Four Seasons (or more) of restructuring
Restructuring a company’s debts is not a simple process. Unlike acquisition deals, when everyone around the table has something to gain, a restructuring requires everyone to agree to lose something.
Pain has to be shared but everyone has an interest in ensuring someone else takes more of that pain.
As a result, the larger and more complex a company’s debt structure, the more likely it is that restructuring the company’s debt will be a long and difficult process.
These are facts the management at British care home company e off a last-gasp restructuring deal, however. Swallowing pride and taking a big hit is not easy for everyone, and often restructuring deals are wrapped up at the last possible moment. Many predict another chapter or two in this particular saga." target="_blank">Four Seasons Healthcare know all too well.
The company found itself loaded up with around 1.4 billion pounds of debt, split across 11 tranches and more than 30 lenders, via an ambitious securitisation at the top of the market in 2006.
But now, plunging property prices mean the owners of the company — the Qatar Investment Authority — and many of the debt holders are now “underwater”, unlikely to see much of a return on their investment.
A recent valuation estimated the company’s assets to be worth around 900 million pounds, while others suggest even this figure could be too high.
What is an asset worth if no-one wants to buy?
Valuation issues mean extra work for financial advisers as they try to restructure the debts of struggling European companies.
With few bidders for companies — as specialist distressed investors continue to sit on their hands — many company valuations are “subjective”, one restructuring expert told me earlier today.
Such uncertainties have serious consequences. An argument has broken out between different groups of creditors to car cleaning firm IMO Car Wash, as senior lenders seek to take control of the company via a debt-for-equity swap.
Senior lenders believe the company — which has more than 300 million pounds of borrowings — is worth less than the debt they are owed, meaning they plan to take control of IMO with the debts of lower-ranked creditors completely written off.
If the Junior lenders truly think the company is worth more than the senior debt they should pay off the senior debtors and take the entire company.
Omaha bowling alley seeks a bargain; no one likely fooled
Omaha, Nebraska is always a beehive of activity when devotees flock here for the annual meeting of billionaire Warren Buffett’s Berkshire Hathaway.
Shops and restaurants were doing a brisk trade on Friday. Waiters at La Buvette Grocery and Wine Bar, a bistro in the gentrified old market area, said this week-end is always one of the busiest of the year. The rest of Omaha’s old market was also jamming.
At least one vendor — this one on the outskirts of the city — was looking for more than a good day’s business.
Chops Bowling advertised unlimited hours of bowling fun for just one Class A Berkshire Hathaway share. To the unititated that might sound like a good deal. But none of the 35,000expected to convene here this week-end for what is referred to by Buffett himself as “Woodstock for capitalists” will be fooled.
Even after falling nearly 40 percent since last September, a single class A share was still worth $92,005 at Friday’s close.
boy, oh boy, who would take them up on their offer:)
“The He-Man of the recession”
As anti-capitalists, environmentalists, anti-war campaigners and others protested in the City of London to mark what they dubbed “Financial Fools’ Day”, the lobby group for Britain’s much-maligned private equity industry spied an opportunity to contrast the mayhem with their own activities.
It’s hard to tell just how far the BVCA‘s metaphorical tongue was in its cheek with this OTT press release, prompted by the protests and the “pre-pack sale” of the owner to the rights of some British kids’ TV characters, including He-Man and Postman Pat (pictured).
Still they insisted it was not an April fool, even as they billed private equity a possible “He-Man of the recession”. With this kind of deft “brand repositioning”, surely it won’t be long before Britons warm to the buyout houses. Full release in all its glory below:
“PRIVATE EQUITY SAVES POSTMAN PAT AND RUPERT THE BEAR (among others)
As anti-capitalist protestors rampaged through London , private equity investors were busy rescuing much loved institutions. Boomerang media, owned by US private equity firm GTCR has saved Entertainment Rights, the company which owns the intellectual property rights to a host of classic children’s characters, including Postman Pat, Rupert the Bear, He-Man, George of the Jungle and Casper the Friendly Ghost.
The deal, which saves 90 jobs in the UK and US, underlines the role private equity firms have to play in rescuing distressed companies.
Distressed investors say TGIF
Roman Catholics have fish Fridays. Boxing fans have Friday Night Fights. For distressed investors, like Jon Winick, president of Clark Street Capital, there’s Friday night Failure. “You can count on Friday failures for the next six to twelve months,” Winick said at a distressed investing conference in New York this week. He forecasts bank failures to rise to 200 through next year. There have been 14 bank failures so far this year, according to the Federal Deposit Insurance Corp, with filings every Friday since Jan. 16 after the year end and New Year’s Day holidays. The FDIC seized 25 banks last year. In just the first seven weeks of 2009, the 14 bank failures mean the FDIC is on pace to close more than 100 banks in 2009. Distressed investors say they are expecting a record wave of bankruptcies this year, marking unprecedented opportunity for investors and a feeding frenzy on Fridays. The filings on Fridays are procedural, as the FDIC posts the failures at the end of the week. That allows the declaring bank to give regulators the weekend to sort things out, and it prevents a big run on the bank because branches are closed. Brad Hunter, national director of consulting at Metrostudy, a housing industry research firm, thinks things are just getting started. He said bank takeovers ultimately could exceed 1,000. “Option ARM loans are coming due, and that will trigger another wave of foreclosure,” he said.
Doom and glee in bankruptcy
Top-class bankruptcy lawyers, vulture investors and credit experts revealed a range of emotions at a bankruptcy conference on Thursday, from doom and gloom to subdued confidence, but some comments bordered on outright glee.
Reflecting on the prospects for distressed investing opportunities this year, Michael Psaros, managing partner at KPS Capital Partners, was blunt.
“We are going to invest an awful lot of money this year,” Psaros said, during a Dow Jones restructuring and turnaround conference in New York. “We’re just very excited about this year and next.”
KPS Capital, which manages special situations funds and private equity funds with capital exceeding $1.8 billion, is ramping up its investments, he said.
Asked whether investors should weigh creditor interests, shareholders’ concerns, company stakeholder views or even the interests of the country, Eric Zinterhofer, senior partner with Apollo Management, said distressed debt investors will pursue a strategy based on the best “dispassionate distribution of capital” in making their investment decisions.
Various experts said distressed opportunities may last between three to five years, as the U.S. recession continues to grip consumers and companies amid tight lending conditions.
Daniel Loeb, chief executive officer of Third Point LLC, an investment adviser with about $4 billion of assets under management, told participants we’re at the “bottom of first inning” in the crisis. That means for bankruptcy lawyers, “you’re probably not going to see your family much.”
Dow Jones will further collapse, since we as a nation have created illusionary wealth over past decade. Right now we are facing the harsh reality and unfortunately 2009 will get even worse for us. The economic indicators don’t look good, stimulus is not working so far, banks are not lending, retail is on the verge of collapse, food and gas prices started to increase and there are rumors about the possibility of nationalization of the largest US banks. I think 2009 will be the most difficult year for the United States and Dow might even hit 5K-6K in the second half of 2009.
