Saybrook is not a bulge-bracket bank, it’s not even based on Wall Street, although it has an office in New York. Yet the financial advisory and capital management boutique based in Santa Monica has worked on five of the largest bankruptcies in history, including those of Pacific Gas & Electric, United Airlines and Kmart. The firm has just been appointed lead banker to the ad hoc creditors committee of Delta Airlines, which announced it was filing for bankruptcy protection in mid-September, at exactly the same time that Northwest Airlines made the same move.
“I thought Northwest would also file for bankruptcy, but I didn’t think they’d pick the same day,” says Jonathan Rosenthal, partner and head of Saybrook’s restructuring business. “Actually I think they will be closely related transactions, although they will take two or three years to process. In the meantime, I guess this means I might miss a few football games.”
Saybrook, which has about 60 employees, takes on assignments advising management boards, the debtors or the creditors, including bondholders. “When we get a big deal, it’s usually for creditors,” says Rosenthal. “Firms such as Lazard or Rothschild will usually have relationships with corporate boards, whereas we tend to have relationships with the vendors, bondholders and banks.”
Rosenthal says Saybrook has made a name for itself in the restructuring market for “getting involved in meltdown transactions when people are leaning on you to fix something and there’s no clear path how to do it.” Consequently, he says the firm tries to attract people who approach the world a little differently. Or as the blurb on Saybrook’s website reads: “We’re the team brought in lieu of the usual Wall Street behemoths by those who know our reputation for bringing calm to apparent cataclysms.”
Apart from calm, he says the main things his bankers bring to the table, apart from underwriting and corporate finance expertise, are negotiating skills. “It’s about building consensus. People under stress can be irrational, particularly when there are so many diverse constituencies coming together. You’ve got bondholders who are focused on recoveries on their securities and less interested in the company’s survival, unions who are focused on jobs, vendors interested in keeping customers alive and everyone else in between.”
Saybrook started out in 1990 doing underwriting work and moved on to specialize in distressed deals. Its business model also works to its advantage because it also has a capital management business, which runs niche distressed debt funds. “We’re unusual in that we’re involved on both sides – we buy and sell distressed securities and we advise on transactions where we don’t have an investment. Because we’re running over $1 billion-worth of funds ourselves, we are much more tuned into market activities than the typical adviser, which gives our clients real time insights.” Rosenthal says the benefit works both ways. “Part of the reason we do well managing money is that we’re in the trenches working on live transactions and not sitting in a room staring at a screen all day.”
Rosenthal expects that a lot more corporates will become distressed in the next couple of years; when that happens, restructurings are going to become even more complex. “The market is going to get much more active in 2006 and 2007,” he says. “There has been lots of high-yield debt issued in 2005 and people don’t fully appreciate that the structure of many of these securities is different than before. There have been a lot of second-lien transactions, which means in the event of a bankruptcy filing, you’re dealing with at least two competing levels of bondholders.”
He cites the example of UK engineering and construction company Foster Wheeler, where Saybrook was engaged as the financial adviser to the committee of security holders on the company’s $600 million bond exchange offer. “There were five tiers of debt all attached to different assets and we represented all five classes of creditors,” he says.
