distressed investing 2009

7/28/2019 Distressed Investing 2009

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DistresseD InvestIngreport maY 2009

HigHligHts from tmAs AndtHe deAls 2009 distressed

investing ConferenCe

DistresseDinvesting

r e p o r t maY 2009 Volume 1 issue 3

squeeze in

or squeeze outdistressed investingAmid A finAnCiAl Crisis

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Turnaround Management AssociationDedicated to Corporate Renewal


2/22

2 DistresseD InvestIngreport maY 2009


We are pleased to present highlights

of the 2009 Distressed Investing

Conference, a third annual event

co-produced by the Turnaround Management

Association and The Deal on January 21-

23, 2009 at the Bellagio in Las Vegas. Thisevent linked close to 500 corporate renewal

professionals and corporate dealmakers in an

unrivalled opportunity to exchange ideas and

hear the latest trends on distressed investing

from leading experts in the eld.

This report will give you a glimpse of some of

the most pressing concerns and opportunities

facing the restructuring industry during a time

of dramatic change in the rules of engagement

in corporate lending. Get a behind-the-scenes

look at credit default swaps, the consumer

sector, trends in debtor-in-possession nancing

and the impact of the credit crunch on debt and

equity nancings, along with other hot topics in

the distressed arena.

Mark your calendar now to attend the Fourth

Annual Distressed Investing Conference next

January for more insights on the dynamic world

of corporate restructuring and nance.

Kv Wh

President and CEO

The Deal LLC

ld Dgd, Cae

Executive Director

Turnaround Management Association

Contents

3 The Change of the Game Thenancialcrisishasrewrittentherulesofdistressed

investing.Sowheredotheopportunitieslie?

6 The Radnor Case Stdy: Avictoryforsecuredlenderseverywhere?

8 Credit Defalt Swaps: Rouletteorriskmanagement?

11 Bsted Distressed Financings:

Whathappenswhentherugispulled?

13 Bright Stars Among Dark Clods Leadersindistressedinvestingstrategize

16 Crisis in Consmer Condence Airlines,andgaming,andretail.Ohmy!

17 Distressed Investing Conference Photos

19 Fnding the Process TrendsinDIPnancing

21 The Deal Pipelines Bankrptcy Leage Tables

Highlights from TMAs and The Deals2009 Distressed Investing Conference

President & CEO, The Deal LLC: Kevin Worth

Exective Director, TMA: Linda M. Delgadillo, CAE

VP, Marketing, The Deal LLC: Allan Cunningham

Director of Fnd Development, TMA: Joseph Karel

Manager, Marketing & Commnications, The Deal LLC: Marielena Santana

Associate Art Director, The Deal LLC: Linda Peng

Writer: Dan Slater

HEADquARTERS

The Deal LLC Trnarond Management Association105 Madison Ave 150 South Wacker Drive, Ste. 900

New York, NY 10016 Chicago IL 60606

212.313.9200 312.578.6900

www.TheDeal.com www.turnaround.org

For more information on the Distressed Investing Report, please contact:

Allan Cunningham at 212.313.9162, [email protected] or Joseph

Karel at 312.242.6039, [email protected].

The Distressed Investing Report is a sponsored publication produced by

The Deal LLC and the Turnaround Management Association.

DistresseD

investingr e p o r t


3/22



tHe CHanGeoF tHe Gameth aca c ha h

. s h h ?

Twoyearsago,atthe2007DistressedInvestingConference,thedistressed investing market was robust: the leveraged-loan andhigh-yielddebtmarketsweresettingnewrecords;thesecond-lienmarketwaswayup;andnonbankingentitiesaccountedforthema-jorityofnewissues.Itwas,byallestimations,anissuersmarket:lotsofliquidity,easyloantermsandlowdefaultrates.

