Debt Transactions Key Operational Issues Sergio Velez Alvarez - PowerPoint PPT Presentation

Debt Transactions Key Operational Issues Sergio Velez Alvarez Senior Managing Director October 2017 FTI Consulting Spain

Contents I. Debt transactions: Usual Investment Strategies II. Maximizing Asset Value III. Aligning Equity IV. Must-Do’s Pre-Transaction V. Case Studies 2

Debt Transaction ons Usual Investment Strategies

Debt Transactions Aligning Investor and Lender interests Lenders’ Considerations Common Grounds Investors’ Considerations Maximum Recovery Achieve Value Outsource Portfolio Workout in Minimum Time Maximization Enhance Share Upside Invest Mitigate Bank Delay Access Illiquid Balance Sheet Potential Turnaround Reputational Impairments Assets Ratios Situations Risk Enhance New Capital Deleverage Recovery Receive Option to Flexible Partnership Injections Specific Industry Proceeds Upfront Cash receive cash with Pillar Investor Exposure Maximize Payment from Investor Banks Capital Partnership Efficiency Address Non Removal of with a Capital Leverage Expertise Performing Misaligned Provider to Improve Results Exposures Management The question is “ how to maximise asset value ” (Pre–Transaction) 4

Debt Transactions Usual investment strategies ■ Equitization vs outright sale/Trading ■ Distressed-for-control investments ■ Catalyst oriented: spin-offs, security trading, asset sales, or other special sits ■ Value creation ■ Re-profiling strategies ■ Arbitrage ■ Other event driven investors ■ High Yield 5

Debt Transactions So… Can we easily align Equity to preserve asset value? ■ No framework for equity cram-down ■ Shadow management risks ■ Subordination issues ■ Limited ‘in - court - recovery’ ■ Lilitigation risks – 6 1 Equity Enforcement – fraudulent transfer/preference claims, Incentivation of Security – breach of fiduciary duty, other Credit 5 2 Upcoming Compensation: NEW Refinancing or Art. 165 MONEY Existing Spanish Default Insolvency Act Convertible 4 3 Instrument Change of Sufficient Jurisdiction, “Control Call Options Rights” 6

Debt Transaction ons Must-Do’s Pre-Transaction on

Debt Transactions Must-Do’s Pre-Transaction Catalysts Debt Instrument Transition Must Do´s - Pre Transaction � Control rights, Seniority, Security Debt for Equity � package, reporting package Convertible � Swap � Maximizing asset value during bridge to � New Money � New Capital conversion preserving security value � Call Option Required during transition � Debt Upcoming � Operational � Governance change / upgrade: Default Restructuring Ex BoD advisor, CRO, Interim Mgmt. � Blocking Toe hold � Balance Sheet � Investor external support: Lender of Record Restructuring � � Transformation plan � Bond � Cash optimization � Guarantor � Other � Equity incentivation � Insolvency risks mitigation √ Asset value preservation/creation √ Ensure Equity good citizenship √ Align key management decisions 8

Debt Transaction ons Case Studies

Debt Transactions Case Studies 1 2 Bridging a Deal Closing Accelerating D/E Swap Situation Situation Investor in debt & equity transaction D/E swap required acceleration Need of bridge loan to closing Low pace of process with imminent constraints of liquidity Cash constraints required cash optimization during transition Done Pre-Transaction Done Pre-Transaction Catalyst "independent" SPV created CRO Acquisition of debt and conversion into equity Cash optimization throughout Interim Mgmt. Communication with key commercial stakeholder Investor sponsorship of the above Results & Timing Results & Timing CVA signed D/E swap completed on time Bridge loan put in place /efficient draw downs SPV set up & conversion 1 month 3 months D/E swap – 3 months Lessons Learnt Lessons Learnt Interim Mgmt. involved since red flag analysis No need to formally push for change of governance Creditor/SHA Pre – agreements Negotiation roadblocks 10

Debt Transactions Case Studies 3 4 Enhancing Governance Accelerating Transformation Plan Situation Situation B/S restructuring agreement Debt transaction with semi-equity instruments Debt restructuring including traditional, semi- Material asset value embedded highly equity instruments and New Money dependent on a transformation plan BoD with unstable Shareholders Done Pre-Transaction Done Pre-Transaction BoD Advisor Pre- deal agreement on a Transformation plan execution by a third party leadership CRO triggering clauses (sponsored by the investor) Cash monitoring - sponsor external support Transformation plan - sponsor external support Regular creditor-company meetings Results & Timing Results & Timing Transformation plan set up – 1 month New Independent BoDs - 1 month New full management team – 6/12 months Management focused towards EBITDA generation actions Transformation plan put in place Lessons Learnt Lessons Learnt Strong inter-creditors agreement accelerates Strong sponsorship by investor on specific time of execution external support with operational capabilities 11

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