Restructuring Investment Banking Preparation

What's the way distressed investors approach making investment decisions?

1. Analyze the most recent financials to determine the capital structure and determine total debt and relative priority given the legal (security and seniority) and structural (operating versus holding company) considerations 2. Value the capital structure given market trading prices 3. Analyze recent EBITDA trends and determine the relative leverage (on EBITDA multiple basis) of the various levels of the capital structure at both face and market value 4. Consider whether, given conservative or appropriate industry valuation metrics, the company is likely worth more than current trading levels Note: steps 1-3 are included in every cap table

When have there been a lot of defaults?

1931-33, 1970, 1990-1991, 2000-2002, 2007-2009

What is DIP Financing?

Debtor in Possession is what the company that has filed for a petition for bankruptcy is called. DIP financing is a special type of financing, only available to those who have filed, that has super-priority over all existing elements of the capital structure. Roughly 70% of the time, this DIP financing comes from those who have already given the company loans. DIP financing is generally very safe as it has so much collateral backed up against it and comes with some very restrictive covenants. Many companies, who have not been able to raise new debt prior to filing, will file Chapter 11 strategically in order to get access to DIP financing.

Do secured creditors always get treated as secured?

If their claim is larger than the value of their collateral, then the amount of the excess is deemed an unsecured claim (technically called a "general unsecured claim")

What do we mean by leveraged versus unleveraged loans?

Leveraged loans are those with BBB- or Baa3 or lower ratings. It just means that the credit rating is below investment grade which makes the loan high yield.

What is grid pricing?

Revolvers will have something called grid pricing. For example, a revolver could have L+250-350 where L+250 is the rate if only X% of the revolver is drawn, but if more than X% is drawn, then the rate goes up to L+350.

What is the difference between section 301 or section 303 in Chapter 11?

Section 301 is voluntary by the debtor while section 303 is involuntarily by the debtor and filed by creditors or indenture trustee (acts for the benefits of the investors in the company's bonds). In section 303, the creditors declare Chapter 11 on the basis of technically defaulting for breaking covenants, missing payments, etc...

When do we normally start talking with potential clients?

Usually you will begin talking to potential clients far before they're actually needing to make a choice about restructuring. You'll have prepared a profile and know their capital structure and when they're likely to get into trouble. Ideally, you would pitch to clients well before they reach the breaking point where a creditor could push them into an involuntary chapter 11 because then you can work out some kind of out-of-court restructuring. Sometimes chapter 11 is the best option, however, but it is still best to have a pre-pack or solid plan of action beforehand.

So if unsecured debt is, well, unsecured by collateral, is there a chance of recovery in the event of default?

Yes, of course! The remainder of the company's value, following the repayment of creditors higher in the capital structure, will be paid out to the unsecured creditors.

What do we even mean by a HoldCo/OpCo Structure?

A HoldCo/OpCo structure is simply one where we have a series of operating companies (often either diverse in the countries that they operate in or with each OpCo being dedicated to one major corporate project) and a HoldCo that owns the equity of these operating companies. HoldCo is the legal umbrella under which all of the operating companies coexist so the HoldCo has ultimate ownership. Normally, the OpCos are where the assets themselves reside and HoldCo holds nothing other than the equity of the OpCos. It's important to note that secured debt is typically houses where the assets are located since lenders always want to be closest to the assets.

What is a cap table?

A cap table shows all the debt securities that the company has issued along with their maturity, coupon rate, credit rating, market price (if relevant), leverage, and interest coverage ratio. Cap tables are the primary things that RX bankers create and update. Pitch books will also typically show available liquidity. The most important aspect of cap tables is the footnotes which detail the specific attributes of parts of the debt that are relevant (such as secured basket amounts, springers, etc...)

What is a springer (springing maturities)?

A springer is an express term that says something to the effect of if loan or bond X has not been re-financed by Y date, then this loan or bond will spring Z months before X's maturity date. Basically, if by a certain date a loan or bond in the capital structure has not been mostly or completely refinanced, then some bond or loan higher in the capital structure will have its maturity date spring forward. Traditionally, springers will push the maturity of the more senior debt 90 days before the other security comes due.

What was Martin Fridson's definition of distress debt?

A yield to maturity that is more than 1,000 basis points more than the comparable underlying treasury. For example, if the five year treasury is trading at 0.37%, than Fridson's definition would be 10.37%

So deferred revenue can be quite large for a distressed company. What about accounts receivable?

AR is incredibly important for distressed companies since it is usually a part of the borrowing base that determines the size of the revolver that the company can get. AR can be quite large for companies in distress as well, however, this is not always an indication of strength. You would typically like to see companies with AR Days under 45 (takes 45 days to turn AR to cash) but if consumers know that a company is in distress, they may be less likely to actually pay which will extend out AR days.

What is the absolute priority rule?

Absent consent, a senior class must be paid in full before junior classes of creditors and equity holders can receive any money or property under a Chapter 11 plan.

In cap tables do you use adjusted EBITDA or just EBITDA for leverage ratios, etc.?

Adjusted EBITDA, if possible, since it is more reflective of the profitability of normal operations.

Why does the Efficient Market Theory (EMT) not apply to distressed debt?

All counterparties do not have access to the same information (information asymmetry). Many investors may have forced liquidations during highly volatile periods (the fallen angel phenomenon) which is objectively irrational but done as a result of funds' mandates. Have large transaction costs (bid/ask spreads wider than investment grade debt or equity) with much worse liquidity.

What about structural subordination? What does that mean?

All this means is debt that is junior because of where it is located. If we have an OpCo with assets of $200 and debt of $150, and then we have a HoldCo with the equity of OpCo and debt of $100, in the event of a filing, OpCo's debt would be made hold and HoldCo's debt would have a fifty percent recovery (HoldCo's unsecured notes are structurally subordinate to OpCo's unsecured notes).

What do you think an analyst does within RX?

An analyst's job is to support those around them in any way possible. This could mean putting together slides on the largest bond holders for a certain tranche of debt within a company. In a structured sense, the analyst will run industry screens, create profiles, and take a role in pitches and live deals (which usually involve an associate, VP, and MD). The day-to-day work may involve creating cap tables, pro forma cap tables, and ensuring proper formatting in materials.

What are borrowing bases?

An asset backed lending (ABL) facility can be obtained with the amount you can draw from this facility being a set percentage of the underlying asset the ABL is collateralized against. The borrowing base is how much can be borrowed against this asset. For example, a typical ABL will be defined as having a borrowing base of 50% inventory or 75% eligible receivables. The point is that the collateral should cover loans no matter what so you can't just use the line item on the balance sheet.

