of audio material (Normally $299 for each event without a subscription).  Free CLE/CPE/CE Processing (Normally $49 Per Course without a subscription).  Access to over 15,000 pages of course material from Knowledge Group Webcasts.  Ability to invite a guest of your choice to attend any live webcast Free of charge (Exclusive benefit only available for PAID UNLIMITED subscribers).  6 Month Subscription is $299 with No Additional Fees Other options are available.  Special Offer: Sign up today and add 2 of your colleagues to your plan for free Check the “Triple Play” box on the sign-up sheet contained in the link below. https://gkc.memberclicks.net/index.php?option=com_mc&view=mc&mcid=form_157964
  • 5. March 14, 2014 5 Knowledge Group UNLIMITED PAID Subscription Programs Pricing: Individual Subscription Fees: (2 Options) Semi-Annual: $299 one-time fee for a 6 month subscription with unlimited access to all webcasts, recordings, and materials. Annual: $499 one-time fee for a 12 month unlimited subscription with unlimited access to all webcasts, recordings, and materials. Group plans are available. See the registration form for details. Best ways to sign up: 1.Fill out the sign up form attached to the post conference survey email. 2.Sign up online by clicking the link contained in the post conference survey email. 3. Click the link below or the one we just posted in the chat window to the right. https://gkc.memberclicks.net/index.php?option=com_mc&view=mc&mcid=form_157964 Discounts: Enroll today and you will be eligible for the “Triple Play” program and 3% off if you pay by credit card. Also we will waive the $49 CLE/CPE processing fee for today’s conference. See the form attached to the post conference survey email for details. Questions: Send an email to: info@knowledgecongress.org with “Unlimited” in the subject.
  • 6. Partner Firms: March 14, 2014 6 BDO Consulting provides litigation & dispute resolution, investigations & compliance, business restructuring, valuation, and risk advisory services to major corporations, law firms, insurance companies, financial service entities, and government organizations. Our highly experienced and well-credentialed professionals draw upon a range of industry knowledge and completed consulting engagements throughout the U.S. and internationally to provide clients with unparalleled service. BDO Consulting leverages the global industry and accounting knowledge of the BDO international network, providing rapid, strategic advice to assist our clients with dispute resolution, risk management, financial solvency and regulatory compliance issues. Mesirow Financial Consulting, LLC is a full-service financial and operational advisory consulting firm. We provide corporate recovery, litigation, investigative and intelligence services, valuation, interim management, distressed M&A and capital raising, due diligence and technology advisory services on a global basis. Gordian Group, LLC is the leading investment bank in the country specializing in complex and/or stressed/distressed financial advisory work. We are a registered broker-dealer and have been in business since 1988. Gordian is ranked in the top 10 firms by The Deal in its League Tables, and as individual investment bankers, Peter Kaufman and Henry Owsley have been ranked as high as number 1 recently in The Deal's League Tables. Our lead partners are also the authors of the definitive work in the field, Distressed Investment Banking: To the Abyss and Back, Beard Publications, 2005.
  • 7. Brief Speaker Bios: David E. Berliner David Berliner has more than 25 years of experience in matters involving business restructurings, bankruptcy and insolvency, forensic investigations, bankruptcy litigation, transaction due diligence, accounting and auditing. Mr. Berliner has been involved in many bankruptcies representing unsecured creditors, debtors, and secured lenders. He has significant experience in bankruptcy and restructuring matters involving the retail, alternative energy, media, manufacturing, distribution and service industries. Mr. Berliner has provided testimony at depositions and in bankruptcy court on solvency issues and other bankruptcy issues. He has also assisted attorneys in analyzing financial documents, developing questions for depositions and trial testimony, evaluating testimony of witnesses, and preparing and responding to interrogatories. March 14, 2014 7 Stephen B. Darr Mr. Darr has over 30 years of experience providing accounting, auditing and financial consulting services to business organizations, many of which are experiencing significant financial and operating difficulties. His experience also includes providing litigation support and expert testimony in bankruptcy and non-bankruptcy matters involving preference and fraudulent conveyance actions, professional liability claims, patent infringement, royalty and intellectual property disputes, construction claims, wrongful employment discharge and lender liability and business tort claims. He has testified in U.S. Bankruptcy Court proceedings in Delaware, New York, Pennsylvania, Massachusetts, Rhode Island, Connecticut, Maine, New Hampshire and Vermont on a wide range of bankruptcy matters. Mr. Darr is a CPA. CIRA and CDBV; He also holds FINRA Series 7, 24 and 79 registrations.
  • 8. Brief Speaker Bios: Peter Kaufman Peter Kaufman is President of Gordian Group, the leading investment bank focused solely on advising corporations, private equity firms and government agencies in distressed situations. He heads the firm's Restructuring and Distressed M&A practice. Peter has been ranked the #1 investment banker nationally in financial restructuring. He is co-author of the definitive book on distressed investment banking, Distressed Investment Banking: To The Abyss and Back, Beard Books, 2005 March 14, 2014 8 ► For more information about the speakers, you can visit: http://theknowledgegroup.org/event_name/corporate-bankruptcy-significant-issues-for-2014-and-beyond-live-webcast/
  • 9. In a volatile and unpredictable economic environment, companies and industry watchers must be in the know with respect to the latest trends and issues in corporate bankruptcy. The Knowledge Group is assembling a panel of practitioners and thought leaders to offer insights and key takeaways. In a two-hour live webcast, speakers will address: - Bankruptcy System: An Overview - Recent Bankruptcy Cases and Lessons Learned - Bankruptcy and Restructuring Litigation - The Timeline For Bankruptcy Filings and Steps Involved - Alternatives to Bankruptcy - Secured claims and claim priorities - Bankruptcy and Unexpired Leases, Executory, and Other Contracts - Preference and Fraudulent Transfer Avoiding Powers and How Prosecute and Defend Them - The Chapter 11 Plan: Drafting, Solicitation and Confirmation - Procedural Requirements For Debtors, Creditors and Their Attorneys In Bankruptcy - Bankruptcy Professionals and The Requirements For Their Employment and Compensation - The Company After Bankruptcy - Up-to-the-Minute Regulatory Updates - Private equity and insolvent portfolio companies - Healthcare in bankruptcy This course is a must attend for attorneys who want to learn or re-learn how to counsel their clients on corporate bankruptcy issues in the most effective manner. March 14, 2014 9
  • 10. Featured Speakers: March 14, 2014 10 SEGMENT 1: David E. Berliner Partner BDO Consulting SEGMENT 2: Stephen B. Darr Senior Managing Director Mesirow Financial Consulting, LLC SEGMENT 3: Peter Kaufman President and Head of Restructuring and Distressed M&A Gordian Group LLC
