DistresseD investing report - TMA ?· The Distressed Investing Report is a sponsored publication produced…

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<ul><li><p>DistresseD InvestIng report ApriL 2008</p><p>HigHligHts from tmAs And tHe deAls 2008 distressed </p><p>investing ConferenCe</p><p>DistresseD investing r e p o r t</p><p>ApriL 2008 VoLume 1 issue 1</p><p>HAppy DAys for DistresseD Debt inVestorsOppOrtunItIesand rIsksare great, yet experts warn that thIngs cOuld get cOmplIcated</p><p>close print back &lt; index &gt; cover search view</p><p>http://www.turnaround.orghttp://www.thedeal.com</p></li><li><p> DistresseD InvestIng report ApriL 2008</p><p>close print back &lt; index &gt; cover search view</p><p>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.</p><p>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.</p><p>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.</p><p>Colin P. Cross Managing Director Crystal Capital LLC Immediate Past Chairman, Turnaround Management Association</p><p>Kevin Worth President and CEO The Deal LLC</p><p>contents</p><p>Highlights from TMAs and The Deals 2008 Distressed Investing Conference </p><p>Executive Director, TMA: Linda M. Delgadillo, CAEManaging Director of Events, The Deal LLC: Allan Cunningham</p><p>Director of Fund Development, TMA: Joseph KarelVP, Communications &amp; Development, The Deal LLC: Martha Brown</p><p>Project Manager, The Deal LLC: Mark A. BaileyArt Director: Cezanne Studio/Paul Colin</p><p>Writer: Leila Zogby</p><p>HEADQUARTERS </p><p>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 </p><p>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. </p><p>The Distressed Investing Report is a sponsored publication produced by The Deal LLC and the Turnaround Management Association. </p><p>DistresseD investing r e p o r t</p><p>3 Happy Days For Distressed Debt Investors In 2008 Opportunitiesandrisksaregreat,yetexpertswarnthatthings couldgetcomplicatedastheeconomystruggles</p><p>6 The Why And How Of Turnarounds KeynoterJerryYorksaysacommittedmanagementteamthat takesthelongviewcanovercomethefailureofpoorstrategyand execution</p><p>8 Experts Advise Patience And Caution For Distressed Debt Investors Thebetterdealswilllikelycomealonglater,butthatdoesnt meaninvestorsshouldntstartshoppingnow</p><p> 11New Players Emerge In Leveraged Cap Markets Yet,hedgefundsandothernewinvestorsmayfacesurprisesas economicstormcloudsgather</p><p>13 2008 Distressed Investing Conference Photos</p><p>16 When Creditors Are Traders, Gray Areas Arise Withthesupposedprotectionofbig-boylettersnowinquestion, creditorsmustweighthebenefitsofservingoncommittees</p><p>19 CLOs: Down But Not Out CLOshaveproventobeasolidassetclassthatwillsurvivethe currentmarketturmoil</p><p>24 Chinas New Bankruptcy Law Opens Possibilities WhileamoreWesternlegalcodewillhelpopenmarkets,cultural differencesmakeimplementationaslowprocess</p><p>http://www.thedeal.comhttp://www.turnaround.org</p></li><li><p> DistresseD InvestIng report ApriL 2008</p><p>close print back &lt; index &gt; cover search view</p><p>HAppy DAys for DistresseD Debt inVestors in 2008 opportunitiesand risksare great, yet experts warn that things could get complicated as the economy struggles </p><p>Whatadifferenceayearmakes!Whenthedistresseddebtinvestmentcommunitygatheredinearly2007forthefirstannualDistressedInvestingConference,talkcenteredonhowtheamazingamountofliquidityinthemarketswasmakingittoughtoearnabuck.</p><p>Atthisyearsevent,againco-producedbytheTurnaroundManagementAssociationandTheDeal,youcouldalmosthearthemorethan500participantshummingthetuneHappyDaysAreHereAgain.Lastsummerssubprimemortgagecrisisturnedoffthecreditspigotandchangedthegame.