What does BRC 363 allow?

An asset sale where the buyer purchases assets free of all liens and claims with little to no risk of the transaction being subsequently unwound. Only the debtor can propose to sell assets pursuant to BRC 363. 363 is an open outcry bid in person at some location (normally court). It involves a stalking horse bid to make sure you set a minimum amount as well as breakup fees and incremental bids.

In distressed situations, which of the three statements do we care about the most?

As a general rule, you always care most about the cash flow statement and this is especially true for distressed companies. Ultimately, liquidity helps us determine what a company can and cannot do to restructure and a key component of liquidity is cash. In Chapter 11, you have to do monthly operating reports showing cash-in and cash-out which makes cash accounting especially important.

What is asset coverage?

Asset coverage is just Assets/Debt and will typically be shown through the capital structure (how do the assets cover the 1L term loan, how do the assets cover the 1L term loan plus all other secured creditors, etc...)

What blocks do bank debt and corporate bonds generally trade?

Bank debt trades in 5mil blocks and corporate bonds trade in 1mil blocks.

What happens when bank debt trades below 70?

Banks and CDOs are much more likely to become sellers, often for non-value related reasons (CDOs have mandates for the types of debt they hold and banks have risk weighted asset (RWA) considerations that make holding distressed debt very expensive). In these situations, there exists opportunities to accumulate bank debt at cheap prices because the current holders need to get out of it.

What are bondholder committees and their rights?

Basically, in an out-of-court scenario, you will have bond-holders band together in what is called a bondholder committee in order to negotiate with the company as to what they will accept in an out-of-court restructuring scenario. This committee will often hire a bank to help them do analysis and coordinate and this is how RX shops get creditor mandates. Typically, then a large bondholder will take the initiative to contact other significant bondholders and solicit their participating in an informal bondholder committee to negotiate on behalf of the overall bondholder group. This group will then hire a bank and while it can't force anyone to do anything out-of-court, it can get nonpublic information to make better informed decisions. The company will pay for the legal and associated expenses of the committee.

Walk me through the distinction between how we handle debt repayments (principal) and interest payments on the income statement versus the cash flow statement?

Interest payments are tax deductible and obviously occur in frequent intervals which qualifies them as an element to be included on the income statement. It will not be adjusted for on the cash flow statement unless its PIK interest. Debt repayments are cash but not tax deductible so they are reflected in the cash flow from the financing statement of the cash flow statement but not on the income statement.

When you can't make interest coverage, what can you do from an out-of-court perspective?

Issue discount notes or PIK notes. Under GAAP, interest expense is still recorded on the income statement but each structure is essentially allowing the cash payment on the interest to be deferred until maturity.

What's the cost of debt for a company in distress? Where should new bonds be priced?

Conventional wisdom is that the yield to maturity corresponds to what the cost of debt should be, however, this is not so simple for distressed companies. Perhaps the reason why bonds are trading down (to get to a high YTM) is because those bonds need to be refinanced (or maybe there is doubt over whether they can refinance at all). Many times you will see a YTM much higher than where the new bonds will end up pricing. Therefore, the cost of debt is somewhere around the YTM, but if the YTM is driven up by lots of default bets then it is likely lower if you are able to raise new debt.

What are busted convertible securities?

Convertible bond where the underlying stock trades far below its conversion price, causing it to act solely as a bond given that there is a very low chance that it will ever reach the convertible price before maturity.

What is a cram down?

Cram downs are detailed by 1129B(1). They require that in the event that not all impaired classes accept the plan, the court may still confirm the plan if it does not discriminate unfairly and is fair and equitable with respect to the non accepting classes. Cram downs are quite rare since the court must take a tough stand against someone who is impaired.

What is the downside of being on bondholder committees?

Creditors will have to sign confidentiality agreements and will have to disclose when selling or buying securities of the firm. They are also unable to disclose any nonpublic information and cannot be unrestricted until the filing of nonpublic information to the public via an 8-K, 10-Q, or 10-K.

What really happens in an out-of-court restructuring?

Creditors will typically either negotiate a change in terms of existing obligations or complete a voluntary exchange of financial interests. For example, if you have senior secured bonds that are trading at distressed levels and maturity is coming up, you may raise a new second lien security, give 80% of the value of the bonds to bondholders in the form of this new 2L and ask them to absorb the 20% of their lost value. So if they held $100m in bonds you are giving them a new more senior financial interest worth $80m. This may be enticing if bondholders believe that their recovery in Chapter 11 would only be 40% and if they'd prefer to right-size the company and not make them take an even bigger hit down the road.

Does a distressed company always file for bankruptcy?

No. Most RX transactions will be out-of-court and thus very low profile. Out-of-court is always the preferred option if at all possible.

What is critical vendor payments risk?

Critical vendors are those vendors who are paid post petition and distressed debt investors have to decide who they think will be in those groups. Critical vendors are those that are essential to the company being an on-going concern (without them the company will not survive so you need to have cash available to pay them). All non-critical vendors have the automatic stay leveled against them, precluding them from the ability to collect on their debts in the short term. How can you block a POR? Hold 33.4% of bonds in an impaired class. Can still have cram down if at least one impaired class voted yes and if judge deems deal to be equitable.

What is the difference between DIP Financing and exit financing?

DIP financing and exit financing are similar in terms of structure, covenants, and key terms. However, exit financing provides financing for the debtor following the emergence from Chapter 11 while DIP financing funds the debtor's operations during the bankruptcy process.

Why is DIP financing so attractive to lenders?

DIP lenders will be granted an affirmation or extension of their existing liens, new liens, and super priority claim status in the event that the value of their collateral is not sufficient to pay those claims and even priming liens. Since DIP loans are placed at the top of the capital structure, have absolute first priority, and can be made by existing lenders (this happens most of the time) or entirely different lenders, they are incredibly safe and profitable.

What is deferred revenue? Do distressed companies have more or less of it than average?

Deferred revenue is a liability that reflects that you have brought in cash for a good or service but have not actually provided that good or rendered that service. It is a liability until the good or service is provided or rendered, after which it becomes revenue on the income statement with deferred revenue being brought down. Distressed companies will often have more deferred revenue than normal as they will try to put together deals or sales in which they promise to deliver something in the future to get cash now.

What do NOLs become after a Chapter 11?

Deferred tax assets for a reorganized company.

What are discount notes?

Discount notes are a type of short-term debt obligation that is purchased at a discount to the face value, and then interest accrues and adds value to the note (with all of the returns realized at once when the investor turns in the note).

What can you tell me about distressed M&A?