  • 11. Introduction David Berliner has more than 25 years of experience in matters involving business restructurings, bankruptcy and insolvency, forensic investigations, bankruptcy litigation, transaction due diligence, accounting and auditing. Mr. Berliner has been involved in many bankruptcies representing unsecured creditors, debtors, and secured lenders. He has significant experience in bankruptcy and restructuring matters involving the retail, alternative energy, media, manufacturing, distribution and service industries. Mr. Berliner has provided testimony at depositions and in bankruptcy court on solvency issues and other bankruptcy issues. He has also assisted attorneys in analyzing financial documents, developing questions for depositions and trial testimony, evaluating testimony of witnesses, and preparing and responding to interrogatories. Mr. Berliner is a member of BDO’s Retail and Consumer Products practice and has written articles and been quoted in publications on both retail industry and bankruptcy & restructuring issues, and spoken at various educational conferences. March 14, 2014 11 SEGMENT 1: Corey Parker Senior Consultant Baker Tilly Virchow Krause, LLP SEGMENT 1: David E. Berliner Partner BDO Consulting
  • 12. Corporate Bankruptcy – March 14, 2014 Financial Advisory David Berliner, Partner BDO Consulting – Discussion Topics •Bankruptcy System – An Overview •Bankruptcy Professionals & Requirements for Employment and Compensation •Preferences and Fraudulent Transfers •Bankruptcy & Restructuring Litigation •Secured Claims and Claim Priorities •Unexpired Leases & Executory Contracts March 14, 2014 12 SEGMENT 1: Corey Parker Senior Consultant Baker Tilly Virchow Krause, LLP SEGMENT 1: David E. Berliner Partner BDO Consulting
  • 13. Corporate Bankruptcy – March 14, 2014 Stephen Darr, Senior Managing Director, Mesirow Financial Consulting – Discussion Topics •Alternatives to Bankruptcy •Timeline for Bankruptcy Filings and Steps Involved •Chapter 11 Plan: Drafting, Solicitation and Confirmation Peter Kaufman, President Gordian Group – Discussion Topics •Private Equity & Insolvent Portfolio Companies •Healthcare in Bankruptcy •Section 363 Asset Sale – Fisker Automotive case March 14, 2014 13 SEGMENT 1: Corey Parker Senior Consultant Baker Tilly Virchow Krause, LLP SEGMENT 1: David E. Berliner Partner BDO Consulting
  • 14. Bankruptcy System: An Overview • Bankruptcy law in the U.S. was codified under federal law in 1978. - Prior to that, bankruptcy law was a mix of federal and state laws. - Federal bankruptcy law now preempts any conflicting state laws. • Federal bankruptcy law affects the rights of a debtor and all creditors of the debtor • Generally, a debtor has 3 options available in seeking bankruptcy protection for a business: - Chapter 7 – Liquidation - Chapter 11 – Reorganization (can also be used for liquidation) - Chapter 15 - Governs legal process for cross-border international bankruptcies • Generally, a debtor can file for bankruptcy by filing a voluntary bankruptcy petition with the Bankruptcy Court. March 14, 2014 14 SEGMENT 1: Corey Parker Senior Consultant Baker Tilly Virchow Krause, LLP SEGMENT 1: David E. Berliner Partner BDO Consulting
  • 15. Bankruptcy Code & Amendments • Bankruptcy Code was effective October 1, 1979. • There have been 4 major amendments since • 1984 • 1993 • 1997 • 2005 • 2005 Act – Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) • Amendment passed primarily to reduce the perceived abuses by consumers and some business issues were added to reduce the time that a business can be in bankruptcy • Limit time debtor has to decide whether to assume or reject leases • Limit time debtor has exclusive right to develop a plan • Also included provision that goods shipped within 20 days of bankruptcy filing are now administrative expenses March 14, 2014 15 SEGMENT 1: Corey Parker Senior Consultant Baker Tilly Virchow Krause, LLP SEGMENT 1: David E. Berliner Partner BDO Consulting
  • 16. Bankruptcy Courts & US Trustee Structure • Bankruptcy Courts • There are over 300 bankruptcy judges in U.S. • Bankruptcy Courts receive cases from Federal District Court • Bankruptcy Judges address core proceedings, which are common issues that arise in bankruptcy cases • US Trustee Structure • 21 Regions • US Trustee is appointed for each region March 14, 2014 16 SEGMENT 1: Corey Parker Senior Consultant Baker Tilly Virchow Krause, LLP SEGMENT 1: David E. Berliner Partner BDO Consulting
  • 17. Chapter 7 vs. Chapter 11 • Chapter 7 (Liquidation) – provides for the orderly liquidation of the assets of the debtor. • The assets are generally promptly sold and the proceeds are distributed to creditors. • Can also liquidate using Chapter 11 or an Assignment for the Benefit of Creditors (“ABC”) under State Law • ABC: Debtor voluntarily transfers title to assets to an assignee who liquidates them and distributes the proceeds among the creditors • Chapter 11 (Reorganization) – allows for reorganization of the business and a “fresh start” • Debtor retains control of business as a Debtor-In-Possession (DIP) • Assets and future income of the debtor are available to pay creditors under a “Plan of Reorganization” which permits the debtor to remain in possession of its assets and to “reorganize” its business, most likely with reduced liabilities. • Business attempts to continue operating without the full amount of debt that existed prior to the bankruptcy filing. March 14, 2014 17 SEGMENT 1: Corey Parker Senior Consultant Baker Tilly Virchow Krause, LLP SEGMENT 1: David E. Berliner Partner BDO Consulting
  • 18. Bankruptcy Professionals and The Requirements For Their Employment and Compensation Retention of Professionals •Debtors, creditors committee and secured creditor can retain professionals to assist them with the requirements of the bankruptcy process, with Court approval. • Professionals include attorneys, financial advisors, investment bankers, accountants, etc. •In Chapter 11 cases and in many out-of-court settlements, an unsecured creditors’ committee will be appointed by the US Trustee. •Professionals must file a retention application with the Court • Must review and disclose all potential conflicts of interest – professional cannot have an interest adverse to the Debtor (can’t be a creditor of the Debtor). • Describe experience and expertise of the firm to be employed, why it is necessary to be retained, services to be performed and terms of compensation. March 14, 2014 18 SEGMENT 1: Corey Parker Senior Consultant Baker Tilly Virchow Krause, LLP SEGMENT 1: David E. Berliner Partner BDO Consulting
  • 19. Bankruptcy Professionals and The Requirements For Their Employment and Compensation Compensation of Professionals: •The compensation of all of the above professionals is generally paid by the debtor. • Professional fees are considered administrative expenses. • Typically professionals get some carve-out of the lender’s collateral for a portion of their fees (downside protection). • Full disclosure is required for all payments to professionals. • Only reasonable and necessary expenses will be reimbursed • Professionals must file fee applications with the Bankruptcy Court and have their fees approved. • Proper notice is required; not less than 20 days prior to hearing • New US Trustee Fee Guidelines -- On June 11, 2013, the US Trustee’s office issued new guidelines for the payment of attorneys’ fees and expenses in chapter 11 cases with $50 million or greater in assets or liabilities. March 14, 2014 19 SEGMENT 1: Corey Parker Senior Consultant Baker Tilly Virchow Krause, LLP SEGMENT 1: David E. Berliner Partner BDO Consulting
