deloitte debt & capital advisory - enterprise ireland · © 2014 deloitte & touche. all...
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© 2014 Deloitte & Touche. All rights reserved
Debt Advisory
Independent financing advice
2
Agenda Page
Introductions 3
What We Do For Our Clients 5
Case Study of Recent Transaction, Signs of a cash crises and Types of
Insolvencies 8
Overview of Bank and Capital Markets 14
Q&A 24
David Martin
Director
Office: +353 1 417 2522
Mobile: +353 86 839 2658
Email: [email protected]
Breandán O Callarán
Senior Manager
Office: +353 1 417 5721
Mobile: +353 87 124 7724
Email: [email protected]
Gordon Naughton
Manager
Office: +353 1 417 8588
Mobile: +353 87 7485060
Email: [email protected]
© 2014 Deloitte & Touche. All rights reserved
Gordon Naughton
Manager
Debt & Capital Advisory
T: +353 1 4178588
M: +353 87 748 5060
Deloitte Debt & Capital Advisory A team with significant Corporate Finance and Banking experience
Breandán O Callarán
Senior Manager
Debt & Capital Advisory
T: + 353 1 4175721
M: +353 87 124 7724
Breandán Ó Callarán is a Senior Manager in
Corporate Finance Debt Advisory in Deloitte,
having joined in July 2012. Prior to joining
Deloitte, Breandán spent six years in Bank
of Ireland Corporate Banking, managing
banking relationships for a large number of
mid-market and SME companies across a
broad range of industries and sectors,
including; construction, retail, food &
beverage, hospitality & leisure and
healthcare.
Breandán is a member of the Institute of
Chartered Accountants in Ireland (ACA), the
Association of Chartered Certified
Accountants in Ireland (ACCA) and of the
Institute of Bankers in Ireland.
Gordon joined Deloitte in 2013 and is a
Manager in Debt and Capital Advisory
team. Gordon is a member of the Institute of
Chartered Accountants in Ireland (ACA) and
of the Institute of Bankers in Ireland.
Prior to joining Deloitte, Gordon spent six
years with AIB in both business and
corporate banking specialising in the SME
market. He previously worked for PwC for
four years.
David Martin
Director
Debt & Capital Advisory
T: +353 1 4172522
M: +353 86 839 2658
David Martin is a Director in the Corporate
Finance Advisory Services Division of
Deloitte , having joined the firm in March
2014. Prior to joining Deloitte, David was
with Bank of Ireland for 8 years working in
Business and Corporate Banking s. David is
a Fellow of the Institute of Chartered
Accountants in Ireland.
David originated, structured and managed
numerous debt facilities on a bilateral, club
and syndicated basis across a wide range of
trading sectors including hospitality &
leisure, real estate, healthcare, medical
devices, beverage and software sectors.
Since joining Deloitte David has worked on a
number Central Bank of Ireland assignments
and is currently advising a number of
companies across a broad range of sectors
including hospitality, manufacturing as well
as working as a coach for the Deloitte Best
Managed Companies Awards.
4
© 2014 Deloitte & Touche. All rights reserved
• Negotiate with the loan acquirer on the Borrowers’ behalf in determining an exit price, and
managing the exit process from incumbent bank to new lenders.
Potential new to bank customer:
Existing loans acquired by a
loan acquirer
• Separating the property debt from the business to provide a viable lending proposition for
the existing or new Bank.
Strong underlying cash-flows:
Unsustainable property debt
overhang
• Work with the client in understanding their cash-flow requirements, improve cash-flow
management, and recommend appropriate funding structure.
Strong EBITDA generation:
Poor cash-flow management
Strong business:
Poor MI provided to bank
• Work with client to provide appropriate MI, that in turn will support a viable lending
proposition.
• Work with client to develop a viable lending proposition that has the flexibility to introduce
junior debt and/or equity to part fund the expansion funding e.g. (NPRF / HNW).
Strong growth prospects:
Insufficient equity input/ over
reliance on bank funding
How we can assist you Providing solutions
Typical Issues How Deloitte can help
• Together with our in-house experts (M&A, tax, etc.), work with the client in determining an
efficient exit mechanism that makes sense for owners and other key stakeholders.
Good Business:
Little or no visibility on
succession/exit Plan
Existing Client:
Covenant Breach
• Work with client in determining why covenant breach occurred and create options report to
include potential actions to include additional equity, security, margin, deleveraging, re-
financing etc.
6
© 2014 Deloitte & Touche. All rights reserved
• Work with client in understanding their requirements and also work with our tax advisers to
determine the most efficient and appropriate borrowing structure.