Distressed M&A can come in two forms: selling a distressed company prior to filing or doing a Section 363 asset sale (which is essentially an expedited asset sale). This will normally be an asset sale (where a buyer does not assume all liabilities and assets). It is also important to note that there is a fine line in distress between a divestiture and a sale since what is left of a company after an asset sale is not overly valuable.

What kind of client do we deal with?

There are two types of clients on the debtor side: companies in distress (either public or private) and companies in distress owned by sponsors. On the creditor side, RX shops usually represent bond holder committees (groups of bond holders within a certain class). They have enough voting weight to need to be dealt with by the company in a potential restructuring so the group will hire a restructuring shop to advise them on how to extract the most value from their position. Creditor mandates can often include only one creditor if they hold a large enough notional value of bonds or loans in what will likely be an impaired class.

What is the exclusive period to file a plan of reorganization once Chapter 11 is filed?

There is a 120 day exclusive period and a 180 day period to solicit acceptances. This period may be reduced or extended by the court for cause, but may only be extended to a maximum of 18 months after the date of the filing of the petition. Other parties may not propose competing plans until after expiration of the exclusivity period.

What are the chances that a C-rated bond defaults?

There is a 33% chance that it will default in one year and a 65% chance that it will default in the next three years. You have to keep screens and profiles updated since the majority of companies with C-rated bonds will eventually need to be restructured.

What can a company in distress do to right-size?

Do an exchange of old debt coming for new debt (the new debt will usually have higher interest rates but longer maturities and the new debt can have a cash element to reduce cash interest). Complete asset sales to raise cash (quite rare since assets would be worth more to the company) Extend out current maturities (usually done through a "consent fee" and "paydown" which involves paying down a term loan through cash and paying the revolver for a predetermined consent fee) File for chapter with a pre-pack (a pre-done plan of reorganization that allows the company to get through chapter 11 in a couple of months) File for a chapter 11 without a pre-pack and then right-size while in chapter 11 which can take years

A company has $50m in EBITDA with comparables trading at 6x. The company has $400m in debt with 0 in cash. What's the company's enterprise value and equity value? What does the debt trade at?

EV = EV/EBITDA * EBITDA = 6 * 50 = 300m Equity Value = EV - Debt = 300 - 400 = (100m), however, this is not possible so it will likely be trading at a slightly positive value due to the call option of a potential turnaround. The debt would trade at 75 based on the estimated recovery.

What is usually included in an RX pitch?

Every RX pitch is slightly different, but it will generally include the following elements: Executive Summary Situation Assessment of Industry and Company Overview of company's financials, graphs of EBITDA, leverage ratio, etc... Overview of terms (covenants, etc...) of current debt Potential Restructuring Alternatives Include two to four potential ways to restructure the capital structure Provide explanations, timing, and rationale Appendix Additional Analysis For example, liquidity rollforward and debt holders list Case Studies Case studies of past successful and novel restructurings done by the team Qualifications

What are fallen angels? Why do they matter?

Fallen angels are bonds rated at the cusp of investment grade (BBB- or Baa3) that then get downgraded one notch or more, making them high yield or distressed. This is especially important since many mutual funds, pension funds, life insurers, etc... have mandates to hold investment grade credit but not high yield credit (due to the increased risk, perceived or otherwise). So in the hunt for the most promising yield, these funds load up on the lowest grade investment grade debt they can find which is fine until there are downgrades in which case these funds must liquidate their positions (regardless of what they think the credit quality really is). This usually means that there is a large price decline on a downgrade of bonds from investment grade to high yield with a totally different subset of buyers (distressed funds) buying from the mutual/pension funds.

What are the three legal tests for the confirmation of the POR?

Feasibility, best interest, and cram down.

Philosophically, what really is an asset or a liability? Does this change if the company is distressed?

For a company, an asset is something that can generate additional cash or contribute to it in an essential way in some period(s) in the future. We think about valuing assets within a company using some form of discounted cash flows. Liabilities are the opposite as they strip away cash (directly or indirectly) sometime in the future. For a distressed company, assets are suddenly deemed to have less capacity to generate cash (directly or indirectly) in the future, while liabilities strip away roughly the same amount of cash. Liabilities are then more "sticky" in their cash drain then assets are in cash gain.

How do deals come into the firm?

For debtor side mandates, deals normally come in either because the MD knows a partner at a sponsor who reaches out about a portfolio company they would like to re-work or the MD gets industry screens and profiles which then result in the MD putting out a feeler to see if the company is looking for options to be presented about potential restructurings. Sometimes, MDs will often get referrals from lawyers dealing with the distressed company. On the creditor side, groups often get created and are led by known distressed funds which have preferred MDs or restructuring groups to work with.

What does a typical prepackaged POR do?

Obtain new exit financing from banks (primarily DIP loans) Reinstate or repay old bank loans Reinstate trade creditors Reinstate leases and other executory contracts Issue 90% to 95% of common stock to former bond holders (who may get pieces of new debt issuances as well) Issue 5% to 10% of common stock to former junior creditors, former preferred stockholders, and/or former common stockholders If there is a litigation pending, set up and finance a litigation trust and give the common stock a small participation in lawsuit recoveries (if any) Issue options on around 6% to 12% of the common stock outstanding to management to incentivize them to stay around (despite probably having lost a great deal on their prior stock holdings in the company)

A bond has a current price of 80, 10% coupon, and matures next year. What is the YTM? Will the YTM be higher if it matures in two years?

One-Year YTM = (C + (FV-P))/P = (10 + 20)/80 = ⅜ = 37.5% Two-Year YTM = (C + (FV-P)/2)/((FV+P)/2) = 20/90 = 2/9 = 22.22% The YTM will be lower if it matures in two years.

Where do you get all the documents for bankruptcy court?

PACER for bankruptcy court and EDGAR for SEC

What is pari passu?

Pari passu refers to two debt instruments being ranked equally in the capital structure.

What is a big boy letter?

Part 1: acknowledgement by the non-restricted party that he or she is aware they they are in possession of nonpublic information Part 2: waiver of claims that non-restricted parties might otherwise have under securities laws because of the restricted party's possession of nonpublic information.

If you're looking for news and intelligence on distressed companies, where do you turn?

Primarily Debwrite, Reorg, and the Deal. You may also look at credit rating agency reports (such as those provided by S&P).

What is priming?

Priming is just when a new piece of the capital structure is added to above existing pieces. For example, DIP financing gets superior claim to all others out of a Chapter 11 and this primes everyone else in the capital structure (but you have to prove that it does not impair secured holders).

Can you tell me some of the tools you'll be using on the job?