  • 20. What is a preference § 547(b)? • Payments made by a bankrupt company to suppliers within 90 days (1 year if an insider) prior to the bankruptcy filing can be considered “preferential.” • If deemed preferential, payments received by the supplier may have to be returned to the bankrupt company. • Rational for Why Preferential Payments Must Be Returned • Rationale is to discourage suppliers and vendors from pursuing overly aggressive collection efforts. • The law governing preference payments also allows suppliers who follow the rules to continue to do business with a distressed company in the hope that a bankruptcy filing can be avoided without the fear of having to return payments received prior to a filing. • Many companies do not understand their exposure to preferences and the exposure can be substantial! • Companies who shorten credit terms or impose other restrictions often just make the preference problem worse. March 14, 2014 20 SEGMENT 1: Corey Parker Senior Consultant Baker Tilly Virchow Krause, LLP SEGMENT 1: David E. Berliner Partner BDO Consulting
  • 21. Preferences • 5 elements must be met for a transfer to be characterized as an avoidable preference: - The transfer must be made to or for the benefit of a creditor. - The transfer must be made for, or on account of, an antecedent debt owed by the debtor. - The transfer must be made while the debtor is insolvent (discussed further below). - The transfer must have been made within 90 days prior to bankruptcy filing (1 year for insiders). - The transfer enables the creditor to receive more than it would receive in a liquidation under Chapter 7. • In general, any payment made to an unsecured creditor that would not receive 100% in a liquidation may be considered a potential preference • Insolvency is Presumed if the Transfer is made within 90 Days prior to bankruptcy • This presumption does not apply to insiders • Although a debtor is presumed insolvent during the preference period, if the creditor challenges, the debtor has the ultimate burden of proof • Prepayments are not preferences • Time to recover preference payments – 2 years from bankruptcy filing March 14, 2014 21 SEGMENT 1: Corey Parker Senior Consultant Baker Tilly Virchow Krause, LLP SEGMENT 1: David E. Berliner Partner BDO Consulting
  • 22. Major Defenses to a Preference • Contemporaneous Exchange [Section 547(c)(1)] • If the parties intended that the exchange of value for payment was to be contemporaneous, the payment is not considered a preference. • Debtor must receive new (and comparable) value in exchange for the transfer. • Ordinary Court of Business [Section 547(c)(2)] • Whether the payment was made in the ordinary course can be determined in one of two ways (only one test needs to apply): • Subjective Test • Objective Test • Security Interest Securing New Value [Section 547(c)(3)] • Subsequent New Value [Section 547(c)(4)] • New value is generally defined as new goods or services provided to a company. • The new credit must be unsecured. • Transfer for business debt less than $6,225 within the 90-day period [Section 547(c)(9)] March 14, 2014 22 SEGMENT 1: Corey Parker Senior Consultant Baker Tilly Virchow Krause, LLP SEGMENT 1: David E. Berliner Partner BDO Consulting
  • 23. Fraudulent Transfers • Fraudulent transfer law is a remedy provided to creditors to unwind or “avoid” a debtor’s improper transfer of property. • Action in bankruptcy court may be under state law (look back period may be 4-6 years) or bankruptcy code (Section 548), for transfers made within 2 years of filing. • There are two types of fraudulent transfers: • “Actual” fraudulent transfers, which are those transfers made by the debtor with intent to hinder, delay, or defraud the debtor’s creditors. • “Constructive” fraudulent transfers, which are transfers for less than reasonably equivalent value (deemed to be fraudulent even though there may not be actual intent to defraud); debtor must be insolvent - Reasonable Equivalent Value – factors that should be considered: - No precise formula – courts must determine issue based on facts & circumstances - Key is whether the transaction provided commercial value reasonably equivalent to the commercial value of the assets transferred. March 14, 2014 23 SEGMENT 1: Corey Parker Senior Consultant Baker Tilly Virchow Krause, LLP SEGMENT 1: David E. Berliner Partner BDO Consulting
  • 24. Bankruptcy & Restructuring Litigation • Debtor in Possession takes possession of all property of the Estate by: • Avoiding liens and preferences • Attacking fraudulent transfers • Using other powers granted under the Code • Allows avoidance of any liens that were not properly filed • Reclamation • Goods received within 45 days of petition date • Request must be made within 20 days after filing • Goods must not be sold or used in the manufacture of other goods. • Insolvency • Defined as Total Liabilities exceeding the entity’s property at fair valuation. • Fair Value, in the context of a going concern, is determined by the fair price of the debtors’ assets that could be obtained if sold in a prudent manner within a reasonable period of time - Debtor was insolvent or became insolvent as a result of the transfer - Debtor was engaged in business with unreasonably small capital - Debtor incur debts beyond its ability to repay March 14, 2014 24 SEGMENT 1: Corey Parker Senior Consultant Baker Tilly Virchow Krause, LLP SEGMENT 1: David E. Berliner Partner BDO Consulting
  • 25. Secured Claims • Secured Claims -- Creditors whose claims are secured by the assets of the debtor. • DIP lenders often require a super priority lien over existing secured creditors.‐ • Often the DIP lender will allow for "carve outs" for certain administrative payments. • Allowed secured claim is equal to the value of the collateral in which the debtor has an interest. • A deficiency claim (general unsecured claim) arises when the value of a secured lender's collateral assets do not sufficiently cover the secured claim amount • Adequate Protection – unless surrendered to the creditor, a debtor must protect the value of each secured creditor’s interest in the debtor’s property. • To the extent that value is diminished while the creditor is prevented from foreclosing on the property due to the automatic stay, the creditor may be entitled to cash payments, additional liens or additional collateral as compensation or adequate protection • Two ways to leave a claim unimpaired • Do not alter the claim (interest and principal payments are made during the chapter 11) • If claim is altered, cure the defaults • Reinstate maturity of the claim • Compensate holder of claim for damages March 14, 2014 25 SEGMENT 1: Corey Parker Senior Consultant Baker Tilly Virchow Krause, LLP SEGMENT 1: David E. Berliner Partner BDO Consulting
  • 26. Claim Priorities • Secured Claims -- usually rank ahead of administrative claims • Section 507 provides that the following claims have priority: • Administrative expenses – the actual, necessary costs and expenses of preserving the estate • Professional fees • Claims for goods shipped or services provided within 20 days of the filing (Section 503(b)(9) claims) • Priority General Unsecured Claims -- Must be paid in full before claims of lower priority or general unsecured claims may receive any distribution. • Wages (includes vacation, severance, etc.) up to cap of $12,725 • Contributions to employee benefit plans • Governmental units (income tax due less than 3 years prior to petition date) • All Other General Unsecured Claims March 14, 2014 26 SEGMENT 1: Corey Parker Senior Consultant Baker Tilly Virchow Krause, LLP SEGMENT 1: David E. Berliner Partner BDO Consulting