Infact,thingsweregoingsowellthatsomesoundedacau-tious note. Speakingat the 2007conference, Scott J.Davido,executivevicepresident,chiefnancialofcerandchiefrestruc-turingofcerofCalpineCorp.,saidthemarketwasexperiencingirrationalexuberance.Andthisiscreatingsomeveryinterest-ingdynamicsmostgood,butnotallgood,hesaid.Thefun-damentalpointisthatwhenyouhavetoomanydollarschasingtoofewdeals,yougetalotofgravity-defyingthings.Lenders,henoted,werecompetingforyourbusiness.

Wastheretoomuchmoneyinthemarket?Woulddefault-nallygoup?Whatwouldthatdotoliquidity?Wastherestillmoneytobemade?

Tobeunderstatedaboutit,2009ndsusindifferenttimes,withsomeofthose questions now atleastpartiallyanswered. Atthisyearsconference,CerberusCapitalManagementLPsKevinCrosssaid,Thedistressednancingmarketsthemselvesaredistressed.

Similarly,Mark Thomas,apartner inWinston& Strawns re-

structuring and insolvency group, who moderated the panel onbustednancings,jokedthat,thesedays,hedtakeanynancingbustedornot.Andifitbusts,welldealwithitafterthefact.

AttheDistressedInvestmentFundFounderspanel,themod-erator,DavidResnick,whoheadsRothschildsglobalrestructuringadvisorybusiness,kickedoffthediscussionwithanoutlookfor2009.Withoutquestion,2009willbeachallengingenvironmentfor all investors, especially those focused on turnarounds andcompanieswithnancialdifculties,hesaid.Resnickexplainedthat,inpastyears,investorscouldconcentrateoncompaniesop-

eratingchallenges,assuredofnancingforadeal.Now,howeveras thenancingmarketssuffer, thesituationis morecomplexLenders areguarding theircapitalcarefully, and the termsonwhichtheyprovideit,withrespecttobothcostsandcovenantsareextraordinarilyhigh.

Yet,itsnotallgloomanddoom.BothCrossandResnickbelievetheresvaluetobefoundinthedistressedmarkets.Crossaddedthatwhilemostdistressedlendersarelookingatthesecondarymarket,theprimarymarketisfullofopportunitiesandlendersareunderwritingusinguniquestructures.Similarly,Resnicksaid:Inthepast, thisenvironmentis onein whichdistressed investors

havemadeseriousmoney.Hesaidthatadefaultrateof15.1%whichisMoodyspredictionfor2009,meansmanytargets.The crisis of consumer condence has battered the busi

nessesofnearlyeveryconsumersectorfromairlinestogamingtohospitalitytoretailandcasualdiningandtimesaregoingtogetworsebeforetheygetbetter,accordingtomanyofthosewhospokeattheconference.

Sowherewilltheopportunitiesbe?Consumerindustries?

CONTINUED>

Keynote speaker Harvey Pitt, former SEC chairman & CEO

of Kalorama Partners LLC, shares his top 10 lessons to learn from

the nancial crisis


4/22


Perhaps,butwatchoutforretail.RonaldGreenspan,aseniormanagingdirectorinFTIConsultingscorporatenancepractice,remarkedthattheresvirtuallyzerofranchisevalueinalmostalloftherecentbankruptcylingsintheretailsector.

IthinkwhatthismassivedowncycleisdoingiscompletingwhatIvealwaysdescribedastheWal-MartizationofAmerica,saidGreenspan.Thatthereisonlygoingtobeoneortwodomi-nantplayersandifyourenotoneofthosedominantplayersyouregoingtohaveaverydifculttimesurvivingintheWal-Martage.Headded:Ifyourenotthattophorseorthesecondhorseitsgo-

ingtobealiquidationdayratherthanarestructuring.Greenspansaidthatmall-basedretailersareupagainstanalmost impossible situation because their xedcosts are sohigh.Whentherevenuestartstoshrinkandthemarginsstarttoshrinkandyourestillintherepaying$60,$80,$100or$200afootforyourspace,yourxedoverheadcostsaregoingtodriveyouout,hesaid.