ReOrg, Debtwire, PACER, MarkIt, Bloomberg, CapIQ, FactSet, The Deal, Trace, BamSEC

What is a reclamation claim in bankruptcy?

Reclamation is the right of a seller to take back certain goods sold on credit terms to an insolvent buyer.

What is pro forma?

Refers to financial statements that have been adjusted for certain assumptions such as a merger or new debt offering. Within RX, pro forma cap tables are cap tables that illustrate how the cap table will look after a restructuring.

What are the two main groups of syndicated loans?

Revolvers and term loans (loans for a specified amount with a fixed repayment schedule). There can be more than one revolver (although this is rare) that simply has a different borrowing base (for example one revolver has a borrowing base based on accounts receivable and the other has one based on inventory). Term loans are often called TLA, TLB, TLC, etc... and usually anything beyond TLB has little or no amortization while TLAs have some amortization and lower interest rates.

What does coming up with a POR include after a company files for Chapter 11?

Section 1123 has five mandatory provisions: Provision 1: The plan must designate classes of claims and classes of interest (thus providing a detailed capital structure) Provision 2: The plan must specify any classes of claims or interest that are not impaired under the plan (classes that have full asset coverage and thus will not be able to vote) Provision 3: The plan must specify the treatment of any class of claims or interest that are impaired under the plan (must include what will be offered to these classes in the reorganized company upon emergence from bankruptcy) Provision 4: The plan must provide the same treatment for each claim or interest of a particular class unless by requisite, vote holders agree to a less favorable treatment Provision 5: The plan must provide the adequate means for the implementation of the plan (this means that the plan must be feasible and achievable)

What are the elements of a traditional capital structure?

Secured debt (which includes revolvers and term loans), unsecured debt (bonds), subordinated debt (bonds below unsecured debt), mezzanine debt (anything like convertibles, preferred stock , PIK paying debt, etc...), and equity. Note: for a company in chapter 11 bankruptcy, there will also be administrative claims (lawyer and banker fees) and debtor in possession financing at the top of the capital structure.

What is the difference between secured debt and unsecured?

Secured debt means that the debt is backed by collateral while unsecured debt means that it is a generalized claim not backed by specific collateral.

What are CDOs (collateralized debt obligations)?

Securities that are derived from other securities. CDOs will use funds from investors to purchase debts and the principal and interest payments from those debts create a revenue stream that is used to pay investors. By slicing up the underlying obligations into different risk levels (tranches), the CDO offers a range of financial products providing different risk and return options for investors. CDOs can be made up of anything from mortgages to credit card payments and some particular forms can be created by using only one type of debt.

What is substantive consolidation risk?

Substantive consolidation is when liabilities of separate legal entities are treated as being merged into one entity. It changes the value of creditor claims through invalidation of any priority a claim may have had due to corporate structure and thus affects the potential recoveries of certain creditors.

If we have EBITDA = $40m, EV/EBITDA = 5x, secured senior debt of $150m, unsecured debt of $100m, then what is the value of equity and the value of debt if a chapter 11 is imminent?

The EV of the company would be 40m * 5 = $200 million This means that the secured senior debt is entirely covered and half of the unsecured debt will be covered. The secured senior debt will be whole and the unsecured debt will trade slightly above 50 since this is the impaired class and will have some more value due to the reorganized equity coming out of chapter (the spread between 50 and what the bonds are trading at will be a rough estimation of the equity value that the bonds will eventually have and the inherent optionality to that equity). Equity value will be marginally above zero since there is embedded optionality to equity prior to chapter 11 in the case that the company has a turnaround or there is an out-of-court restructuring with favorable terms.

What do you think an associate does within RX?

The associate's job is to oversee analysts on pitches or live deals and to play a role in the day to day cap table building and scenario analysis. The associate will communicate directly with the VP or MD on pitches or live deals and then communicate back to the analyst.

What is a best interest test?

The best interest test is detailed in section 1129(a)(7). It basically says that by accepting the Chapter 11 POR, you will not be worse off than if the company just did a Chapter 7 liquidation now. Since it is in your best interest to get the most value you can, the Chapter 11 value should exceed the Chapter 7 value.

What is an amend and extend?

The company negotiates with the banks to agree to keep in place the basic terms of the bank agreement but with a longer maturity. This will require bumping their interest payments or paying a consent fee or doing a term loan pay down.

What is the debt incurrence covenant?

The debt incurrence covenant defines the terms under which a company is allowed to add to its debt. It is based on the leverage ratio and will sometimes also use the coverage ratio.

We have a small group of unsecured notes coming due in a year. They are only $50m and the company has $70m in liquidity. Nothing else matures before these unsecured notes. Why are they trading at 60 cents on the dollar?

There is likely a springer on some more senior pieces of the capital structure that is much larger in size. So if the unsecured notes are not refinanced or paid off in full, the more senior piece of the capital structure will mature before it, which the company may not have the capacity to roll over or pay off in full and this could precipitate a restructuring with only a partially recovery of the value of the unsecured notes.

What other kinds of debt are there beyond what you would normally see in a capital structure explicitly?

There will sometimes be an other line item above equity which will include things like capital leases that can be considered as other forms of debt.

Why are credit ratings not that great of an indicator for distress?

They are lagging indicators.

Why are YTM or YTC not really correct?

They assume that you can reinvest at the same rate which is only really true for zero-coupon bonds since there are no bi-annual interest payments. It is simply not that true that you can re-invest at such high yields reliably.

What causes the "three strikes you're out" in bankruptcy?

This refers to Chapter 33s. After their third trip to do a Chapter 11, it appears that the company is destined to be liquidated and will be forced to file Chapter 7.

Why do distressed funds such as Third Avenue try to get 50% of any issue?

This revolves around the fact that in the indentures (legal document between the bond issuer and bond holder) for almost all publicly traded bonds, any nonmoney provision in the indenture can be modified or revoked by the consent of 50% of the outstanding issue. So, if the fund wants to block the capacity to be primed (have new money put in front of you in the capital structure), you can if you own 50% of a certain class of bond.

What classes do not get to vote in POR?

Those who will be made whole and those who will not be made whole at all (so only those who are impaired can vote). This is outlined in section 1126. Those who will be made who do not get to vote because they will not have to take a haircut on their securities so the outcome does not affect them. Those who do not receive anything cannot vote because they would not agree to any plan in which they do not get anything.

Let's say that as a part of an out-of-court restructuring, you are looking at creating new first lien notes and have to go see if any distressed funds would be interested in participating. What are the steps involved in that?