Strong underlying cash-flows
Inefficient / unsuitable
borrowing structure
• Demonstrate whether a business can generate the relevant cash-flows to sustain debt (it
shouldn’t be just based on the underlying collateral i.e. it should be a cash-flow lend). Balance Sheet - Cash-flow Lend
• Work with client and senior lenders in either ring-fencing particular assets and cash-flows
or putting in place inter-creditor agreement.
Potential new to Bank customer
Multi Banked
How we can assist you Providing solutions
Typical Issues How Deloitte can help
7
© 2014 Deloitte & Touche. All rights reserved
Deloitte Debt Advisory Case Studies
Irish Export Company
• Deloitte was approached by the owners of an Irish Exporting
Company (“the Company”) with a view to restructuring its
underlying capital structure.
• Although trading was affected by the global downturn, the
Company continued to generate EBITDA of €2.3m p.a. The
Company has good growth prospects and a strong
management team.
• However, the owners are personally liable for c.€13m of debt
against assets valued at €7m.
• Deloitte engaged with the incumbent Bank and are finalising a
debt settlement agreement that includes asset disposals and
a refinancing of the company with a new lender.
• The new lender has agreed to leverage the Company at c.4x
EBITDA, which through projected uplift in trading coupled with
aggressive debt payments will delever to c.2x in 2016.
• The proposed settlement protects employment at the
Company, provides the incumbent Bank with a recovery in
excess of that which could be achieved in an enforcement
scenario and provides financial certainty for the promoters/
owners.
9
© 2014 Deloitte & Touche. All rights reserved
2014
Debt refinancing and debt advisory
services to Russell Court Hotel
€8m
Ireland
Deloitte Debt Advisory A selection of our credentials
2014 Ireland
€0.250m
Ireland
High Net Worth Individual
2014
Financial advisor for the raising of new
debt finance to acquire commercial
properties
€9m
2014 Ireland
€18m
Debt refinancing and debt advisory
services to the LED Group
Debt refinancing and debt advisory
services to Oliver Plunkett GAA
Club
Commercial and Tax Advice on the
development of a Fibre Optic Cable
Business
€5 m
2010 Ireland
Business Modelling and Financial
Advisory Services for funding of
Biomass Gasification Facility
€10m
Ireland 2014 2014
€6m
Discounted debt purchase from
Ulster Bank and acquisition of
majority stake to the City Bin
company
Ireland
Settlement of debt facilities with
existing lender, incorporating a
refinance with new lender
€1.1m
Ireland 2013
10
© 2014 Deloitte & Touche. All rights reserved
INDICATOR LONG TERM OUTCOME SHORT TERM RESULT
• Over reliance on Bank Overdraft
or over-reached facilities
• Unbudgeted/ unexpected Sales
decrease or static sales
• Loss of supplier discount
• Inadequate liquidity &
health ratios
Acid Test ratio below 1:1
Current ratio below 2:1
Interest Cover below 1
• Increase in inventory days
- Build up of stock
• Incur costs associated
with storing stock & stock
becoming obsolesce
• Bank ceases to provide O/D facility
in future
• Bank demands immediate payment
of outstanding amounts
• Day to day running of the business
becomes impossible
• Suppliers will discontinue
supplying company and trading will
become impossible
• Breach of bank covenants; bank
has righto demand immediate
payment of outstanding facilities
• Receiver appointed in worst case
scenario
• Liquidity decreases and relevant
ratios effected
• Operating Profit /EBITDA
decreases
• Possible loss of debt & equity
funding
• Incur high fees due to
constant use of overdraft
and high costs associated
with exceeding agreed
facilities
• Increase in Payable Days
• Increase in Receivable Days
11
Early warning signs of a Cash Crisis Key Indicators
© 2014 Deloitte & Touche. All rights reserved
Type Key Details
• A debenture holder appoints a Receiver
over a company who is actively
realising and receiving its assets and/or
managing its affairs in the hope that
debts outstanding to the debenture
holder can be met.
• Best Case scenario; All debts are paid/
agreement is reached with debenture
holder – company’s status returns to
normal.
• Worst Case scenario; No satisfactory
arrangement is reached and company
enters liquidation.
Receivership
Irish Examples
• Greenstar
• 18months in
receivership
• Sold to Cerberus
Capital Management
– US P.E firm
• Debt restructured and
now trading normally.
• A mechanism for the rescue and return
to health of an ailing but potentially
viable business.