Itsofcoursenosurprisethat,inthistimeofheavylings,in-vestorsaretakingacloselookattheDIPnancingmarket.TheDIPordebtor-in-possessionnancingmarkethastakenahit

sincelastyearsdecisionbyGeneralElectricCo.largelytohaltlendingtocompaniesinbankruptcy-courtprotectionornearit.

So,now,thequestionbecomes:AsthedemandforDIPloansgoesupinthecomingyear,wherearethoseloansgoingtocomefrom,giventhelackofmarketdepthandtheconstraintsfacedbyailingnancialinstitutions?

KevinPhillips,fromtherestructuringgroupofBancofAmer-icaSecurities-MerrillLynch,saidthat,giventhenumberoftraditionallenderswhohavebeenoutofthemarketinthelastyearoffensiveDIPlendingsuchaswhentheDIPlendermakestheloan withthe goal ofacquiring thedebtor orassets from thedebtorisattractivefromarisk-rewardperspective.

TiffanyKosch,apanelistfromBaysideCapital,a$3billiondis-tressedinvestmentfund,providedtheperspectiveofthefundsandsponsorswhenitcomestotheDIPmarket.Shesaid:PeoplelikeBaysidewillbeactivein the marketbecause the nextbesalternativeforbusinesseswillbetoliquidate.Andthatwillbeunattractiveintermsofarecoveryinthemarketplace.SoIwouldanticipatethatyoullndalotofnontraditionallenderswhohavecapitaltobeparticipatinginwhatistrulyaverygoodrisk-rewardproperlystructured.

Retail,anyone?n


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Conference attendees hear insights on the distressed investing market


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tHe raDnor Case stuDY:A viCtory for seCured lenders everywHere?

Itsrarelyagoodthingtobeaninvestorintheprecedent-set-tingcaseinbankruptcy,saidJoseFelicianoofClearlakeCapitalGroup.SoIhavethatdistinction.

Feliciano,whousedtobeatprivateequityrmTennenbaumCapital Partners when it invested inRadnorHoldingsCorp., amanufactureroffoamcontainersandspecialtychemicalsthatul-timatelyledforChapter11bankruptcyin2006,spokeonapanelaboutthelandmarkcase.

AsFelicianoexplained,theRadnorinvestmentlookedgoodforTennenbaumwhenitbeganitsduediligenceofthecompanyinthesummerof2005.Atthetime,hesaid,packagingcompanieswereexperiencingdecliningmarginsasaresultofincreasingoilandresinpricesthat,insomecases,theywereunabletopassontotheircus-

tomers.However,againstthatbackdrop,Radnorhadseveralnewproductsthatitwasintheprocessofintroducingtothemarket.

SoonafterTennenbaummadeitsinvestmentinRadnorinthethirdquarterof2005andbecamethelargestsecuredcreditorinthecompany,disasterstruck.HurricaneKatrinaandHurricaneRitahittheGulf,disruptingthepetrochemicalsectorandcreat-ing havoc inthemarkets for resinandnatural gas,as well asotherimportantinputsforRadnorproducts.

FelicianoexplainedwhatRadnorsbalancesheetlookedlikeatthetime:a$60millionrevolverledbyNationalCity,about$25mil-lionofothersecureddebtandsome$25millionofdebtataEurope-ansubsidiary.AftertheTennenbauminvestment,therewasabout$120millionofseniorsecureddebtandabout$135millionofunse-cureddebt,whichFelicianocalledaverykeyaspectofthecase.

Throughout2006,TennenbaumhelpedRadnormanageitsli-quidity,changemanagementandreducecostsmovesthatFeli-cianocharacterizedastypicalforthiskindofinvestment.Tennen-baumbroughtinadvisoryrmAlvarez&Marsaltohelpmanagethecompany;butthen,accordingtoFeliciano,thingschanged.Allofasuddenwewentfromapproximately$5to$10millionofliquidityto anover-advancedsituation,hesaid. Thatprecipi-tatedthebankruptcy.