  • 27. Claims - Other • Creditors may file a proof of claim to serve notice that the creditor has a claim against the estate. • Claims bar date is set by the Court • Proof of claim may be filed at any time prior to the bar date. • Proof of claim is valid and entitled to payment unless a party in interest objects (claimant has the burden of proving the validity of the claim) • Disallowed Claims • Claims not enforceable (other than contingent or unliquidated) March 14, 2014 27 SEGMENT 1: Corey Parker Senior Consultant Baker Tilly Virchow Krause, LLP SEGMENT 1: David E. Berliner Partner BDO Consulting
  • 28. Unexpired Leases, Executory, and Other Contracts • A key motivation for certain debtors to file chapter 11 is the protection of the automatic stay as well as the ability to reject certain unfavorable prepetition leases and other executory contracts. • An executory contract is a binding legal contract in which continuing obligations exist on both sides of the contract • Debtor has 3 options regarding unexpired leases or executory contracts • Reject (reject further obligations under the contract) • Assume and retain • Assume and assign • If the debtor decides to reject an executory contract or unexpired lease, this is considered a prepetition breach and the creditor is entitled to remedies for the breach (treated as a pre-petition general unsecured claim). March 14, 2014 28 SEGMENT 1: Corey Parker Senior Consultant Baker Tilly Virchow Krause, LLP SEGMENT 1: David E. Berliner Partner BDO Consulting
  • 29. Unexpired Leases, Executory, and Other Contracts • Rejection of real property leases - damages are limited • One year’s rent or • 15% of the remaining terms of the lease (not to exceed 3 years’ rent) • Plus prepetition claims for unpaid rent • To assume executory contract or unexpired lease, the debtor must: • Cure all defaults • Compensate for actual monetary losses • Provide adequate assurance of future performance • Prior to BAPCPA, the deadline for assumption or rejection was 60 days, but was extended indefinitely in practice. March 14, 2014 29 SEGMENT 1: Corey Parker Senior Consultant Baker Tilly Virchow Krause, LLP SEGMENT 1: David E. Berliner Partner BDO Consulting
  • 30. Introduction Mr. Darr has over 30 years of experience providing accounting, auditing and financial consulting services to business organizations, many of which are experiencing significant financial and operating difficulties. His experience also includes providing litigation support and expert testimony in bankruptcy and non-bankruptcy matters involving preference and fraudulent conveyance actions, professional liability claims, patent infringement, royalty and intellectual property disputes, construction claims, wrongful employment discharge and lender liability and business tort claims. He has testified in U.S. Bankruptcy Court proceedings in Delaware, New York, Pennsylvania, Massachusetts, Rhode Island, Connecticut, Maine, New Hampshire and Vermont on a wide range of bankruptcy matters. Mr. Darr is a CPA. CIRA and CDBV; He also holds FINRA Series 7, 24 and 79 registrations. March 14, 2014 30 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 2: Stephen B. Darr Senior Managing Director Mesirow Financial Consulting, LLC
  • 31. Emerging from Reorganization  Three ways to emerge – Dismissal – Conversion to Chapter 7 – Confirmation of a Plan or  Reorganization  Liquidation March 14, 2014 31 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 2: Stephen B. Darr Senior Managing Director Mesirow Financial Consulting, LLC
  • 32. Requirements for confirmation of a Plan  Plan  Disclosure Statement  Vote by impaired creditor classes  Acceptance by at least one impaired class  Compliance with the “Absolute Priority” Rule  Confirmation by the Court March 14, 2014 32 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 2: Stephen B. Darr Senior Managing Director Mesirow Financial Consulting, LLC
  • 33. Plan Requirements  Classify all claims and interests  Specify any class that is not impaired  Describe the treatment to be accorded any impaired class  Treat every claim or interest within a particular class identically  Establish adequate methods to implement plan  Include a provision prohibiting issuance of nonvoting stock  Provide for selection of officers and directors in a manner consistent with interests of creditors and equity interests March 14, 2014 33 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 2: Stephen B. Darr Senior Managing Director Mesirow Financial Consulting, LLC
  • 34. Disclosure Statement Requirements  Provide adequate information, including: – Plan approval process – Summary of management – Summary of Plan provisions – Financial information and projections – Reorganization value – Alternative to Plan (liquidation analysis) – Special risk factors – Be approved by the Court prior to soliciting votes March 14, 2014 34 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 2: Stephen B. Darr Senior Managing Director Mesirow Financial Consulting, LLC
  • 35. Creditor Acceptance  Only impaired classes entitled to vote  At least one class must vote to accept Plan  Of the creditors actually voting – Two-thirds of the dollars must vote “yes” – One-half + 1 of the number must vote “yes  Dissenting classes may be overridden if the Court finds that: – For secured claims  Secured claimants retain liens securing claims and receive deferred cash payments totaling the present value of allowed claims  Indubitably equivalent value – For unsecured claims – No holder of a junior claim or interest receives any recovery (Absolute priority rule) March 14, 2014 35 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 2: Stephen B. Darr Senior Managing Director Mesirow Financial Consulting, LLC
  • 36. Confirmation by the Court  Court must “confirm” that requirements have been met, including : – Compliance with applicable provisions of Title 11 – Proposal made in “Good Faith” – Disclosure of payments – Disclosure of officers – Approval of regulatory rates, if necessary – Adherence to “Best interests of Creditors’” test – Provision made for the treatment of “priority claims” – Acceptance by at least one class of non-insider impaired claims – Feasibility of Plan – Payment of U.S. Trustee fees – Provision for payment of retiree benefits as required by Section 1114 of the Bankruptcy Code March 14, 2014 36 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 2: Stephen B. Darr Senior Managing Director Mesirow Financial Consulting, LLC
  • 37. Disadvantages of Chapter 11  Chapter 11 is not business as usual – Expensive – Broad exposure of strategic and operational plans and financial results – Intense scrutiny by the Court, US Trustee and Creditors Committee  Time spent – Court hearings – Creditor meetings – Reassuring all parties in interest  Reporting Requirements – Bankruptcy Schedules – Statements of Financial Affairs – Monthly operating reports – Justification and Court authorization of any “out-of-the ordinary course of business” decisions March 14, 2014 37 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 2: Stephen B. Darr Senior Managing Director Mesirow Financial Consulting, LLC
  • 38. Exclusive Period  Period in which only the debtor may negotiate the terms of or file a plan – Plan must be filed with the Court before 120 days after the commencement of the case – Plan must be accepted by creditors within 180 after the commencement of the case March 14, 2014 38 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 2: Stephen B. Darr Senior Managing Director Mesirow Financial Consulting, LLC