To start, as an analyst you will have a list of distressed funds who could be interested in these new notes and you would keep a spreadsheet tracking where these funds are in the process. The steps would then be as follows: Step 1: Teaser is sent describing the transaction structure more broadly Step 2: NDA is sent and executed Step 3: More detailed financials and terms of the transaction are sent to the counterparty Step 4: Term sheet is received which will have terms for the funding amount, duration, interest rate, and covenants

What are the two sides of a restructuring?

The debtor side is the company and the creditors side is the bond or loan holders. Debtor mandates involve just dealing with one party: the company. Creditor candidates involve dealing with a large number (can be three or ten or more) bond or loan holders within a certain class who band together. For example, if the unsecured bonds are likely to be an impaired class that will have to vote together on a POR in bankruptcy, the bondholders will gather together (not all but a significant amount and usually enough to have a blocking position of at least 33.4%) and hire an RX shop to advise on what they should demand, how they should negotiate, and what they should ultimately accept or reject.

If a debtor wants to provide some little value to equity holders, what does it need to get from all impaired classes?

The debtor would need to obtain the consent of, or provide full recoveries for, all impaired creditors or the plan will fail as a violation of the absolute priority rule. In most Chapter 11s, equity holders will theoretically get nothing since they are obviously at the very bottom of the capital structure. However, sometimes current equity holders will be thrown a bone (which is often referred to as a tip or tipping).

What is a feasibility test?

The feasibility test is codified in 1129(11) of the BRC. Once restructured, the debtor will not likely liquidate or will not experience the need for further financial reorganization in the future (Chapter 22s or Chapter 33s). In other words, the POR must feasibly put the company on sound footing and not require more restructuring later on.

When should something appear on the income statement?

The income statement represents a current period and at the end of it we have taxes so what goes into the income statement must affect taxes, otherwise pre-tax income would be distorted. The income statement uses accrual accounting so we will only account for revenues and expenses incurred in that period (which means only products that were delivered in that period regardless of if cash was or was not received and the associated costs for that product).

What is the most common ratio used for liquidity coverage?

The interest coverage ratio (EBITDA/Interest) which can sometimes be adjusted for ((EBITDA - CapEx)/Interest)

Who owns the debt of a company?

The loans or bonds of any suitably large company are generally going to be owned by a diverse, changing group of holders. Almost all loans are syndicated by the issuer and bonds are dispersed as well (although mezzanine debt can be privately placed and held by just a few parties until maturity. Some loans (TLA only) may be held by the issuer bank in size or in entirety. The quickest way to find the holders is to go to Bloomberg (and then you can use Bloomberg and MarkIt to find figures on pricing).

What is fulcrum security?

The most senior class of debt that is impaired and not paid in full (the one that likely receives lots of equity in the reorganization).

What is needed for a POR to be approved?

The plan is accepted if at least ⅔ of the notional amount (dollar amount of bonds or loans) and more than half of the number of allowed claims of such a class (half of the number of bond or loan holders, regardless of how much they hold) agree. So hypothetically, if you have someone who owns 75% of the bonds in a class, they cannot vote alone to approve the POR for their class (even though they own over ⅔ of the notional amount) since they need at least half of the other holders in the class to agree as well (even though they hold a much small dollar amount of bonds or loans).

What are syndicated loans?

The term syndicated loans refers to loans that a bank will issue and then sell off to other counterparties while retaining only a small amount of it on their own books. Syndicated loans are then securities that trade in a secondary market because they are held by so many different counterparties. You can then find where they are trading using MarkIt.

A company has $50m in EBITDA with comparables trading at 6x. The company has $400m in debt with 0 in cash. If the CEO finds $100m under his cushion at home, what happens to the debt and equity value?

The value of the company will now be $400m and so the debt will trade up to par because there is full asset coverage. The equity value will still be a very slight positive value because there is still no residual value following the repayment of debt.

What is the difference between TLA and TLB?

There are no hard rules but typically TLAs will be held by commercial banks while TLBs will be held by institutional investors like mutual funds of CLOs (security backed by a pool of debt). TLas will typically have better terms, lower maturity, and more amortization while TLBs will rarely have meaningful amortization. There can sometimes (but rarely) be tranches below TLB.

What are the two possible avenues (or types of bankruptcy)?

There are two possible avenues which are Chapter 7 and Chapter 11. Chapter 7 is a full liquidation in which a U.S. Trustee is appointed by the court with the role of liquidating the full assets of the company and then disbursing the cash by absolute priority. This means there is a waterfall in which the most senior pieces of the capital structure are made whole before any money goes to the next most senior level of debt in the capital structure. Since a Chapter 7 is a pure liquidation, no element of the company is left behind. In Chapter 11, a company's reorganization is overseen by a court (usually in Delaware where most companies are incorporated) and involves the company coming up with a Plan of Reorganization and finding out who the impaired classes are (those who will not be made whole but will get something). Only those who are impaired classes get to vote on the POR and if the POR is agreed to then the company will re-emerge with their new capital structure that has been agreed to by the relevant creditors.

Why would a company even hold a HoldCo/OpCo structure to begin with?

There are two primary reasons why these kinds of structures exist with one being generally applicable and one more specific to high yield issuers. Reason 1: If I own a large company and sell products in multiple countries, it is generally more efficient to have country specific operating companies. Reason 2: By having a HoldCo, we have another area to raise debt off of and the kind of debt issued at HoldCo tends to be the highest yielding debt as it is removed from where the assets reside.

If a company does file for bankruptcy, what precipitates that?

A company almost always declares bankruptcy itself because it wants to draw down revolvers, miss certain payments strategically, prepare a list of critical vendors, and try to get in the best position to come through the chapter 11 process quickly. Sometimes a company will be involuntarily forced into bankruptcy by creditors as a result of technical defaults (something that does not involve missing an interest payment). A company ultimately files for bankruptcy because it can't refinance its maturities coming due and can't meet its cash interest payments and needs to figure out a fundamentally new capital structure to continue. Chapter 11 is a last resort for a company since management often has a lot of equity that will likely be wiped out.

What is one way to add debt when there is insufficient asset coverage?

A company could use preferred equity which could be converted (at the issuer's option) into true debt. Mandatory redemption features (need to be repaid) blur the line with debt as the failure to make a dividend or redemption payment have limited repercussions (since you can't have a technical default with preferred debt, some will argue that it is not truly debt). Preferred equity is usually issued when leverage is very high. The company could also use another form of mezzanine debt known as convertible bonds.

What is a tender?

A company will offer to purchase securities. For example, if a company wanted to change a covenant (that is a non-money clause like subordination), it could buy 51% of the bonds outstanding. It could also do an exchange offer (offer to exchange the bonds for a new set of bonds with perhaps a higher interest rate) instead if the company has limited cash.