Thatswhenthingsgotmessy.Tennenbaumledthecompanyforbankruptcyin2006,consentingtothedebtor-in-possessionfacilityandanacceleratedtimeframeforaSection363bank-

ruptcysale.A363saleallowsabankruptcytrusteeorDIPtosellthebankruptcyestatesassetsfreeandclearofanyinterestinsuchproperty.Sincecompetinginterestsinthepropertyneednotberesolvedas aconditionto thesale,the freeandclearprovisionprovidesameansforthedebtortoconsummatethesalefairlyquickly.

StanfordSpringelofAlvarez&Marsalspokeonbehalfofthedebtor-company. From a company perspective, he explained,itwasextraordinarilyimportantthat we havea stalkinghorsebidderafterLehmanBrothersHoldingsInc.triedtorunasale

processbecausewewererunningonfumes,evenafterSilvePointcamein[onthedebtorsside].Wewantedourcustomerstoknowthatweweregoingtosurviveandwantedourvendorstocontinuetosupplyus.Itwasreallyimportanttosendasignaltothemarketplacethatweweregoingtobealong-termplayer.Be-cause,otherwise,therewasntgoingtobeanythingforanybody.

AmitPatelofGoldman,Sachs&Co.,whoatthetimewaswithHoulihanLokey,whichwasadvisingTennenbaum,toldtheaudi-encethatthesalesprocess,whichLehmanwasbroughtintorunwasverydifcultduetoaquestionofvaluation.Also,theboard,asSpringelnoted,wasconvincedthatthesaleprocesswouldresultinnorecoveryforunsecuredcreditors.IttriedtodefeatthesaleoftheassetstoTennenbaumthroughalawsuitarguingthatitwasattemptingatakeoverofthecompanythroughitsloansandthelenderwantedtoobtainownershipofRadnorsassetsatde-pressedvalues,leavingnorecovery.

TheDelawarejudgeruledforTennenbaumoneveryclaim,andTennenbaumwonthe363auctionandboughtthecompany.Sincetheendof2006,thecompanyhasbeeninthemidstofaturn-around.ThejudgealsoruledthatsinceFelicianoresignedfromtheboardassoonasthesaleprocessbegananditlookedlikeTennenbaumwasgoingtobea bidder,Tennenbaumwasnotan

insiderandthustherewasnoconictjustbecauseFeliciano,anemployeeofTennenbaum,hadoncesatontheboard.Latham&WatkinsattorneyJoeAthanas,whomoderatedthe

panelbutwasuninvolvedinthecase,calledRadnorahugevic-toryforsecuredlenderseverywhere.

WouldFelicianodoitoveragain?Probablynot.Loan-to-ownisntastronginvestmentmodel,hesaid.Extendingloansatparwiththeideathatthecompanyisgoingtodoworsethanyouex-pectedsoyoucangettobealuckyownerdoesnotseemtobeagreatstrategy.n

Panelists look on as Jose Feliciano recalls the Radnor ling


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CreDit DeFault sWaps:roulette or risk mAnAgement?BeforeLehmanBrothersHoldingsInc.wentbellyup,andbeforetheTroubledAssetReliefProgram(TARP)gavethemediaanop-portunitytopositionthetaxpayeragainstthosewhofueledtheexcessesofWallStreet,creditdefaultswaps(CDS)werebeingblamedforhelpingtocreatethenancialcrisis.

Indeed, inOctober2008, CBSs 60Minutes ran twopiecesoncreditdefaultswapstheinstrumentsthathavebeencalled-nancialweaponsofmassdestructionbyWarrenBuffett,andwhichmanysayenabledthemortgagecrisis.Ontheshow,SteveKroftchar-acterizedcreditdefaultswapsassidebetsontheperformanceoftheU.S.mortgagemarketsandthesolvencyonsomeofthebiggestnancialinstitutionsintheworld.Hecontinued:Itsaformoflegal-

izedgamblingthatallowsyoutowageronnancialoutcomeswithouteverhavingtoactuallybuythestocksandbondsandmortgages.Notsurprisingly,coverageofthe60Minutesepisodestook

centerstageatthepanelentitledCreditDefaultSwaps:RouletteorRiskManagement.ThepanelwasmoderatedbyDavidHavens,amanagingdirectorwiththecreditowtradingdeskatUBS.TheotherpanelistswereJeffreyFittsofAlvarez&MarsalandEdWe-isfelner,alawyerwhorunsthebankruptcyandrestructuringde-partmentforBrownRudnick.

