Modelling for Corporate Restructuring

Course Overview

This course focuses on the practical financial aspects and implications of corporate restructuring, especially bankruptcy, credit analysis, and leveraged and distressed restructurings as well as corporate expansion.

Financial modelling techniques allow business users to improve the reliability, quality and timeliness of their decision making. Its use in Corporate Restructuring is to provide a dynamic platform to be used in decision given the various outcomes during a corporate restructuring exercise.

With a model-by-model approach, this course will guide you through the various techniques, providing you with a comprehensive understanding of advanced modelling, covering such issues as scenario analysis, as well as how each technique can practically be applied through the use of Excel.

The course covers modelling the debt and equity of firms in distress and/or bankruptcy, incorporating financial restructuring, high yield bonds, spin-offs and other value creation methods, credit risk analysis, the lenders and equity participants’ perspectives, how models are used in the restructuring process, the effect of bankruptcy and expansion on firm valuation; and investment strategies relevant to distressed companies’ securities.

Each participant will be required to bring a laptop running Microsoft Office with CD-Rom to the seminar.

Course Content

Day 1: Corporate Restructuring

Analysing the Restructuring process

• Financial Distress: causes, course and consequence
• Defaults and bankruptcies in 2000-05 – worldwide and the UK
• What causes bankruptcy
• Major players in corporate restructuring work
• Valuation theory in a distressed restructuring

Case Study: Examples of publicly explained bankruptcy cases

Legal, Business and Economic inputs to the Model

• Historic and Forecast Cash Flows
• Business Efficiency and Process
• Management Input
• Accountancy and Legal Issues
• To factor decision tree based on legal outcomes

Case Study: Modelling the financial Operating Cycle

Modelling Credit Risk

• Measurement of Credit Risk
• Rating Agency Input
• Modelling Credit Risk in the firm
• Rating downgrade triggers
• Credit risk from the bank perspective – Basel II and default recovery
• Specific Issues for Corporate Restructuring

Case Study: Estimating inputs and analyzing results for a ratings model

Cash-Flow Crisis

• Immediate action and crisis mentality
• Cash flow focus and crisis stabilisation
• Formulating a workable restructuring
• The role of the model

Case Study: Modelling cash-flow under crisis conditions

Day 2: Modelling restructuring

Tactical Debt Restructuring

• Wrongful and fraudulent trading – can the model predict?
• Auditing the financial model
• Impact of loan representations, warranties and covenants
• Default, remedies, waivers and reserving rights
• Cross default and cross acceleration
• Rescheduling to Avoid Insolvency

Case Study: Building and Using a Corporate Debt model

Strategic Distressed Restructuring

• Asset and liability restructuring
• Valuing distressed debt
• Linking theory with practice
• Lessons from the 1980’s and 1990’s

Case Study: Trading distressed debt – vulture investing

Value Creation through Restructuring

• Spin-offs, split-offs, split ups and carve-outs
• Debt for equity swaps
• Leveraged recapitalisations
• Leveraged management buyouts
• Deleveraging strategies

Case Study: Modelling the leveraged recapitalization of a takeover target

Turnarounds

• Capital requirements
• Developing the model
• Management, bank and equity roles
• Successes and Failures

Case Study: Developing and Using a Turnaround Model

Modelling expansion

• Building blocks to the expansion model
• Sources of finance
• Debt priorities and waterfalls in the model
• Sensitivity analysis, scenario modelling and Monte Carlo analysis for expansion

Cashflow Modelling

• Creating a Loan Repayment Model
• Effect of Restructuring on the Excel
• Stress Testing the Financial Model
• Sensitivity Analysis
• Valuation of Distressed Asset

Real life study where the In-house Legal decided that the funds pledged was not properly pledged as the depositor name was changed from Borrower to his sister for tax reasons. “Past consideration” was cited as the reason to return pledged funds to Commercial Affairs (Police) as it involved Fraud. Events unfold and case law was shown to prove that past consideration does not relate to time the overdraft was established but to the time the funds were withdrawn.

Arriving at the cash flow model to arrive at the debt restructuring of a property portfolio given the pressures on rent renewals, increased construction costs and decreasing sales.

Shaking the Tree

• Pro active approach
• Understanding the problem
• Agreeing on Strategy
• Finding a Solution
• Feedback and monitoring results

Case Study of the restructuring of $180 million debt provided by 6 banks to a agriculture based company which had presence from Latin America to Asia.

Actual steps taken to recapitalize the Company and restructuring the debt was just part of the efforts to restructure the operations and monitor the performance of the Company. Finally, the convertibles used torestructure the Company was used to convert the loan into shares which were sold in the market to recover the bad loan in full.

Remedial Management

• Process
• Evaluating strategies
• Ongoing management of Bad Loans
• Valuing security
• Making provisions

Lessons Learnt

• Credit Risk taken
• Factors taken to decide delegation of authority
• Risk rating model – over-reliance on S&P, Moody
• What could have been done
• Skill sets to be developed
• How to avoid one in future

Delivering this course in-house for you to a number of participants could be very cost effective. Please call us on 020 7387 4484 to discuss this further.

If you have any questions about this seminar please write to us at post@redcliffetraining.co.uk.