  • 39. Exclusive Period  Exclusive Period may be reduced or extended by the Court, but not beyond 18 months for filing a plan and 20 months for acceptance  Exclusivity Period terminates if either – The debtor fails to comply with the above time requirements – A trustee is appointed – If the Exclusive Period terminates, then any party in interest may file a Plan, including:  debtor  trustee  creditors’ committee  equity security holders’ committee  a creditor  an equity security holder  any indenture trustee March 14, 2014 39 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 2: Stephen B. Darr Senior Managing Director Mesirow Financial Consulting, LLC
  • 40. Alternatives to Chapter 11  Key feature of U.S. Bankruptcy law is that it is generally the only procedure to force a general adjustment (or discharge) of liabilities  Alternatives require some level of cooperation from creditors  Alternatives include – Out of Court Workout – Composition of Creditors – State court receivership – “Friendly Foreclosure” under the Uniform Commercial Code – Assignment for the benefit of creditors March 14, 2014 40 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 2: Stephen B. Darr Senior Managing Director Mesirow Financial Consulting, LLC
  • 41. Alternatives to Chapter 11 – Out-of-Court Workout  Substantially more common than Chapter 11 proceedings  Generally involves a small number of creditors and companies in the earlier stages of financial distress  Generally involves extension of time to repay creditors in full – Composition of Creditors  Similar to but more formal version of Out-of-Court Workout  Generally used when larger number of creditors  Usually includes – A formal announcement to creditors of the proceedings – A meeting of creditors – A Composition Plan – A Composition Disclosure Statement – Solicitation of creditor assents to the proposed repayment terms March 14, 2014 41 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 2: Stephen B. Darr Senior Managing Director Mesirow Financial Consulting, LLC
  • 42. Alternatives to Chapter 11 March 14, 2014 42 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 2: Stephen B. Darr Senior Managing Director Mesirow Financial Consulting, LLC
  • 43. Alternatives to Chapter 11 – “Friendly Foreclosure” under the Uniform Commercial Code  Can be used to transfer an operating business  Buyer generally found for the Company’s assets  Company cooperates with the lender’s foreclosure sale  Assets immediately transferred to the buyer  Used where – Company cannot survive the time necessary for a chapter 11 “363” sale. – No significant buyer interest  Only feasible if secured lender is under-collateralized – Assignment for the benefit of creditors March 14, 2014 43 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 2: Stephen B. Darr Senior Managing Director Mesirow Financial Consulting, LLC
  • 44. Alternatives to Chapter 11 – Assignment for the benefit of creditors – State law equivalent of Chapter 7  Trustee = Assignee  May be significant differences fro the Bankruptcy Code, such as – Ability to recover preferences and fraudulent transfers – No automatic stay – Priority amounts may be different – No 503(b)(9) claims – No upper limit on landlord’s claim for breach of the lease. – No ability to sell free of liens and encumbrances  May or may not require Court filings March 14, 2014 44 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 2: Stephen B. Darr Senior Managing Director Mesirow Financial Consulting, LLC
  • 45. March 14, 2014 45 CLE PROCESSING The Knowledge Group offers complete CLE processing solutions for your webcasts and land events. This comprehensive service includes everything you need to offer CLE credit at your conference: Complete end-to-end CLE credit Solutions Setting up your marketing collateral properly. Completing and filing all of the applications to the state bar. Guidance on how to structure content meet course material requirements for the state Bars. Sign up forms to be used to check & confirm attendance at your event. Issuing official Certificates of Attendance for credit to attendees. Obtaining CLE credit varies from state to state and the rules can be complex. The Knowledge Group will help you navigate the complexities via complete cost effective CLE solutions for your conferences. Most CLE processing plans are just $499 plus filing fees and postage. To learn more email us at info@knowledgecongress.org or CALL 646-202-9344
  • 46. March 14, 2014 46 PRIVATE LABEL PROGRAM & INTERNAL TRAINING The Knowledge Group provides complete private label webcasts and in-house training solutions. Developing and executing webcasts can be a huge logistical nightmare. There are a lot of moving parts and devolving a program that is executed smoothly and cost effectively can prove to be a significant challenge for companies who do not produce events on a regular basis. Live events require a high level of proficiency in order to execute proficiently. Our producers will plan and develop your webcast for you and our webcast technicians will execute your live event with expert precision. We have produced over 1000 live webcasts. Put our vast expertise to work for you. Let us develop a professional webcast for your firm that will impress all your clients and internal stakeholders. Private Label Programs Include: Complete Project Management Topic Development Recruitment of Speakers (Or you can use your own) Marketing Material Design PR Campaign Marketing Campaign Event Webpage Design Slides: Design and Content Development Speaker coordination: Arranging & Executing Calls, Coordinating Slides & Content Attendee Registration Complete LIVE Event Management for Speaker and Attendees including: o Technical Support o Event Moderator o Running the Live event (All Aspects) o Multiple Technical Back-ups & Redundancies to Ensure a Perfect Live Event o Webcast Recording (MP3 Audio & MP4 Video) o Post Webcast Performance Survey CLE and CPE Processing Private Label Programs Start at just $999
  • 47. March 14, 2014 47 RESEARCH & BUSINESS PROCESS OUTSOURCING The Knowledge Group specializes in highly focused and intelligent market and topic research. Outsource your research projects and business processes to our team of experts. Normally we can run programs for less than 50% of what it would cost you to do it in-house. Here are some ideal uses for our services: Market Research and Production o List Research (Prospects, Clients, Market Evaluation, Sales Lists, Surveys) o Design of Electronic Marketing Collateral o Executing Online Marketing Campaigns (Direct Email, PR Campaigns) o Website Design o Social Media Analysis & Research o Research Companies & Produce Reports o Research for Cases o Specialized Research Projects eSales (Electronic Inside Sales – Email and Online) o Sales Leads Development o eSales Campaigns  Inside Sales people will prospect for leased, contact them and coordinate with your sales team to follow up.  Our Inside eSales reps specialize in developing leads for big-ticket enterprise level products and services. o Electronic Database Building – Comprehensive service which includes development of sales leads, contacting clients, scoring leads, adding notes and transferring the entire data set to you for your internal sales reps. eCustomer Service (Electronic Inside Sales – Email and Online) o Real-Time Customer Service for Your clients  Online Chat  Email o Follow-Up Customer Service  Responds to emails  Conducts Research  Replies Back to Your Customer Please note these are just a few ways our experts can help with your Business Process Outsourcing needs. If you have a project not specifically listed above please contact us to see if we can help.