</p><p>Evenhealthycompaniesarehavingtroublegettingfinanced,notedMarcLeder,SunCapitalPartnersInc.,andthetroubledcompaniesreallycantgetfinancedatall,orwithalotofdifficulty..But,weveseenthisbefore.Thishappenedbackin2001,evenlate2000,andthewayIandmycolleagueswhoinvestindistressedcompaniesrespondedandreactedisthroughstructuringthedealsdifferently.Inalotofdealsoverthelasttwo,three,fouryearsinagoodfinancingenvironment,</p><p>wewouldgointoanydealandwedbeanall-cashbuyer,knowingwecouldgetthird-partyfinancingafterclosing.</p><p>Thatsnolongertheprocess.LedertoldthoseattendingapaneldiscussionthatSunCapitalisworkingonmanydealsnowinwhichlendersareoverleveragedandthecompanyis</p><p>underperforming.Itwasntagreatcompany,anditshouldnthavehadthiskindofleveragedcapitalstructuretobeginwith.They[lenders]knowthereisnochancetheyregoingtobetakenoutofthedeal.So,whattheyrelookingtodoistobringsomeoneintoprovidenewcapital.</p><p>Inalotofdealswedidin01,existinglendersstayedinplace.Wewouldinvestequityintothecompanytoprovideliquidity.Wewouldtakealargemajorityownershipposition.Therewouldbenoimpairmenttoanycreditors,nowrite-offs,maybesomeloweringofinterestratesbutthewholestructureofthe</p><p>dealhaschangedfromacontrolledsaleforcashtoanequityinvestmenttorecapitalizeacompanythatnevershouldhavebeensoleveragedtobeginwith.</p><p>Collateralizedloanobligations(CLOs)tookabackseatfollowingthesummercrisis,andnontraditionalinvestors,suchashedgefundsanddistresseddebtfunds,assumedadominantroleinthemarkets.Oneofthethingswesawlastfallafterthemarketdidcorrect,explainedMattGerdes,managingdirectorofFreeportFinancial,wassome[price]stabilizationassomeoftherelativevalueplayers,thenontraditionalinvestors,high-yieldhedgefundscrossedoverandprovidedsomesupport,seeingalotofvaluethererelativetotheircoreassetclasses.Henoted,however,thatstabilizationwasshort-lived,ashigh-yieldspreadshavewidened.</p><p>TherecessionmaybeaspoilerManyexpertsspeakingattheconferencewarnedthatthecurrentrecessioncouldholdsomesurprisesthisyearandnext,andurgedinvestorstotreadcarefully.SeveralspeakersnotedthatMoodysInvestorsServicepredictedthattheglobaldefaultrateonhigh-yield,high-riskbondswilljumpmorethanfivefoldbythecloseof2008becauseofaweakereconomy.</p><p>TheMoodysreportalsoexpectedthedefaultratetoreach5percentin2009,whichcomparestothe26-yearlowrateof0.9percentpostedatthecloseof2007.Theratingsagencyalsonotedthatthepercentageofissuerswithdebttradingatdistressedlevelsatthebeginningof2008was11.5percent,thehighestlevelsinceJuly2003.Ayearearlier,theratewas4.2percent.</p><p>CONTINUED &gt;</p><p>troubledcompaniesreallycantgetfinancedatall,orwithalotofdifficulty.But,weveseenthisbefore.</p><p>Ihavebeenpreachingpatienceandcaution.</p><p>Marc Leder</p></li><li><p>Detroit401 S. Old Woodward Ave. Suite 340Birmingham, MI 48009248-433-3100</p><p>Chicago303 West MadisonSuite 1600Chicago, IL 60606312-220-0100</p><p>Dayton109 North Main Street500 Performance Place Dayton, OH 45402937-222-7317</p><p>New York1270 Avenue of the AmericasSuite 2340New York, NY 10020212-586-2200</p><p>Atlanta7000 Central Parkway, NESuite 1325Atlanta, GA 30328770-394-9905</p><p>Shanghai31/F Jin Mao Tower88 Shi Ji AvenuePudong, Shanghai 2001208621-2890-9631</p><p>Since 1987, CM&amp;D has provided turnaround management, </p><p>performance improvement and litigation support services to </p><p>clients in a wide variety of industries. Our highly credentialed </p><p>team of experts includes Certified Public Accountants, </p><p>Business Valuation Experts, Certified Turnaround Professionals </p><p>and Certified Fraud Examiners. When the question is</p><p>what should you do to ensure the long-term profitability of your </p><p>companythe answer is call CM&amp;D.