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  • DistresseD InvestIng report ApriL 2008

    HigHligHts from tmAs And tHe deAls 2008 distressed

    investing ConferenCe

    DistresseD investing r e p o r t

    ApriL 2008 VoLume 1 issue 1

    HAppy DAys for DistresseD Debt inVestorsOppOrtunItIesand rIsksare great, yet experts warn that thIngs cOuld get cOmplIcated

    close print back < index > cover search view

    http://www.turnaround.orghttp://www.thedeal.com

  • DistresseD InvestIng report ApriL 2008

    close print back < index > cover search view

    Its our great pleasure to present you the highlights of the second annual Distressed Investing Conference, co-produced by the Turnaround Management Association and The Deal. Over 550 corporate renewal professionals and financial and corporate dealmakers gathered at the Wynn Las Vegas on January 23-25, 2008, and enjoyed an unrivalled opportunity to exchange ideas and hear the latest trends on distressed investing from leading experts in the field.

    This report details the keynote and panel discussions that took place over both days. From an examination of the state of the leveraged markets, the most pressing issues facing distressed debt traders, the CLO, derivative and SWAP markets and the opportunities presenting themselves in China to the Founders Panel, which gathered the founders of significant distressed investment funds, we hope this report gives you insight and ideas on how to benefit in the next phase of the distressed investing cycle.

    TMA and The Deal are already planning our next Distressed Investing Conference to be held in Las Vegas in January 2009, at which we hope you will be able to join us. Mark your calendar for the third annual Distressed Investing Conference for more news in the dynamic world of corporate restructuring and finance.

    Colin P. Cross Managing Director Crystal Capital LLC Immediate Past Chairman, Turnaround Management Association

    Kevin Worth President and CEO The Deal LLC

    contents

    Highlights from TMAs and The Deals 2008 Distressed Investing Conference

    Executive Director, TMA: Linda M. Delgadillo, CAEManaging Director of Events, The Deal LLC: Allan Cunningham

    Director of Fund Development, TMA: Joseph KarelVP, Communications & Development, The Deal LLC: Martha Brown

    Project Manager, The Deal LLC: Mark A. BaileyArt Director: Cezanne Studio/Paul Colin

    Writer: Leila Zogby

    HEADQUARTERS

    The Deal LLC Turnaround Management Association105 Madison Ave 150 South Wacker Drive, Ste. 900New York, NY 10016 Chicago IL 60606212.313.9200 312.578.6900www.TheDeal.com www.turnaround.org

    For more information on the Distressed Investing Report, please contact: Allan Cunningham at 212.313.9162, acunningham@thedeal.com or Joseph Karel at 312.242.6039, jkarel@turnaround.org.

    The Distressed Investing Report is a sponsored publication produced by The Deal LLC and the Turnaround Management Association.

    DistresseD investing r e p o r t

    3 Happy Days For Distressed Debt Investors In 2008 Opportunitiesandrisksaregreat,yetexpertswarnthatthings couldgetcomplicatedastheeconomystruggles

    6 The Why And How Of Turnarounds KeynoterJerryYorksaysacommittedmanagementteamthat takesthelongviewcanovercomethefailureofpoorstrategyand execution

    8 Experts Advise Patience And Caution For Distressed Debt Investors Thebetterdealswilllikelycomealonglater,butthatdoesnt meaninvestorsshouldntstartshoppingnow

    11New Players Emerge In Leveraged Cap Markets Yet,hedgefundsandothernewinvestorsmayfacesurprisesas economicstormcloudsgather

    13 2008 Distressed Investing Conference Photos

    16 When Creditors Are Traders, Gray Areas Arise Withthesupposedprotectionofbig-boylettersnowinquestion, creditorsmustweighthebenefitsofservingoncommittees

    19 CLOs: Down But Not Out CLOshaveproventobeasolidassetclassthatwillsurvivethe currentmarketturmoil

    24 Chinas New Bankruptcy Law Opens Possibilities WhileamoreWesternlegalcodewillhelpopenmarkets,cultural differencesmakeimplementationaslowprocess

    http://www.thedeal.comhttp://www.turnaround.org

  • DistresseD InvestIng report ApriL 2008

    close print back < index > cover search view

    HAppy DAys for DistresseD Debt inVestors in 2008 opportunitiesand risksare great, yet experts warn that things could get complicated as the economy struggles

    Whatadifferenceayearmakes!Whenthedistresseddebtinvestmentcommunitygatheredinearly2007forthefirstannualDistressedInvestingConference,talkcenteredonhowtheamazingamountofliquidityinthemarketswasmakingittoughtoearnabuck.