  • 48. Introduction Peter Kaufman is President of Gordian Group, the leading investment bank focused solely on advising corporations, private equity firms and government agencies in distressed situations. He heads the firm's Restructuring and Distressed M&A practice. Peter has been ranked the #1 investment banker nationally in financial restructuring. He is co-author of the definitive book on distressed investment banking, Distressed Investment Banking: To The Abyss and Back, Beard Books, 2005 March 14, 2014 48 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 3: Peter Kaufman President and Head of Restructuring and Distressed M&A Gordian Group LLC
  • 49. Private Equity and Insolvent Portfolio Companies March 14, 2014 49 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 3: Peter Kaufman President and Head of Restructuring and Distressed M&A Gordian Group LLC
  • 50. Private Equity - Maximizing Value in Distressed Situations  Optionality and creating options is critical – there are many options for a private equity firm to consider:  Firms can wait for the portfolio company to grow back into its capital structure;  Firms can turn over the keys to creditors (unlikely);  Firms can engineer a financial restructuring, which is where they can likely get the most value – particularly if they receive creative, zealous and unconflicted investment banking advice – but will also likely upset the creditors.  Key questions and factors to consider:  What are views on valuation and debt capacity?  Will the private equity firm (or others involved) put up new money? This is a tool for success, and without new money, firms will need to be very creative.  Is the private equity firm willing to upset creditors? This is especially important if they are not willing to put up new money.  What are the weaknesses that can be exploited in the credit documents underlying the existing capital structure?  Does the private equity firm have any non-cash assets or value that it brings to the table? For example, does it have experience managing or overseeing a particular business that can help the portfolio company and that creditors may see value in?  What is the range of outcomes for the other parties at the table in the event of a Chapter 11? March 14, 2014 50 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 3: Peter Kaufman President and Head of Restructuring and Distressed M&A Gordian Group LLC
  • 51. Private Equity - Maximizing Value in Distressed Situations (continued)  Although it is cliché to call current circumstances a “perfect storm,” the combination of economic conditions and legal precedent creates unique opportunities to not only protect downside – but also maximize value and enhance returns – of portfolio companies:  Significant debt maturities in the next few years;  Volatility and lack of certainty as to accessibility of capital markets;  Increased prevalence / role of CLOs and traditional senior lenders (in part as a result of the movement of the hinge class higher up in the capital structure);  Lessened concern over social issues;  Short term memories of bank workout groups / separation from deal origination teams.  Gordian is seeing a lot of private equity firms with portfolio companies that have debt maturities that are not being “amended and extended.”  Hedge funds and private equity firms are playing a very creative role in being part of a solution. March 14, 2014 51 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 3: Peter Kaufman President and Head of Restructuring and Distressed M&A Gordian Group LLC
  • 52. Weapons Available for Portfolio Companies in Distress  Control (if investment has provided explicit or implicit control and/or influence)  Play upon social issues of others involved (e.g., threat of uncontrolled bankruptcy filing).  Selling the Company with a pre-negotiated sharing of proceeds.  Potential threat of taking “credit bid” club away from secured lenders  Option Value  Distressed equity value is a function of time and volatility.  Potential paths to meaningful recoveries for junior constituents:  Structuring a reorganization where equity (or junior debt) receives warrants that kick in at or near where more senior constituencies reach targeted recoveries;  Valuation fight: demonstrate enterprise value is such that you are the hinge class (or that equity has value in excess of debt when holding heavily discounted debt or equity);  Play for time;  In that situation, a pre-packaged plan with 60% o f the lender group was negotiated that provided an additional three years of financing with modest equity dilution;  A supportive third-party hedge fund acquired sufficient debt on the secondary market to reach consent with 2/3 in amount, which in turn has provided an opportunity to use creative and aggressive tactics to try to get unanimous support of the lender group to effect a restructuring outside bankruptcy;  “Ugly Duckling” strategy; March 14, 2014 52 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 3: Peter Kaufman President and Head of Restructuring and Distressed M&A Gordian Group LLC
  • 53. Weapons Available for Portfolio Companies in Distress (continued)  New Money  A sprinkling of new money can buy or protect a substantial amount of equity and go a long way towards reaching a consensual deal.  In situations where existing lenders will not step up to the plate and the Company needs liquidity – whether to fund operations or effect a restructuring.  Solution capital:  Provide DIP financing, either swapping these claims for equity upon exit or as a bridge to a sale while acting as stalking horse; March 14, 2014 53 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 3: Peter Kaufman President and Head of Restructuring and Distressed M&A Gordian Group LLC
  • 54. Healthcare & Distress March 14, 2014 54 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 3: Peter Kaufman President and Head of Restructuring and Distressed M&A Gordian Group LLC
  • 55. Healthcare & Distress - The Big Issue  The healthcare industry in the United States is undergoing drastic changes that have been part of the landscape before but have been drastically accelerated by the passing of the Affordable Care Act.  Today, many healthcare providers feel stuck, not knowing how best to transition from the old fee-for- service business models to the new, value-based delivery methods that place more emphasis on primary care, chronic disease management and population health, and less emphasis on ER and short-stays. The reason lies in the following factors:  The configuration, scope and size of the old real estate assets are not aligned with the promoted, new models of healthcare.  The large amounts of debt are secured by the real estate assets that no longer support maximize the return under the new revenue models.  There is no clear path to how to make the transition from the “old” to the “new” while supporting the institutions’ mission and continuing to provide quality care, including such issues as:  How to best involve community stakeholders and obtain their support  How to best navigate regulators and secure needed political support  How not to go bankrupt in the process and find capital needed for transformation March 14, 2014 55 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 3: Peter Kaufman President and Head of Restructuring and Distressed M&A Gordian Group LLC
  • 56. Healthcare & Distress - The Real Estate Dilemma  In the past, hospital real estate was one of their biggest assets, built and structured to maximize revenue generation under the fee-for-service model. It is no so today. The current environment calls for a smaller, more efficient footprint aimed at shedding unprofitable beds and shifting emphasis to ambulatory care.  As a result of the needed operational efficiencies, increased need for service coordination, payment caps, and reduction in profitability of patient turnover, the inpatient facilities operators are forced to downsize and/or consolidate, creating excess real estate capacity that no longer supports the new revenue models.  The issue providers face is how to maximize the value of their biggest underutilized assets.  While the scale of the issue caused by the passing of the ACA is new, this problem in its various forms has manifested itself across the various parts of the country over the last few decades. March 14, 2014 56 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 3: Peter Kaufman President and Head of Restructuring and Distressed M&A Gordian Group LLC