Havensremarkedthatthe60Minutesepisodeshavevilied

CDSsandmadethemouttobeaverynefariousthingthatsdriventhemarketsdown.

HavenswentontoexplainCDSascreditinsurance,butthequaliedit.Itsnotinsurancethoughbecausebanksandbrokerandhedgefundsarentallowedtotrafcininsurance....Butilooks,feelsandsmellsalotlikeinsurance.

Astotherolethatcreditdefaultswapsplayedinbringingdownthenancialsystem,Weisfelnerwasabitmorecircumspect.InotcertaintowhatdegreeournancialwoescanbetracedbactoCDSs....ButIthinkitssortofsymptomaticoftheprobleandthatisgreed.

Soarecreditdefaultswapsrouletteorriskmanagement?Ar

theygoodforcompaniesthatissuedebt?Howaboutforthosewhoholdbondsinnancialinstitutions?The panelists gave a much more favorable spin than 6

Minutesbutnotbymuch.Weisfelnersaid:Hedgingisalwaysgoodpartofriskmanagement.Canyouimagineairlinesthatdidnhedgethepriceofjetfuel?Theywouldhavefailedalotmoreandlotsooner.Theconceptofriskmanagementisawonderfulthingitsmomandapplepie.

CONTINUED>

Weisfelner, Fitts and Havens share a lively debate on credit default swaps


9/22



Thenheadded,tongue-in-cheek:Itswhentheleverageas-sociatedwithitoutstripsallthebenetofbeingabletomanage

theriskthatguyslikeusgettomakeafortune.Havens,themoderator,agreed.Itcrossedthebridgefrombe-

ingariskmanagementhedgingtooltoatoolofspeculation,anditgrewinaviralanduncontrolledmanner.

Sogiven thehavoc thatcreditdefault swaps havewrought,thequestionforthepanelistsbecame:Whatneedstobedone?Havenslaidoutave-pointprescriptionforwhatmusthappen:

Major cathartic institutional failures:Wereprobablylargelythroughthatprocessnow,hesaid.

Robust two-sided markets in distressed assets:IthinkwewereheadinginthatdirectionwiththeoriginalTARPprogram,whichgavepeoplesomesenseofcondencethattherewasgo-ingtobeabuyeroflastresortoftroubledassets.Headded:

Hopefullywellbegintoseeaclearingpriceforthesetroubledassets,whichisgoingtobeabsolutelyvitaltotheresurrectionofthemarkets.

Enduring and holistic government intervention:Weneedtoknowwhattheregulatoryregimeisgoingtobelikeforcreditde-

faultswapsinthefuture.

Home price stability: Hopefully itsby year-end 2009, bumorerealisticallyits2010.

A return to lending:Weneedtoseebankswillinglylendingtoneanother,whichisgoingtobepartoftheclearingprocessofalltheseproblematicassets.n

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A conference attendee takes notes on the CDS market

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BusteD DistresseD FinanCinGs:wHAt HAppens wHen tHe rug is pulled?Forthosewhokeepacloseeyeonbustedexitnancings,com-paniessuchasUnitedRentalsInc.andHuntsman-Hexionhavecometo symbolizethe latest eraof M&A-related litigation.Notsurprisingly, mention of these cases led off the panel entitledBustedDistressedFinancings:TheImpactoftheCreditCrunchonDebtandEquityExitFinancings.