</p><p>c-m-d.com</p><p>Turnaround ManageMenTConsulTing</p><p>BankrupTCy/FiduCiaryserviCes</p><p>operaTions ConsulTing&amp; inTeriM exeCuTiveManageMenT</p><p>perForManCe iMproveMenT</p><p>low CosT CounTrysourCing</p><p>due diligenCe serviCes</p><p>liTigaTion supporT&amp; experT TesTiMony</p><p>ForensiC aCCounTing&amp; Fraud invesTigaTions</p><p>Business valuaTions</p><p>eConoMiC daMageClaiM QuanTiFiCaTion</p><p>BankrupTCy &amp; insolvenCy MaTTers</p><p>invesTMenT BankingserviCes</p><p>deBT resTruCTuring</p><p>Mergers &amp; aCQuisiTions</p><p>CapiTal raising serviCes</p><p>what?SometimeS the SimpleSt queStionS arethe moSt difficult to anSwer.</p><p>close print back &lt; index &gt; cover search view</p><p>http://www.c-m-d.com</p></li><li><p>close print back &lt; index &gt; cover search view</p><p> DistresseD InvestIng report ApriL 2008</p><p>close print back &lt; index &gt; cover search viewclose print back &lt; index &gt; cover search view</p><p>Thesizeofloansthatmayfacetroublewasalsoaworryamongexpertsspeakingattheconference.Ifyoulookattheaveragesizeofwhataleveragedloanlookedlikein2007,itwasgoingfor$1billion,explainedJimJeffries,managingdirector,WachoviaSecuritiesInc.Ifyougobacktothebeginningofthelastcyclein2001,itwasaround$350million,maybe$400million.So,wereatleastthreetimesbiggerbasedonthatstat.</p><p>ComplexcovenantsandliensThedealsnotonlywerebig,buttheyalsowerecomplicatedinstructure.Weseeadifferentcreatureintheleveragedloan</p><p>market,thatofcovenantliteandsecondlien,SeanLynch,directorofcreditandco-manageroftheSutterhigh-yieldfixed-incometeamatWellsCapitalManagement,toldtheaudienceattendingapaneldiscussionthathemoderated.Obviously,secondliensdidnotexistatallinthe2000timeandcovenant</p><p>lite,asweallknow,hasexpandedtoatleastone-fifthportionofthemarket.</p><p>Thesemegadealshaveinvolvedadiversecastofinvestors,whichmayposeanotherprobleminaturnaroundorrestructuringscenario.Weredealingwithcapitalstructuresnowthathavebecomemuchmorehighlycomplexwiththeintroductionofalotofdifferentlenders,whichchangesthedynamicthataturnaroundmanagerneedstogothrough,notesJeffZappone,CTP,seniormanagingdirectorofConway,MacKenzie&amp;DunleavyInc.,adding,Idsaytheturnaroundandworkoutthatweclassicallyhaddoneinyearspastisgoneanditsnevergoingtocomeback.</p><p>Creditorsmayfacenewtroubles.Inapaneldiscussionthatfocusedonrecentcourtcasesandsettlementsinvolvingcreditorswhosatoncreditorcommitteesandalsotradedinthesecuritiesofthecompanyinquestion,listenerslearnedthatitmaynotbewiseforsellersofdistresseddebttoassumethatabig-boyletterisprotectionenoughfrompost-salelawsuits.Suchlettersaregenerallyprovidedbysellerswhohavenonpublicknowledgeaboutacompanytobuyerswhoagreethattheyarebigboysandunderstandthesituation.n</p><p>&lt; PREVIOUS</p><p>Weredealingwithcapitalstructuresnowthathavebecomemuchmorehighlycomplex...</p><p>http://www.marquette.com</p></li><li><p> DistresseD InvestIng report ApriL 2008</p><p>close print back &lt; index &gt; cover search view</p><p>tHe WHy And HoW of turnAroundKeynoter Jerry york says a committed management team that takes the long view can overcome the failure of poor strategy </p><p>Notingthataturnaroundissortoftheflipsideofdistressedinvesting,JerryYork,CEOofHarwintonCapitalLLC,aprivateinvestmentcompany,andkeynotespeakeratthesecondannualDistressedInvestingConference,describedwhatheviewedasthereasonscompaniesfailandthemosteffectivewaystorescuethem.