  • 57. Healthcare & Distress - The Debt  As a result of the hospital real estate being the hospital’s biggest assets, the facilities often were able to take on large amounts of debt that was secured by the real estate.  The real estate, however, is no longer able to support large amounts of debt carried by the hospitals as it no longer services to maximize the revenue under the new paradigm. In fact, it sometimes becomes a liability.  Inpatient operators need a strategy to restructure their debt overhang.  The new capital structure should better match earning capacity of transformed operations.  Recoveries to bondholders can be improved through creative use of various business structures better suited for the new business models. March 14, 2014 57 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 3: Peter Kaufman President and Head of Restructuring and Distressed M&A Gordian Group LLC
  • 58. Healthcare & Distress - Community & Political Support  One of the biggest factors in the success of any medical facility transformation or repurposing projects is the right level of participation and support of the community.  Without early involvement, a voice in the decision making process, and ultimate buy-in of the community where the medical assets are located, the projects will often be doomed.  Any delays or ultimate change of plans imposed upon the operators through community activism and political pressure will lose them more money and need to taken into account at the outset.  Providers require a strategy on how to organize and manage community activists, allowing for a fair opportunity at participation but preventing undue influence to the detriment of the providers. The community’s stated interests often find themselves at odds with financial realities of the providers. A balance must be achieved.  In most of the situations, there is often a perception in the communities that a middle-of-the-road solution does not exist: either things must remain in “status quo” or anything else is equivalent to robbing them of their healthcare.  Such perceptions must be managed. Unmanaged perceptions will lead to undesirable political and regulatory pressures that will cause delays and may scuffle plans leading to further losses. March 14, 2014 58 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 3: Peter Kaufman President and Head of Restructuring and Distressed M&A Gordian Group LLC
  • 59. Healthcare & Distress - Transformation Capital  Once the road map has become more clear, the crucial issue that underpins any transformation is how to practically make that change.  Working on razor-thin margins already, the question for a hospital becomes how make the transition, abandoning old revenue sources that continue to shrink without established new sources to turn to and how to pay for the transformation.  There is no single answer to that question. However, based on our experience, they can be addressed in a number of ways including:  Private capital  Public-Private partnerships  Philanthropy  State and Federal economic development funds  Public Authorities  Innovative structuring of subsequent business models  Ability to use one or the other source will often depend on the right structuring of the transaction and the transformation plan. March 14, 2014 59 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 3: Peter Kaufman President and Head of Restructuring and Distressed M&A Gordian Group LLC
  • 60. Healthcare & Distress  The nation’s hospitals are becoming distressed. The situation with Brooklyn hospitals described below is indicative of health care problems faced by many hospitals around the nation. The old business model is no longer working and the financial difficulties faced by these institutions will continue to mount driven by the health care reform.  Brooklyn communities, especially those located in central and northern neighborhoods, are besieged by a number of unfavorable demographic and socioeconomic trends, including:  High poverty rates;  High reliance on government assistance;  High incidences of disease and chronic disease;  Low educational attainment; and  Lack of health insurance.  The situation in Brooklyn is not unique. Similar dynamics are observed around the nation at the crossroads of private enterprise, local, state and national governments. While there is no one tactic or approach that guarantees smooth sailing for all stakeholders, certain tried and true approaches and methodologies exist right “out-of-the-box.” Others, however, need to be developed for specific circumstances at hand. March 14, 2014 60 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 3: Peter Kaufman President and Head of Restructuring and Distressed M&A Gordian Group LLC
  • 61. Healthcare & Distress  These trends, in combination with other adverse factors, have created an impossible situation for Brooklyn hospitals that is marked by such hurdles as:  Unfavorable patient/payer mix;  Lack of primary care networks, chronic disease management and community health programs;  Lack of outreach aimed at influencing costly, undesirable behaviors such as emergency room over-utilization, disease negligence, preventable complications and hospital readmissions;  Poor quality of service that drives patients with good insurance to seek care in other hospitals;  Over-bedding;  Counterproductive competition that spreads a small number of profitable patients over multiple providers with redundant overhead;  Mismanagement, waste, corruption;  Bailouts supporting outmoded system of care and facilities, resulting in poor health for community and financially underperforming assets; and  Additional financial pressure from further Medicaid and Medicare cuts mandated by the State and the PPACA.  Secured creditors in distressed health care situations have a lot of power to drive the restructuring process and transition the hospitals to new health care models, and choosing the right approach early can mean a difference between recovery and loss. March 14, 2014 61 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 3: Peter Kaufman President and Head of Restructuring and Distressed M&A Gordian Group LLC
  • 62. Healthcare & Distress  Reshaping healthcare facilities:  Hospital facilities can be transformed for new purposes including critical inpatient and outpatient services.  The transformed campuses can be hubs for employment, education and job training.  The campus can become a key feature of economic development strategies and health care reform.  Projects are local area-specific and based on the needs of the community.  Cooperation between stakeholders is necessary.  Projects build support for community benefit, access to non-traditional forms of financing and promote healthier communities.  Projects can enhance fund raising efforts for replacement hospitals.  Positive values from successful strategies can be reoccurring for many years in the future. March 14, 2014 62 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 3: Peter Kaufman President and Head of Restructuring and Distressed M&A Gordian Group LLC
  • 63. Credit Bidding in the Wake of Fisker Automotive March 14, 2014 63 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 3: Peter Kaufman President and Head of Restructuring and Distressed M&A Gordian Group LLC