Themoderator,MarkThomas,apartnerinWinston&Strawnsrestructuringandinsolvencygroup,explainedthatthepanelwouldprovideanoverviewofcontractualdisputesthathavearisenfrombusteddistressednancings,aswellasthecontractprinciplesthatariseinthecontextofterminatedM&Adeals.

Yet,itwasnot lostonThomasthat the focusofthepanel

asitwasoriginallyconceivedperhapsfailedtorecognizethetimeswerelivingin.Hadweknownseveralmonthsagowhatwouldhavetranspired,weprobablywouldvechangedthetitleof this panel, hesaid. Severalmonths ago itseemed like agreatideatotalkaboutbustedexitnancings.[But]whenwe

metoverthepastweek,wereallycametotheconclusionthat,geez,welltakeanynancing.Andifitbusts,welldealwithiafterthefact.

Sowhatarethemajorissuesthatcomeupwhenadealgoesbust?AccordingtoThomasCalifanoofDLAPiperitallgoesbacktothosecontractissuesthatrst-yearlawstudentswrestlewithmaterial adverse changes (otherwise known as MACclauses)breachofrepresentationsorwarranties;andfailuretofulllconditionsprecedenttoclosing.

Thepaneliststhenturnedtothestateoflitigationsurroundingtheseissues.Abigquestionforthepanelistswaswhatlitiga-tionstrategythenonbreachingpartyshouldutilizeintheeven

ofabreach:Doyousueformoneydamagesordoyousuefospecicperformance?JeffreyZaponeofConwayMacKenzieIncsaidspecicperformancearemedyinwhichthenonbreaching

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12/22



partyasksthecourttocompelthecounterpartytoconsummate

themergerdespiteitslowchanceofsuccess,seemstobewaytogo.Ithinktheheadlineisthatspecicperformanceisaverydifcultremedytoobtain,hesaid.Itsaveryhighburden.Butitseemstothebestwaytoproceedinthesecircumstances.

Take the case of United Rentals Inc. vs. RAM Holdings, a2007caseinwhichCerberusCapitalManagement,L.P.allegedlybreacheditsagreementtopurchaseURI.AsWinston&StrawnsThomas explained it, RAM attempted to terminate the mergeragreementandtendereda$100millionterminationfee.UnitedRentalssuedinDelawaretoobtainspecicperformanceto,ineffect,compelRAMtheholdingcompanytodothedeal.

Thejudge,explainedThomas,basicallysaid,youknow,thiscontract ispretty poorly written, and its very ambiguous, and

thereforeImnotgoingtograntyou,UnitedRentals,specicper-formancewhentheplainprovisionprovidestheresaterminationrightifyouwalkaway.

Inotherwords,basedonthelitigationlandscape,thebreach-ingpartyappearstohavetheupperhandifitdecidestopaythe

terminationfeeandwalkaway.However,doesthatmeanitsad-visabletodoso?Whataboutreputationdamage?

Atleasttwoofthepanelistsbelievethat,intodaysenviron

ment,thenotionofbailingoutofadealandtakingreputationariskis,asoneofthespeakersputit,notirrelevant,butitslessrelevant.

Reputationalriskisonething,agreedThomas,buttodayitsmoreaboutsurvival.

JonathanRosenthalofSaybrookCapitalsaidthattodayitsall about opportunitiesand opportunity costsfor the inves-tor.Weshouldntmissthinkingabouttheopportunitysetfortheinvestor,hesaid.Asthecompanydeclinesinperformance,theinvestmentbeginstolooklessinterestingincomparisontootherinvestments.AndsotheinclinationistoleanhardonthoseMACs,becauseinthisenvironmenttheyveprobablycreatedMACsthatyoucandriveatruckthrough.Thebankersandlawyersaregoing

toghtthat....Butthefactthat[thecontract]hassomeoutsthatsjusttherealityoftheday.