    Atthisyearsevent,againco-producedbytheTurnaroundManagementAssociationandTheDeal,youcouldalmosthearthemorethan500participantshummingthetuneHappyDaysAreHereAgain.Lastsummerssubprimemortgagecrisisturnedoffthecreditspigotandchangedthegame.

    Evenhealthycompaniesarehavingtroublegettingfinanced,notedMarcLeder,SunCapitalPartnersInc.,andthetroubledcompaniesreallycantgetfinancedatall,orwithalotofdifficulty..But,weveseenthisbefore.Thishappenedbackin2001,evenlate2000,andthewayIandmycolleagueswhoinvestindistressedcompaniesrespondedandreactedisthroughstructuringthedealsdifferently.Inalotofdealsoverthelasttwo,three,fouryearsinagoodfinancingenvironment,

    wewouldgointoanydealandwedbeanall-cashbuyer,knowingwecouldgetthird-partyfinancingafterclosing.

    Thatsnolongertheprocess.LedertoldthoseattendingapaneldiscussionthatSunCapitalisworkingonmanydealsnowinwhichlendersareoverleveragedandthecompanyis

    underperforming.Itwasntagreatcompany,anditshouldnthavehadthiskindofleveragedcapitalstructuretobeginwith.They[lenders]knowthereisnochancetheyregoingtobetakenoutofthedeal.So,whattheyrelookingtodoistobringsomeoneintoprovidenewcapital.

    Inalotofdealswedidin01,existinglendersstayedinplace.Wewouldinvestequityintothecompanytoprovideliquidity.Wewouldtakealargemajorityownershipposition.Therewouldbenoimpairmenttoanycreditors,nowrite-offs,maybesomeloweringofinterestratesbutthewholestructureofthe

    dealhaschangedfromacontrolledsaleforcashtoanequityinvestmenttorecapitalizeacompanythatnevershouldhavebeensoleveragedtobeginwith.

    Collateralizedloanobligations(CLOs)tookabackseatfollowingthesummercrisis,andnontraditionalinvestors,suchashedgefundsanddistresseddebtfunds,assumedadominantroleinthemarkets.Oneofthethingswesawlastfallafterthemarketdidcorrect,explainedMattGerdes,managingdirectorofFreeportFinancial,wassome[price]stabilizationassomeoftherelativevalueplayers,thenontraditionalinvestors,high-yieldhedgefundscrossedoverandprovidedsomesupport,seeingalotofvaluethererelativetotheircoreassetclasses.Henoted,however,thatstabilizationwasshort-lived,ashigh-yieldspreadshavewidened.

    TherecessionmaybeaspoilerManyexpertsspeakingattheconferencewarnedthatthecurrentrecessioncouldholdsomesurprisesthisyearandnext,andurgedinvestorstotreadcarefully.SeveralspeakersnotedthatMoodysInvestorsServicepredictedthattheglobaldefaultrateonhigh-yield,high-riskbondswilljumpmorethanfivefoldbythecloseof2008becauseofaweakereconomy.

    TheMoodysreportalsoexpectedthedefaultratetoreach5percentin2009,whichcomparestothe26-yearlowrateof0.9percentpostedatthecloseof2007.Theratingsagencyalsonotedthatthepercentageofissuerswithdebttradingatdistressedlevelsatthebeginningof2008was11.5percent,thehighestlevelsinceJuly2003.Ayearearlier,theratewas4.2percent.

    CONTINUED >

    troubledcompaniesreallycantgetfinancedatall,orwithalotofdifficulty.But,weveseenthisbefore.

    Ihavebeenpreachingpatienceandcaution.

    Marc Leder

  • Detroit401 S. Old Woodward Ave. Suite 340Birmingham, MI 48009248-433-3100

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    Shanghai31/F Jin Mao Tower88 Shi Ji AvenuePudong, Shanghai 2001208621-2890-9631

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    http://www.c-m-d.com

  • close print back < index > cover search view

    DistresseD InvestIng report ApriL 2008

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    Thesizeofloansthatmayfacetroublewasalsoaworryamongexpertsspeakingattheconference.Ifyoulookattheaveragesizeofwhataleveragedloanlookedlikein2007,itwasgoingfor$1billion,explainedJimJeffries,managingdirector,WachoviaSecuritiesInc.Ifyougobacktothebeginningofthelastcyclein2001,itwasaround$350million,maybe$40

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