What is a covenant? What are the three broad types?

A covenant is a rule laid out in the indenture and loan documents by which a company agrees to operate as part of the terms of the loan or the bond. Affirmative covenants: something that the company must do Financial/maintenance covenants: typical of bank debt and includes financial tests Negative covenants: prevent or restrict what a company can do

How do we think about capitalizing versus expensing things? Is there anything to be mindful of in the context of restructuring?

We capitalize things if their useful life is over a year and then depreciate it or amortize it over the relevant period. In distressed situations, we care a lot about capital leases since they are considered debt and are added to cap tables if large enough. Capital leases are generally leases in which one of the following four conditions is met: 1. The lease runs for at least 75% of the useful life of the asset 2. Contains a "bargain" purchase price at the end of the lease 3. There is optional ownership takeover language when the lease ends 4. The PV of the lease payments represents over 90% of the asset's fair market value.

If looking at FCF, do we look at it on a levered or unlevered basis?

We will look on a unlevered basis since we want to look at cash flows unimpeded by debt (since we are ultimately coming up with restructuring alternatives that will change the debt structure of the company.

When does absolute priority not apply?

When the plan is accepted by all voting classes by requite majorities. If a class of claims so consents, a class below them can get something even though the consenting class has not been paid in full (made whole). Nothing in the statue says that the distributions in a consensual plan need to comply with the absolute priority rule.

When is complete liquidation (Chapter 7) preferable?

When there are few stable cash flows or the company is going to require additional capital infusions in the future no matter what the restructuring is. If the company has negative FCF into perpetuity, no right-sized capital structure will make a difference.

What happens to YTM if coupons are paid more frequently?

YTM decreases as coupons become more frequent (YTM will be lower if coupons are paid quarterly instead of annually).

Would you expect adjusted EBITDA of a company in need of restructuring to be higher than it was, say, a year ago?

Yes since you're adjusting for more one-time expenses such as adding back goodwill impairment, litigation expenses, and any losses on asset disposals.

Can you change loan covenants if the company gets into trouble?

Yes, however, this will cost a consent fee and will often involve the consent of a revolver. It is usually easier to get changes with loans than with bond holders.

What is YTM?

Yield to maturity which takes into consideration the price paid for the bond or loan as well as interest payments and principal payments to be made over the life of the bond and the amount of time to maturity. The YTM is an annualized return on investment and assumes that cash payments are reinvested at the same rate that the bond or loan is paying (this is often an erroneous assumption when dealing with distressed debt since you can't get the same high returns reliably on cash coming in from interest payments).

Tell me briefly about the three financial statements and how they link?

You have the income statement, the balance sheet, and the cash flow statement. The income statement reflects the company's profitability by starting from revenues and taking out expenses like COGS until reaching net income. The balance sheet shows the financial position of a company at a certain point in time in terms of its assets, liabilities, and equity. Finally, the cash flow statement reconciles net income to actual changes in cash through cash from operations, cash from financing, and cash from investing. Net income from the income statement flows to the cash from operations on the cash flow statement and retained earnings on the balance sheet. Changes in cash flows from debt issuances or paydowns are also reflected on the balance sheet, as are changes in cash from investing activities which impact asset accounts.

Differences between LBOs and distressed debt investing?

You usually get the largest capital infusion through a Chapter 11 in distressed, unlike in an LBO where a capital infusion is inherent to the design. There is more protection in distressed investing since you are not taking equity stakes and are taking on debt which is sometimes very senior. Securities laws are less onerous for bond holders than for common stocks. It is not necessary to pay a premium to gain control in distress. While in M&A you have to pay some premium to buy the company out, in distress, if you want a large position to have control in the Chapter 11 process, you can still just go to the secondary market and buy up bonds (although this may be hard in an illiquid market). The IRS code is less favorable to distress than LBOs since LBOs get tax breaks on debt.

How do you present restructuring alternatives to the client?

You will normally have a slide that shows the cap table as it currently is and a pro forma cap table showing what it will look like if this alternative moves forward. You'll then likely include graphs showing decreased leverage, decreased cash interest payments, etc... if this alternative is pursued. You'll normally have a slide that also goes over the pros and cons, timeline, key parties, and the strategic rationale.

How do our clients end up choosing us over some other firm?

You will often get picked by private or public companies because of a superior pitch and/or superior transaction experience. There is also a chance that the company's law firm may recommend the firm to the company or the partner at a PE firm could have a close relationship with MD. On the creditor advisory side, they may pick you because you've worked together on other mandates or there are lots of alumni at the distressed hedge fund still close with the Rx group.

Why would a company do sales under section 363 instead of Chapter 7?

In a section 363 sale, management maintains control of the process.

How do you determine how much liquidity a company really has?

You would take their revolver capacity, subtract the amount currently drawn on, and add their current cash or cash equivalents (minus letters of credit outstanding and minus restricted cash if relevant).

What is a default? What is a technical default?

A default occurs when the company that issues a bond or loan fails to make the required payments. A technical default occurs when maintenance/affirmative covenants are violated (an example would be a company breaking the required leverage or interest coverage ratios).

What is fulcrum security?

A fulcrum security is one that likely receives a lot of equity in reorganization since it is the most senior class of debt that is impaired and not paid in full.

What are priming liens?

A lien securing a post petition credit extension that is senior or equal to a lien already attached to some or all of the debtor's property.

How long do public companies stay in Chapter 11?

A normal bankruptcy can take from 18 months to 3 years while a prepackaged bankruptcy can take just 30-45 days.

What is a restructuring ultimately trying to accomplish?

A restructuring is ultimately about right-sizing a company and ensuring that it has the capacity to not need to restructure itself for some years.

How do revolvers work?

A revolver could for example be $100m that can be drawn down and paid back as many. It is comparable to a corporate credit card and how large it ends up being will depend on the amount of collateral or borrowing base that is pledged to support the loan. Revolvers are usually secured by borrowers' AR and inventory (for example, it may be 50% of inventories and 75% of AR). If the borrowing base declines below a certain threshold, you must repay the revolver or have it resized. Revolvers must always have more collateralized against it then the actual notional value of the revolver.

What's a revolver?

A revolver or revolving ABL is essentially like a credit card with a certain limit. You can draw it down any time and pay it back (partly or all) at any time. However, it does have a maturity date and is secured debt (backed by more liquid assets like inventory or AR) that sits at the top of the capital structure.

What is the original issue discount?

Bonds issued below par (100) at origination. This is essentially a form of yield engagement since the cash interest is the same for the company but the yield for the buyers of the bonds is higher since they're putting in less than $100 at issuance but getting $100 back at maturity.

