Part 1

Delegates will have access to the following video clips, which the trainer has developed to introduce important techniques in managing restructurings, completion of which will be necessary for successful completion of Part One (Days One and Two):

• Managing Multi-Lender Situations, 3 videos with a viewing time of 10 minutes  
• Standstill Agreements, 3 videos with a viewing time of 15 minutes 
• Independent Business Reviews, 2 videos with a viewing time of 8 minutes  

There will also be pre-course reading of case study materials to make the best use of time on the course.

• Each session deals with a specific are of early warning signal identification and delegates formulate appropriate response strategies;
• These will, of course, be driven largely by our perception of the severity of the problem and whether management has fully addressed its root cause;
• Agreement to a viable remedial action plan is a matter for negotiation, and we will arm delegates with the techniques to identify their key negotiating objectives and their strategy for achieving these.

Day 1

• Discussion on sectors that have been severely negatively impacted by the pandemic;
• Which sectors are likely to recover/over what time period, which sectors are likely to have been permanently disrupted? Remembering, of course, that our customers could be serving the latter even if their own sector appears resilient;
• How have businesses survived thus far? EG., government supports, running down liquidity, cutting discretionary outflows/what could be the impact of any under-investment?;
• Disruption to supply chains; Volatile and rising commodity prices; Global shortages of some key commodities; Short-time working/lack of skilled workers due to Covid absences; Resurgence of inflation in major economies; Changing interest rate environment.

Case study vignettes

• Presentation of market signals that act as early warnings: share prices; bond prices; CDS.
• Presentation of distress prediction models e.g., Altman Z-scores and Moody’s KMV.
• Delegates then apply the learnings to a core case study company, as summarised below:

The group is a niche supplier of automotive components to premium original equipment manufacturers. It is a little unusual in that both the parent company and a subsidiary have separate stock market listings. The group has public bonds in place as well as lines from relationship banks, factoring and leasing companies. The group’s difficulties were noticed by the markets just a few months after the most recent bond issue – and several months before Covid-19 had come onto the radar.

• Presentation and discussion of the geopolitical factors that are disrupting/have the potential to disrupt the firms we finance – and, specifically, how they impact the revenues and cost structures of operating businesses;
• Wars e.g., currently in Ukraine;
• Trade wars;
• Economic sanctions;
• Developments in the trading blocs e.g., Brexit;
• Climate agreements

A warehouse finance facility has breached its key loan-to-value covenant. What were the global, domestic and firm-specific factors that caused the problem and how should the lender’s early warning system flag these up?

Should the lender call an event of default and proceed to execute on its collateral? Is this a case where we need to move quickly, or do we have the luxury of time?

What should be our action plan? What are the benefits of issuing a reservation of rights letter? How does the lender’s role an important provider of finance to the sector and its relationships across the value chain impact on our approach?

• Discussion of developments in commodity prices (oil & gas, electricity; aluminium, steel etc.), global shortages of key commodities, labour force disruption and shortages, the resurgence of wage inflation, and the spectre of stagflation;
• We use our proprietary CVP (Cost-Volume-Profit) model to identify the firm’s:
  • Degree of operating leverage; Breakeven point; Price sensitivity; Cost sensitivity, and Volume sensitivity;
  • We consider the price elasticity of demand for the firm’s products and the ability to pass on higher costs to customers;
  • We analyse whether missed sales are forever lost, or simply postponed.

The company is a manufacturer of building materials in MENA. It has approached the lenders for modest, short-term assistance to overcome cash flow disruptions. We now need to enhance our understanding of the causes of the borrower’s difficulties and how these might be resolved in the context of current and future conditions in the global, domestic and sectoral environments.

Would an independent business review (“IBR”) be helpful and, if so, how would we negotiate for the borrower’s cooperation? Are there any aspects of the relationship that might make the lender reluctant to pursue its legal rights?

Day 2

Based upon further information on the Day 1, Session 4 case study, we follow our proprietary decision tree to decide whether to waive the breach(es) – and what we seek in return. In so doing, we need to evaluate the position of other stakeholders and how they might respond – a high stakes game of chess!

Do we call an event of default and collapse the “house of cards”, or negotiate something less dramatic? How do we assess our potential outcomes from each scenario and select between these?

• Presentation and discussion of what makes a solid, sustainable business model;
• Examples of restructurings attempted on cases with solid business models, compared to those without;
• Presentation and discussion of how business models are being disrupted in certain sectors and the relative success of incumbents’ responses

One of the most prominent, proximate causes of a firm’s distress is taking on a project that is very large and risky compared to its available resources. – in other words, it is “too big to chew”. Sadly, managements have been known in these circumstances to use creative accounting techniques to disguise the developing problem, and this can often morph into fraudulent accounting as the difficulties snowball:

• Presentation and discussion of prominent firms whose existence has been threatened by problems resulting from large projects and/or the failure of a significant customer;
• Presentation and discussion of the creating accounting techniques that have been used by such firms, including the difficult in understanding the true position of a construction contractor and manipulation of accrued income and the timing of costs

A leading, stock market-listed construction contractor based in the GCC: delegates assess the rationales for management’s decisions on an initial public offering and deploying the proceeds on a major expansion of its business. They then follow the firm’s financial progress across a critical four-year period, assessing the relative success of the expansion programme together with identifying early warning signals. They develop a plan for deepening their understanding of the firm’s viability and what they need to do to protect the lenders’ position while this is being undertaken.

• The nature of the original construction contract;
• Time and cost overruns;
• Off-spec production;
• Market conditions for supply and demand;
• Import/export incentives and barriers;
• Challenges with negotiating input and offtake contracts;
• Hedging requirements and solutions, and
• What needs to be put in place for the project to achieve viability.

Our Tailored Learning Offering

Do you have five or more people interested in attending this course? Do you want to tailor it to meet your company’s exact requirements? If you’d like to do either of these, we can bring this course to your company’s office. You could even save up to 50% on the cost of sending delegates to a public course and dramatically increase your ROI.

If you want to run this course at a location convenient to you or if you want a completely customised learning solution, we can help.

We produce learning solutions that are completely unique to your business. We’ll guide you through the whole process, from the initial consultancy to evaluating the success of the full learning experience. Our learning specialists ensure you get the maximum return on your training investment.

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• Quality – our clients consistently rate our performance ‘excellent’ or ‘outstanding’. Our average overall score awarded to us by our clients is nine out of ten.
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