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Best Corporate Restructuring House: Houlihan Lokey |
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Also nominated: Lazard and Moelis |
The reorganization plan of Lehman Brothers Holdings – described by US bankruptcy judge James Peck as “the biggest, most incredibly complex and most impossibly challenging international bankruptcy that ever was” – became effective on March 6.
Houlihan Lokey, Euromoney’s corporate restructuring house for 2012, was intimately involved in this process from the start as adviser to the official committee of unsecured creditors.
“Never before have divergent holders of $350 billion in claims recognized the benefits of pragmatic compromise and come together in support of a single Chapter 11 plan,” the judge continued. “The largest ever unplanned bankruptcy that started in chaos, accelerated the financial crisis and eroded confidence in the global financial system also has yielded the most overwhelming outpouring of creditor consensus in the history of insolvency law.”
By definition, creditors in a distressed situation have vastly differing motivations, so getting agreement is the most important skill of the restructuring adviser. “Forging consensus is one of our strengths, and it has been a common theme of this year,” says Brad Geer, managing director at Houlihan in the US.
“In the Lehman deal, we managed to get 98.6% acceptance across 125 different classes of credit across different debtor entities,” he says. “Entities representing $350 billion in claims nearly unanimously agreed to a plan based on compromise.”
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“Forging consensus is one of our strengths, and it has been a common theme of this year”
Brad Geer, managing director at Houlihan in the US |
Houlihan was also adviser to the unsecured creditors in Capmark Financial, which emerged from Chapter 11 in September. This process saw it undertake extensive negotiations with both secured and Japanese lenders that resulted in Rule 9019 settlements and the global settlement of case issues between secured, unsecured, debtor and non-debtor creditors.
“Lehman and Capmark were both owned by regulated banks that had billions of dollars of insured deposits,” says Geer. “FDIC [Federal Deposit Insurance Corporation] was on heightened awareness and could have wreaked havoc – and threatened to do so.
“We were in protracted negotiations with the FDIC very early on. We had to get the holding-company creditors to agree to support the banks and prevent a takeover by the FDIC. This was paramount to the success of both processes.”
Consensus has also been the hallmark of Houlihan’s international work this year. In Europe, it was engaged with Eircom, the deal that defined the restructuring market last year. Houlihan advised the first-lien lenders, which ended up successfully taking control of the company. The deal was the largest and most complex Irish examinership in history, which saw the junior creditors largely wiped out.
“A strategic competitor came in very late in the day but we still managed to get a deal with a very high percentage of senior and second lien signing up to what is essentially a pre-pack,” says Peter Marshall, managing director and co-head of European restructuring at Houlihan in London. “There was no guarantee that this deal would be rubber-stamped via the examinership. This was materially larger than anything that had gone before.”
Houlihan also advised the senior lenders in the bankruptcy of Australia-based Centro Properties, one of the world’s largest shopping mall developers. The company had A$16 billion ($16 billion) debt outstanding, of which the senior lenders held A$4.3 billion.
“In Australia, the scenario for this company would traditionally have had liquidation as the ultimate outcome,” says Brad Jordan, managing director at Houlihan in New York. “But it was important to keep it as a going concern – this was not the market to be selling real estate assets.
“We therefore worked towards an out-of-court prearranged restructuring similar to a scheme of arrangement. But the market hadn’t seen anything as large and complex before.”
Houlihan helped to craft a consensual, solvent restructuring that involved a A$3 billion debt-for-equity swap into a new real estate investment trust structure. Innovative solutions were required, such as the establishment of separate securities for investors facing litigation risk and those that were not.
“Given the nuances of the Australian situation, this was the only way to do it,” says Jordan. “Being able to manage intercreditor negotiations in this way to come up with a creative solution is what is differentiating about Houlihan Lokey.”
Creative solutions were also required in the case of AfriSam, one of the largest restructurings in South Africa. Again, Houlihan was able to facilitate a consensual transaction, which degeared the capital structure and avoided an untested insolvency regime. Total debt was reduced from R24.8 billion ($3 billion) to R6.9 billion.
“The country’s bankruptcy law came into effect while we were doing the deal, but we still came to a fully consensual transaction,” says Joe Julian, director at the firm.
In a year dominated by landmark transactions in often untested jurisdictions, Houlihan has again demonstrated why it tops the global distressed debt and bankruptcy rankings.
However, the extraordinary Lehman reorganization is probably an experience that few involved would want to repeat.
“The main lesson we have learned from Lehman is to do whatever you can to slow the process down,” says Geer. “The government pushed the situation through so quickly on that first weekend that we spent the next two years haggling with Barclays.”