  • 64. Credit Bidding in the Wake of Fisker Automotive  Credit bidding is a right that secured creditors have in bankruptcy sales allowing them to control the sale of their collateral. When collateral that secures a lien is proposed to be sold at a bankruptcy auction, a secured creditor is allowed to bid the amount of its debt as a credit bid, i.e. not a cash bid.  The right to credit bid is found in 11 U.S.C. § 363 (k), which provides:  At a sale under subsection (b) of this section of property that is subject to a lien that secures an allowed claim, unless the court for cause orders otherwise, the holder of such claim may bid at such sale, and, if the holder of such claim purchases such property, such holder may offset such claim against the purchase price of such property. March 14, 2014 64 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 3: Peter Kaufman President and Head of Restructuring and Distressed M&A Gordian Group LLC
  • 65. Credit Bidding in the Wake of Fisker Automotive (continued)  Fisker Automotive (“Fisker”) Case Study  In October 2013, the US Department of Energy (“DOE”) sold their $168.5 million senior secured loan to Hybrid Tech Holdings LLC (“Hybrid”) for $25 million (15% of the loan’s face value).  Prior to filing for bankruptcy, Hybrid and Fisker negotiated the acquisition of Fisker’s assets through a credit bid of $75 million.  Creditors committee objected to the sale and filed a motion requesting an auction to allow a competing bidder (Wanxiang) to participate.  At the hearing to consider the sale motion and the bidding procedures motion, the creditor’s committee disputed Hybrid’s right to credit bid for the following reasons:  If Hybrid was either prohibited from credit bidding, or its credit bid was capped at $25 million, then there was a strong likelihood that an auction would create material value for the estate over and above the present Hybrid bid;  If Hybrid’s ability to credit bid remained uncapped there would be no realistic possibility of an auction;  Limiting Hybrid’s ability to credit bid would likely foster and facilitate a competitive bidding environment; and  The highest and best value for the estate could be achieved only through the sale of all of the Debtors’ assets as an entirety. March 14, 2014 65 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 3: Peter Kaufman President and Head of Restructuring and Distressed M&A Gordian Group LLC
  • 66. Credit Bidding in the Wake of Fisker Automotive (continued)  Judge Gross’s Conclusion  On January 17, 2014 Judge Gross of the United States Bankruptcy Court for the District of Delaware found, in the chapter 11 case of Fisker Automotive Holdings Inc., Case No. 13-13087, that “cause” existed under section 363(k) of the Bankruptcy Code to cap a secured creditor’s rights to credit bid at the sale of its collateral to the amount equal to what the lender paid to purchase the debt in the secondary market.  In Judge Gross’s Memorandum Opinion, he wrote “Thus, the “for cause” basis upon which the Court is limiting Hybrid’s credit bid is that bidding will not only be chilled without the cap; bidding will be frozen.”  Outcome of case  Wanxiang topped Hybrid during the auction, with an offer of $149.2 million that includes $126.2 million in cash, $8 million in assumed liabilities, and equity in a new entity that will be responsible for Fisker’s assets.  While the ruling results in uncertainly for the secondary market for bankruptcy claims, the court’s rational applies equally to secured lenders. Fisker is clearly a reminder that a creditor’s right to credit bid can be limited by a court for cause. March 14, 2014 66 SEGMENT 2: Reshma Patel - Jackson Manager Baker Tilly Virchow Krause, LLP SEGMENT 3: Peter Kaufman President and Head of Restructuring and Distressed M&A Gordian Group LLC
  • 67. ► You may ask a question at anytime throughout the presentation today. Simply click on the question mark icon located on the floating tool bar on the bottom right side of your screen. Type your question in the box that appears and click send. ► Questions will be answered in the order they are received. Q&A: March 14, 2014 67 SEGMENT 1: David E. Berliner Partner BDO Consulting SEGMENT 2: Stephen B. Darr Senior Managing Director Mesirow Financial Consulting, LLC SEGMENT 3: Peter Kaufman President and Head of Restructuring and Distressed M&A Gordian Group LLC
  • 68. March 14, 2014 68 Welcome to the Knowledge Group Unlimited Subscription Programs. We have Two Options Available for You: FREE UNLIMITED: This program is free of charge with no further costs or obligations. It includes:  Unlimited access to over 15,000 pages of course material from all Knowledge Group Webcasts.  Subscribers to this program can download any slides, white papers, or supplemental material covered during all live webcasts.  50% discount for purchase of all Live webcasts and downloaded recordings. PAID UNLIMITED: Our most comprehensive and cost-effective plan, for a one-time fee:  Access to all LIVE Webcasts (Normally $199 to $349 for each event without a subscription). Including: Bring-a-Friend – Invite a client or associate outside your firm to attend for FREE. Sign up for as many webcasts as you wish.  Access to all of Recorded/Archived Events & Course Material includes 1,500+ hours of audio material (Normally $299 for each event without a subscription).  Free CLE/CPE/CE Processing3 (Normally $49 Per Course without a subscription).  Access to over 15,000 pages of course material from Knowledge Group Webcasts.  Ability to invite a guest of your choice to attend any live webcast Free of charge. (Exclusive benefit only available for PAID UNLIMITED subscribers.)  6 Month Subscription is $299 with No Additional Fees. Other options are available.  Special Offer: Sign up today and add 2 of your colleagues to your plan for free. Check the “Triple Play” box on the sign-up sheet contained in the link below. https://gkc.memberclicks.net/index.php?option=com_mc&view=mc&mcid=form_157964
  • 69. March 14, 2014 69 Knowledge Group UNLIMITED PAID Subscription Programs Pricing: Individual Subscription Fees: (2 Options) Semi-Annual: $299 one-time fee for a 6 month subscription with unlimited access to all webcasts, recordings, and materials. Annual: $499 one-time fee for a 12 month unlimited subscription with unlimited access to all webcasts, recordings, and materials. Group plans are available. See the registration form for details. Best ways to sign up: 1.Fill out the sign up form attached to the post conference survey email. 2.Sign up online by clicking the link contained in the post conference survey email. 3. Click the link below or the one we just posted in the chat window to the right. https://gkc.memberclicks.net/index.php?option=com_mc&view=mc&mcid=form_157964 Discounts: Enroll today and you will be eligible for the “Triple Play” program and 3% off if you pay by credit card. Also we will waive the $49 CLE/CPE processing fee for today’s conference. See the form attached to the post conference survey email for details. Questions: Send an email to: info@knowledgecongress.org with “Unlimited” in the subject.
  • 70. March 14, 2014 70 ABOUT THE KNOWLEDGE GROUP, LLC. The Knowledge Group, LLC is an organization that produces live webcasts which examine regulatory changes and their impacts across a variety of industries. “We bring together the world's leading authorities and industry participants through informative two-hour webcasts to study the impact of changing regulations.” If you would like to be informed of other upcoming events, please click here. Disclaimer: The Knowledge Group, LLC is producing this event for information purposes only. We do not intend to provide or offer business advice. The contents of this event are based upon the opinions of our speakers. The Knowledge Congress does not warrant their accuracy and completeness. The statements made by them are based on their independent opinions and does not necessarily reflect that of The Knowledge Congress' views. In no event shall The Knowledge Congress be liable to any person or business entity for any special, direct, indirect, punitive, incidental or consequential damages as a result of any information gathered from this webcast. Certain images and/or photos on this page are the copyrighted property of 123RF Limited, their Contributors or Licensed Partners and are being used with permission under license. These images and/or photos may not be copied or downloaded without permission from 123RF Limited