• Examiner is appointed to scrutinise
company’s affairs and to formulate
proposals for a compromise between
companies stakeholders. Reports to
Court within 70 -100 days. Protection of
Court during this time.
• Management & Directors remain in
control of the company.
Examinership
• Eircom
• 54 days in
Examinership
• €1.8bn debt reduction
• Also B&Q and
Pamela Scott.
12
Types of Insolvencies
© 2014 Deloitte & Touche. All rights reserved
Type Key Details
• Liquidator is appointed by the High
Court on foot of a petition to wind up
company made by a director, creditor,
shareholder or the company itself.
• Creditors can voluntarily decide to wind
up company if insolvent; Creditors
Voluntary Liquidation.
Liquidation
Irish Examples
• Setanta Insurance
Ireland
• Creditors Voluntary
Liquidation
• Ongoing.
• Same concept as full Receiverships
however prior to formal appointment of
the Receiver, a purchaser is identified
and terms of sale are agreed for assets
in question. Remaining assets in
business are left to unsecured creditors.
• Less costly and no diminution in asset
value as Goodwill remains intact.
Pre-pack Receivership
• Cleary’s SuperQuinn
• Company bought by
Musgrave Group plc
in 2011
• Remaining stores
became SuperValu in
2014.
13
Types of Insolvencies continued
© 2014 Deloitte & Touche. All rights reserved
Competing Banks
Divesting Banks
Portfolio Acquirers
Lending Funds and
Private Equity
Irish Lending Market Overview
15
© 2014 Deloitte & Touche. All rights reserved
Lender Key attributes Loan sales completed Pipeline
BOI • Policy of no debt forgiveness • Shelbourne Hotel • Capital Collection- Irish Retail & Office properties
UB/RBS • Non performing loans are been dealt
with through settlements and loan sales
• Project Elliot • Project Achill (Pool A-E); Project Aran; Project
Nadal
Anglo/IBRC • In liquidation through the Special
Liquidator.
• Some residual borrowers remaining not
sold as part of loan sales.
• Project Stone (TR. 1,2,4,6,7,8) ;
Project Rock & Salt; Project
Evergreen (TR. 1, 9, 14); Project
Sand; Project Pebble
• Project Quartz (Stone); Project Amber
(Evergreen); Project Pearl
BOSI/Certus/
Lloyds • The book is being wound down.
• No new lending.
• 75 St. Stephens Green; Project
Pittsburgh; Project Phoenix; Project
Lane; Project Prince; Project Pert
• Project Paris; Project Parasol; Project Spectrum;
Project Cherry
ACC • The book is being wound down.
• No new lending.
• n/a • n/a
PTSB • The book is being wound down. • n/a • Irish CRE portfolio; Project Springboard
AIB • The book is being wound down • Project Kildare • n/a
NAMA • The book is being wound down.
• Project Holly; Project Club; Project
Spring; Project Tower; project
Aspen
• Project Cherry; Project Parks; Project Venue
Danske Bank • The book is being wound down.
• Exit from Irish Market
• Project Circle; Project Arc (ongoing) • Project Cherry; Project Griffin
The manner in which Banks are addressing their non-performing Loans and exit from
the Irish Banking market varies significantly. Loan sales have seen significant
investor appetite leading to further tranches.
Divesting Bank Overview
16
© 2014 Deloitte & Touche. All rights reserved
‒ New lending in Ireland varies depending on the Bank, the
company size and the sector. Focus is on cash generation rather
than asset values.
‒ New lending has become more accessible over the last 2 years
with BOI establishing New Business teams at Corporate and
Business Banking levels.
‒ UB’s appetite is limited to certain sectors.
‒ Where available, typical lending criteria to the mid corporate/SME
market includes:
Composite debenture with full cross guarantee structure;
3-5 year term;
Debt amortises over the term with very little refinance risk on
maturity;
Max senior debt c. 3.0x – 3.5x EBITDA with interest cover >
3x; and;
Senior priced at circa 3.5%+ with arrangement fees, however
margins are tightening.
‒ Banks will lend against property, but property must be income
generating with a strong lease. Typical lending criteria is:
50% to 65% loan to current market value;
Greater than 2 times interest cover;
Surplus income is used to amortise debt;
Term is 5 to 7 years but amortisation profile is based on a 15
to 20 year period.
‒ Banks are viewing lending as part of an overall relationship i.e.
no longer a standalone product. The potential for other income
streams is considered key to getting approval for the debt
facilities e.g. deposits, cash collections, foreign exchange etc.
AIB • Lending at c.3x to 3.5x EBITDA multiples and restricted
term.