</p><p>BasinghisremarksonhispersonalexperiencewithturnaroundsituationsatChryslerCorp.,IBM,AppleandTycoInternational,Yorkreferredtothewrongstrategyorbusinessmodelandpoorexecutionasthesymptomsofadiseasethatconsistsofpoorgovernance,aculturethattoleratespoorperformance,inadequatemanagementandamajorshiftinindustryconditions.</p><p>Pre-turnaroundconditionsYorkdissectedthepre-turnaroundconditionofthefourcompanies.Regardingstrategyissues,hesaid,Chryslerhadanoverallgoodstrategy.IBMswasseverelyflawed.Appleessentiallyhadnostrategy,andTycoswasprettygoodbutexcessivelyrisky.Intermsofthebusinessmodel,bothChryslerandIBMweretooslowandcostly.Applehadseriousdistributionproblems,andTycowastoocostlybecauseoftheredundanciesthatexistedinthebackofficeandmanufacturingareas.</p><p>Occasionally,Chryslerhaddonereasonablywell,buthadbeenleftvastlybehindinpassengercars,hadhugemarketsharelosses.IBMwasbehindineverythingvirtually,exceptmainframesandasmall,atthattime,servicesbusinessthatwasstillsmallerthanEDSatthatpoint.Applehadmajormanufacturingfootprintissues,andTycowasoperationallysubpar.</p><p>YorktermedthepreturnaroundboardsofChryslerandIBMasstrongandindependent,butchidedthemanagementoftheautomakerforlackofteamworkandthetechnologycompanysleadershipforinflexibility.YorkwasCFOofChryslerandjoinedIBMin1993asCFOunderLouGerstner.</p><p>ApplesboardseemedunabletomovethecompanyforwarddespiteadepthofSiliconValleyexpertise,anditsmanagementunderGilAmelioclearlylackedthepassionfortheMacplatformthatyouneedwhenyoureasmallplayercomparedtoabiggorillalikeMicrosoft.YorkbecameanAppledirectorin1997afterSteveJobsrejoinedthecompany.AsforTyco,acompanyhedescribedasasingle-leggedstrategyacquisitionmachine,itsdirectorswereinaweoftheCEOanddidnotaskseriousquestionsofhim,hesaid.Yorkjoinedthatboardin2002afterthecompanywasincrisis.</p><p>Japanesecompetitionwastheindustrychangethathurt</p><p>Chrysler,hesaid,whileatIBMitwasthetitanicindustrychangestakingplaceintheITspaceintheearly1990s.MicrosoftsmarketdominationwastheissueforApple,butTycowaslargelyverywell-positionedasset-wise.</p><p>TurnaroundresultsAllfourturnaroundsdeliveredontheirpromises.AtChrysler,Yorktermedthesuccessspectacular.Thesharepricebottomedoutin1990,91atabout$9,andin1993whenthatparticularturnaroundhadbeensuccessfullycompleted,thestockwasat$45.Daimler-Benz,whichpurchasedChryslerin1998,totallyscrewedupthatacquisition,Yorksaid.Thereisnoreasonthatcouldnothaveworkedout,andworkedoutbeautifully.NotingthatChryslerisnowinitsthirdmajorrestructuringofthepast15years,YorksaiditwasbecausetheyhadnotadequatelyaddressedtheircompetitivedisadvantagesagainstAsiancarmakers.</p><p>IBMisanothersuccessstory.Thestockbottomedoutat$10onasplitadjustedbasisin1993anditsat$103currentlythey[IBM]haveexhibitedtheabilitytochangeandnotjustwaituntiltheygetincrisisagain,henoted.</p><p>YorkattributedApplesturnaroundtoSteveJobssrefocusonbetterproductdesignandproductinnovation,particularlythehugelypopulariPhone.Thethingsittingonyourdeskdoesnothavetobeanuglygrayorbeigebox.Itcanbeanattractiveindustrialdesign.Interestingly,Dellisnowstartingtoemulatethat10yearslater.Bytheway,MichaelDellin1997saidthatAppleshouldnotbeturnedaroundandtodayApplesmarketcapisgreaterthanDellsbyasubstantialamount.</p><p>Tycosturnaround,whilesuccessful,hasnotbeenplayedout,</p><p>CONTINUED &gt;</p><p>Jerry York, CEO, Harwinton Capital LLC</p></li><li><p> DistresseD InvestIng report ApriL 2008</p><p>close print back &lt; index &gt; cover search view</p><p>accordingtoYork.Thiswasacompanyinseverecrisisandwehadahugecredibilityrebuildingjobtodo.IwentontheboardinNovemberof2002.Iwasthesecondnewdirectorandfivemonthsafterthat,theboardhadbeenchanged100percent.LastcountIsawofthetop200executivesinthecompany,190...</p></li></ul>