What are leverage and interest coverage ratios? Which are more important?

Both are covenants that will be often found in the term sheets of debt in the capital structure of the company. Leverage is equal to Debt/EBITDA and interest coverage is EBITDA/Cash Interest Expense. Generally speaking, leverage ratios are more heavily used and are featured prominently in all cap tables and are calculated at the secured level, unsecured level, and for the totality of the debt. Leverage ratios are often used at the secured level to determine either grid pricing or how much more debt can be added to the secured area of the capital structure.

What things would you expect to change most for a distressed company on the three financial statements?

Capital expenditures are often too high and should be lowered moving forward (they might also be too low if the company was trying to mitigate its distress and then should be adjusted upward). Working capital will decrease as you have to write down inventory and accounts receivables. You will want to add back one time legal, RX, etc... fees. You will want to adjust cost of goods sold for higher vender costs due to lack of trust from suppliers and will want to add back excess lease expense (due to lack of trust) and excess salaries (for private companies trying to save on taxes)

What are restricted payment covenants?

Holders of a bond or loan may want the company to meet certain goals before it can use the money to either pay dividends on the equity, do stock buybacks, or be able to retire securities that are more junior. For example, the restricted payments covenants may say that you can only use the company's funds for stock buybacks or to retire junior securities if EBITDA is over 1.4x interest expense.

If I were to give you a company and wanted a quick overview of what's important, how would you go about answering this?

I would provide information about the company overview and recent news, the maturity schedule, and the cap table. Overview and recent news: I would include what the company does, recent news detailing why the company is in trouble, and more recent news regarding the ratings and prices of bonds Maturity schedule: I would show when the debt of the company comes due Cap table: I would show the cash on hand, secured debt, total debt, LTM EBITDA, and the terms of the debt. I might also include an area for liquidity which would be the ability to draw on a revolver plus the available cash minus letters of credit outstanding and minus restricted cash.

Why would a revolver have grid pricing?

If a company draws on a greater percentage of their revolver, this probably means that they are in need of quite a bit of cash for some reason (they could be in a bit of a cash crunch). To account for the lender's risk in this case, the coupon price on the revolver goes up.

How do you calculate the amount of DIP you can give?

If you have a $50 claim on AR but worth $150, then $150 - $50 = $100 is the possible DIP. You essentially look at traditional borrowing bases and see what is left that can be pledged against a new DIP loan.

What are the two different types of Chapter 11 bankruptcy?

In Chapter 11, you will either have a pre-pack or a traditional Chapter 11. A pre-pack involves a pre-planned Plan of Reorganization that has already been agreed to by the relevant creditors (baring some small issues to iron out) prior to filing. This allows for the company to quickly emerge from Chapter 11 in only a few months. In a traditional Chapter 11, you are starting from scratch and the process can take years.

What is a liquidation valuation?

In its most simple form, you are going through the assets of the company and assigning a certain level of expected recovery from them if liquidated. While numbers may vary, the following is a rough indication of expected recoveries: Cash and cash equivalents: full recovery (100%) Accounts receivables: 80% recovery Inventory: could be anywhere from 40% to 80% depending on how commoditized the inventory is (the more commoditized the better) PP&E: land and building will be based on market values while equipment will be close to book value unless very particular Intangible assets: brand names and trademarks can still have market value, just because the company has a bad capital structure does not mean that the brand is worthless

What are the important documents when Chapter 11 is filed?

Initial filing papers like the affidavit signed by the senior office describing the reasons why the debtor is seeking relief under Chapter 11 Listing of the largest twenty unsecured creditors of record and the five largest secured creditors Monthly cash reports Court docket (filing with the bankruptcy court) List of professional fee applications Petition to the court for automatic stay Listing of preferred creditors, critical vendors, and reclamation credits Debtor in Possession proposals Plan of Reorganization is potentially filed as well

What is of interest in bankruptcy filing in PACER after a Chapter 11?

Initial petition and related schedules and all subsequently filed monthly operating reports Debtor's schedule for the 20 largest unsecured creditor (which gives insight into the unsecured creditor committee).

What is a liquidity roll forward?

It is a projection of where liquidity will be in a year. We assume that the revolver gets drawn (or cash is diminished) by the amount of decrease in FCF next year. We make the projection on how much FCF will decline by making assumptions about how revenue declines, EBITDA margin contraction, and capex spend based on what the company has done in the next year. Ultimately, a liquidity roll forward is just looking at how much FCF is declining next year and how much of the cash and/or revolver needs to be used to get FCF back to zero. The leftover liquidity is the liquidity roll forward.

We have a small group of unsecured notes coming due in a year. They are only $50m and the company has $70m in liquidity. If the unsecured notes are trading down because there is a springer on more senior debt, why would the company not just use its liquidity to pay off the unsecured notes?

It is important to note that liquidity is not synonymous with cash. It is possible that the company's liquidity consists of $2m in cash and $68 of a revolver that they can draw. However, the revolver may have certain terms surrounding the draw that preclude the company from drawing all or most of it. Further, perhaps the company has declining EBITDA, poor FCF, etc... making it impossible to go out and raise new debt to roll over these unsecured notes. The chain of events would then be: 1. The unsecured notes cannot be paid in full using liquidity since the revolver has certain terms precluding further draw downs 2. The unsecured notes cannot be refinanced because of the overall poor financial performance of the firm 3. The firm does not have a year to figure things out but rather six to nine months since there is a spring maturity on a much larger and more senior piece of the capital structure 4. The unsecured notes are trading down significantly because time is running out for the company to figure out how to reconfigure the capital structure and in the event of a Chapter 11, the notes will be impaired and creditors will not get a full recovery

What is LIBOR?

LIBOR is an interest rate that is often used as the base rate for floating rate notes. LIBOR was recently replaced by SOFR (Secured Overnight Financing Rate). SOFR is a more accurate manner of measuring the cost of borrowing money since it is based on overnight transactions in the Treasury Repo market as opposed to bank panel input.

Why wouldn't you work in RX at a BB?

Large, full-service banks do not have traditional restructuring practices because so many mandates would have conflicts of interests. It would not be great for a bank to have done debt capital markets or equity capital markets for a company and then to turn around and pitch the company on restructuring after having played a role in the company's currently inferior capital structure.

What does EBITDA/Debt tell you about the coverage ratio?

Leverage = EBITDA/Debt, Interest Coverage = EBITDA/Interest, Interest Rate = Interest/Debt. Since they are all interconnected, you can use two of them to find the third.

You have a leverage ratio of 5 and a coverage ratio of 5. What is the interest rate?