• Anecdotal evidence of providing longer term facilities.
• Actively seeking new lending opportunities.
• Focus is on trading businesses and residential
mortgages.
BOI • Lending at c.3x to 3.5x EBITDA multiples and restricted
term.
• Actively seeking new lending opportunities.
• Focus is on trading businesses.
UB/RBS • Limited lending to the corporate and semi state market,
and to the mid corporate/SME market.
• Little appetite for property lending.
Barclays
• Lending to the Irish large corporate and limited
investment property deals.
Close Brothers • Specialist in leasing and invoice discounting.
• Looking to expand in the Republic.
Rabo Bank • Appetite for new lending into Food & Agri sector.
HSBC • Limited appetite for new lending in Ireland.
17
Competing Banks Overview
© 2014 Deloitte & Touche. All rights reserved
Borrower
• Stability and certainty
• Access to funding / credit lines
• Quick decision making process and
access to decision makers
• Funding package that reflects the
profile of the business
• Leaves management get on with
running the business i.e. no onerous
conditions
• Will work with management if the
business underperforms
No surprises! Provide relevant financial information Provide solutions
Lender
Key Considerations
• Stability and certainty
• Good quality information
• Full banking relationship to maximise
overall “share of wallet”
• Clear repayment strategy
• If the company is stressed – clear exit
strategy that demonstrates why
existing management are best placed
to maximise the Banks recovery
• Minimise losses and timeframe to exit
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Relationship Banking Borrower and Lender have their own set of objectives however a strong working
relationship is based on finding the common ground
© 2014 Deloitte & Touche. All rights reserved Footer
Key Details
• The Strategic Banking Corporation of Ireland (“SBCI”) was
established by the Government in May 2014 and incorporated
as a company in September 2014.
• It’s core purpose is to improve funding mechanisms and
access to finance for Irish SMEs.
• Tranche 1 (consisting of €800m in loans ) will be made
available primarily from:
• the Ireland Strategic Investment Fund (“ISIF”);
• the European Investment Bank (“EIB”); and
• the German Development Bank KFW (“KFW”).
• Under the scheme, existing retail banks will borrow from the
SBCI (who will have a lower cost of funding) and will then lend
to SMEs. The banks must demonstrate that the lower cost of
their sourcing the funds is passed on to SMEs, in order to
avoid a serious breach of European state-aid rules.
• The banks will be responsible for accessing SME ‘s
borrowing proposals and will hold that risk.
• Long Term, the legislation establishing the scheme will
facilitate up to €4bn in lending if there is sufficient appetite.
Tranche 1:
• €150m provided by German Development Bank KFW
• €650m provided by EIB and ISIF
Source: www.sbci.gov.ie
19
Strategic Banking Corporation of Ireland A recent boast to the Irish SME Lending Market
© 2014 Deloitte & Touche. All rights reserved Footer
Key Criteria to Qualify for an SME Loan
• SBCI loans will be available to full range of SMEs, from micro
one person enterprises to medium sized businesses. SMEs
defined using the Europeans Commission’s definition;
• Enterprises which employ fewer than 250 persons and
which have an annual turnover not exceeding €50m
and/or an annual balance sheet total not exceeding
€43m’.
• According to the new definition;
• An enterprise is ‘any entity engaged in an economic
activity, irrespective of its legal form’.
• Thus, the self-employed, family firms, partnerships and
associations regularly engaged in an economic activity
may be considered as enterprises. It is the economic
activity that is the determining factor, not the legal
form.
• No information at present on whether certain industries are
excluded. SCBI have listed the following beneficiary
industries; Hospitality, Professional services, Agriculture,
Manufacturing and recent start-ups.
Key Characteristics of the Loans:
• Offering; Long Term working capital and capital investment
finance
• “Reduced funding costs”
• Extended repayment holiday/ payment flexibility
• Longer repayment term/longer maturities
• A single SME can borrow up to €4million
Case Study Example 1 – Family owned restaurant
• Requires: Loan of €30,000 to rollout deliver service and
upgrade computer system.
• Traditional Bank: Payback must start immediately over 24
months.
• SBCI: Repayment holiday for 1 year then payback is
arranged over the following 2 years.
Case Study Example 2 – Letterkenny Legal Firm
• Requires: Loan of €15,000 to invest in new computer
system which has yearly maintenance costs.
• Traditional Bank: Full loan given now and payback must
start immediately over 18 months.
• SBCI: Loan is offered over 6 years to match life of
investment.
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Strategic Banking Corporation of Ireland Key Criteria
© 2014 Deloitte & Touche. All rights reserved
Increasing number of domestic and foreign funds looking to fund Irish companies.
Funds will invest through equity, mezzanine debt and senior debt. Investment is
typically IRR driven however some funds are prepared to take a longer term view.
Selected Providers Offering Targets/Strategies
NPRF Funds:
Bluebay
Carlyle Cardinal Group
BDO Development Capital Fund
MML
Senior/Mezzanine/Uni-tranche.
Equity.
Equity/Bridging Underwrite.
Performing trading businesses.
Promote M&A and growth strategies.
Stressed and distressed businesses.
PE Firms:
Avoca / KKR
QED Equity
Proventus
Full capital stack.
Will look to fund performing and stressed
businesses. Preference for performing
businesses is to enter the capital stack at a
mezzanine and/or equity level. Preference
for stressed business is to acquire debt on
a loan to own basis.
Lending Funds and Private Equity
Selected Providers Offering Targets/Strategies
NPRF Funds:
Bluebay
Carlyle Cardinal Group
BDO Development Capital Fund
MML
Senior/Mezzanine/Uni-tranche.
Equity.
Equity/Bridging Underwrite.
Performing trading businesses.
Promote M&A and growth strategies.
Stressed and distressed businesses.
PE Firms:
Avoca / KKR
Broadhaven Capital Partners
Proventus
LDC
Starwood
Earlsfort Capital Partners
Full capital stack.
Will look to fund performing and stressed
businesses. Preference for performing
businesses is to enter the capital stack at a
mezzanine and/or equity level. Preference
for stressed business is to acquire debt on
a loan to own basis.
21
© 2014 Deloitte & Touche. All rights reserved
Raising Funds < €1million in Ireland Microfinance, HNWI, VC funds, Enterprise Ireland
Selected Providers Offering Targets/Strategies
Microfinance Ireland
• Offer loans between €2,000 and
€25,000 at 8.8% fixed APR
• ‘Enterprise’ – turnover below €2m and
fewer than 10 employees
• TaxAssist Accountants
• Castlemine Farm
• Lilliput Loaf Company
High Net Worth Individuals/
Angel Investors
• Angel Investors
• Funding and/or mentorship in return
for an equity stake in the business
• Currently €70m is invested by HNWIs
in Ireland
• The Business Angel Partnership have
invested €71m to date – average €180k
• Recent investments by HNWI
include;
• Yellow Schedule
• OnePageCRM
• CurrencyFair
• Investment by Victor Treacy
(HNWI) in Carlow Brewery Company
Venture Capital funds • Delta - €250m under management
• Kernel – €173m raised to date
• ACT - €350m invested to date
• Frontline ventures
• Enterprise Equity
• Hybird Energy
• Sport Authority
• Eventovate
• Game
• Boxfish
Enterprise Ireland • Range of funding options for SMEs
including grants to; grow your business;
engage in R&D; and develop your
Management Team
• Veronica’s snacks
• VistaMed
• Treemetrics
• ProFlame
22
© 2014 Deloitte & Touche. All rights reserved
Lender Target borrower Funding level Product types Target sectors
Bibby Financial
Services
Ireland
• Businesses who have given up on
their banks
• €60m fund set up in
January 2014
• Invoice Finance
• Invoice Discounting
• Export Finance
• Trade Finance
• Bad Debt Protection
• New Start Business Finance
• Manufacturing
• Printers
• Recruitment Invoice Finance
• Transport
• New Start Business
Close Brothers
Commercial
Finance
• SMEs and large businesses
across Ireland.
• C.€50k-€10m • Asset finance – hire
purchase, leasing &
refinancing
• Invoice finance
• Asset based lending
• Recruitment
• Engineering
• Print & packaging
• Transport & haulage
• Manufacturing
• Wholesale & distribution
• Service industries
Debtors
Exchange • Micro-medium sized
organisations
• Suppliers with a turnover
of less than 15M
• Invoice Discounting • Various
Grenke • Small and mid-sized companies • Purchase price of €500 to
€500,000
• IT and office systems leasing • Various
Linked Finance • Businesses > 2 years old • €5,000 to €50,000 • Links individuals/companies
who wish to lend with
business borrowers
• Various
Tower Trade
Finance • Gross margin > 12%
• > 3 years old
• The products it sells must not be,
perishable, or capital intensive.
• < 90 days cash to cash cycle
• Turnover > US$2.5m p.a.
• c.€50k • Sales finance
• Supplier finance
• Various
SME alternative finance
© 2014 Deloitte & Touche. All rights reserved
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