Leverage ratio: Debt / EBITDA = 5 Coverage ratio: EBITDA / Interest = 5 EBITDA = Debt / 5 EBITDA = 5 * Interest Debt / 5 = 5 * Interest Interest / Debt = 1/ 25 = 4%

What are convertible bonds? How can they be issued in an out-of-court restructuring to get around asset coverage issues?

Like preferred stock, convertible bonds are issued by distressed companies to get around asset coverage issues. There is a feature allowing the holder to convert the face amount of the bond into a specified number of shares. Share price to convert is significantly above the share price at the time the bond is issued, and holders expect for the stock to increase above the issue price and then to convert and cash out to make a profit. However, if the stock declines in value then the convertible option becomes invalid, however, the debt is still valid and coupons can be clipped with principle still repaid. Note: convertible bonds are typically quite far down in the capital structure (unless you have very limited debt in the capital structure) so if the company near distress issues it, you are betting on a turnaround since if the company files you will likely be severely impaired.

What are the characteristics of a distressed company in need of restructuring?

Limited liquidity: based on what you draw on a revolver plus cash minus letters of credit outsides (indicates buyer will pay seller on time) minus restricted cash High leverage ratios throughout the capital structure (including at senior secured positions) Maturity walls upcoming that are unlikely to be refinanced (if a security is trading well below par then it is unlikely that it will be refinanced) Decreasing equity price for public companies Butting up against covenants Low secondary pricing across the capital structure Recent downgrades, particularly for credit trading low in the capital structure (companies trading in the c's have a high chance of default) Declining interest coverage ratios Increasing amount of distressed hedge funds buying up classes that could potentially be impaired Limited secured basket space: puts the company in a bind if they can't refinance existing secured debt

What two valuations are done in the confirmation process of a plan of reorganization?

Liquidation analysis and going concern enterprise value. A liquidation test is done so that no party gets less than they would if the company just liquidated instead of reorganizing (if you can make more money just selling off the assets of a company then you can reorganizing, then why would you bother reorganizing?). An EV test is done to see what the company is really worth and thus what part of the capital structure will be impaired. Since you are not liquidating the company, it is impossible to know with certainty who the impaired class is and just how impaired they are. Fights over valuation in RX can be very damaging since you are applying the inexact science of valuation to determine who will end up being made whole, who will be impaired, and who will get nothing.

What are maturity walls?

Maturity walls refer to graphs that accompany profiles or pitches and show when maturities within the capital structure come due. If a company has poor ratios, poor FCF, poor liquidity, etc... and has a large amount of its capital structure coming due soon, it faces an important issue: it needs to either extend its maturities out so it can have the time to turn the company around or it needs to refinance them (which will be hard to do if the company is performing poorly). A company could have poor financial but be able to wait things out for a couple of years if no maturities are coming due soon (however, the same cannot be said if they are due soon which is why maturities are so important).

What makes mezzanine debt unique?

Mezzanine debt is much smaller in notional value and is almost always privately placed, highly illiquid, and bought with the expectation of being held to maturity. Since it is unsecured, it is always subordinated in rights of payment to bank loans and other senior debt.

Why would debt include a springer?

More senior pieces of the capital structure want to ensure that a situation does not arise where some junior piece of the capital structure gets paid out, using up all or most of the liquidity of the company, leaving less for the more senior pieces of the capital structure when they come due.

Who do we do here in RX?

Restructuring comes down to helping a company right-size or restructure its capital structure to ensure the company can succeed well into the future. The role of an RX banker is to understand the capital structure of a company, who holds their debt, and then come up with creative solutions to ensure a company's long term sustainability in the easiest, cheapest way possible. For example, this could involve exchanging notes due next year for another security with a longer duration or could be a lengthy chapter 11 process that drags on for years. If we have a creditor mandate, we are ensuring that we are coming up with and advocating for solutions that maximize the returns of the creditor.

When does GAAP require restructuring costs to be filed?

Restructuring costs are charges against income in the year in which the decision to restructure is made even though the actual expenditures will take place over time. A liability reserve is created and the actual expenses are charged against this reserve.

How does a company qualify for section 382 election for NOLs (allowing NOLs to be carried forward into the newly reorganized company)?

Shareholders and creditors of the company must end up owning at least 50% of the reorganized debtor's stock. Shareholders and creditors must receive their 50% stock ownership in discharge of their interest and in claims against the debtor Stock received by creditors can be counted towards the 50% test only if it is received in satisfaction of debt that had been held by the creditor for at least 18 months on the date of the bankruptcy filing or that arose in the ordinary course of the debtor's business and is held by the person who at all times held the beneficial interest in that indebtedness. Note: NOLs are important to the restructured company and if current shareholders or creditors don't end up owning at least 50% of the re-organized company's equity, then the NOLs will be void.

What kind of deals do we do?

Since every company has a different capital structure with different points of stress in it, nearly every restructuring solution will feel unique and novel. However, there are two broad categories of deals: out-of-court restructurings and Chapter 11 bankruptcies. Within out-of-court restructurings you can have deals involving the extensions of maturities, exchanging of securities, and wholesale reconfigurations of the entire capital structure. Within Chapter 11s, you can have pre-packs, long Chapter 11s, and 363 asset sales.

Can you tell me some of the kinds of projects you'll be working on as an analyst or associate?

Some of the things that you will be doing for the first few months or over the summer will be: Refreshing a screen for updated loan/bond prices, LTM EBITDA, credit ratings, etc... Creating a new screen Creating a profile Joining an ongoing pitch: if the pitch is already very active, much of the Excel and PowerPoint will be complete, so you will be given specific tasks around updating it to reflect how the MD wants to present it (maybe coming up with a new structure, refreshing the cap table, aligning things differently in PowerPoint) Down the road, you will be involved in more existing or new live deals and pitches.

What are the four major steps in Chapter 11?

Step 1: restructuring of the debtor's operations by asset sales and contract assumptions and rejections Step 2: the development and dissemination of a proposed plan (POR) Step 3: a vote on the plan by the claim and interest holders Step 4: confirmation of the plan by the bankruptcy court

What acceptance rate do exchange offers need for an out-of-court restructuring?

Typically, exchange offers will need 90% acceptance.

What are upstream and downstream guarantees?

Upstream guarantees can be put in place to pacify lenders for HoldCo. An upstream guarantee means that OpCo guarantees HoldCo debt (this gives HoldCo lenders assurance that even though their debt resides in a HoldCo, they are effectively a part of the OpCo capital structure where the assets actually reside). A downstream guarantee is the opposite however in the outlined HoldCo/OpCo structure, having a downstream guarantee would have no impact on OpCo.