Thetakeaway?Suingforspecicperformancemightbethebestoptionfor thenonbreachingparty,but,givenrecentcasesthatdoesntmeanitwillsucceed.n

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13/22



BriGHt stars amonG DarK ClouDs

leAders in distressed investing strAtegizeItwasntallgloomanddoomattheDistressedInvestmentFundFounderspanel,butitsurebeganthatway.

Themoderator,DavidResnick,theheadofRothschildsglobalrestructuringadvisorybusiness,kickedoffthediscussionwithanoutlookfor2009.

Withoutquestion,2009willbeachallengingenvironmentforallinvestors,hesaid,especiallythosefocusedonturnaroundsandcompanieswithnancialdifculties.Resnickexplainedthat,inpastyears,investorscouldconcentrateoncompaniesoperat-ingchallenges,assuredofnancingforadeal;butnow,asthenancingmarketssuffer,thesituationismorecomplex.Lenders

areguardingtheircapitalcarefully,andthetermsonwhichtheyprovideit,withrespecttobothcostsandcovenants,areextraor-dinarilyhigh.

Sowhatdotheseadmittedlygloomydaysmeanfordistressedinvestors?Inthepast,Resnicksaid,thisenvironmentisone

inwhichdistressedinvestorshavemadeseriousmoney.Hesaidthatadefaultrateof15.1%,whichisMoodyspredictionfor2009meansmanytargets.

Withthat happy introduction, DavidShapiro,a co-foundeofKPSCapitalPartners,tookthemicrophone.Shapiroremem-beredthedaysofoldfordistressedinvestors:Wewouldgointoacompany,lockitupwithaletterofintentfairlyquickly,getex-clusivity,dotheduediligence,bringthenancingsourcealonwithus,andclose.Itall seemedsoorderlyandneat.Unfortunately,thosedaysareover.

Ascompaniesweaken,Shapirosaidthat,atatimewhentheres

atemptationtofocusonlycapitalstructure,itsimportanttoem-phasizeduediligence,toturnthefocusbacktolookingatwhatagivencompanyactuallydoesandhowadistressedinvestorcanmakeitbetter.

Shapiroalsopreachedtheimportanceofpatience.ExplainingwhyKPSwasreluctanttododealsin2008,hesaid:Ourperspec-tivehasalwaysbeenthat,atthefront-endofadownturn,youregoingtoseealotoftemptingtransactions,butyouprobablyoughttogetoutofthewayandletsomebodyelsedothosedeals.

Then Shapiro drilled down on the all-important topic of nancing,drawingadistinctionbetweenvolunteerlendersanwhathereferredtoashostageorresidentlenders.Theideaofbringinginavolunteerlenderandhavingthemwalkthroughtheoldschooltransactionprocesswithyouisjustnotgoingtohappenanymore,hesaid.Butifyouhaveabankgroupthatisresidentinthecompanytoday,yourbestchanceistoworkwiththatbankgroupandcomeupwithsomewayofrestructuringthefacilitythattheresidentbanksalreadyhave.

Thatmaybebecauseofthechangingnatureofbankrelationships.Bringingagoodrestructuringadviserinearlyiscrucial,hesaid,becauseinthisenvironment,youwilldiequickly.Banksaremerciless.TheresnosuchthingasarelationshipanymoreIvebeeninthisbusinessfor20yearsandfeltveryproudofhavingcultivateddozensofgoodbankingrelationships.Theyreworthlesstoday.Everybodyslookingoutforthemselves.Banks

aretakingeveryopportunitytheycantore-priceorrenegotiatedeals.Shapiroadded,somewhatominously,Youhavenofriendsoutthere.

VeteraninvestorMikeHeisley,theco-founderandprincipaloStonyLanePartners,soundedamuchmoreupbeatnote.Heisleysaidhebelievesthatgreatfortunesaremadeduringtimesofwaandinternaldysfunction.However,headded,Imnotsosurethathavingalotofcapitaltoemployrightnowisahugeasset,because

CONTINUED>David Shapiro of KPS Capital Partners





itmightnotnecessarilybethesolutiontoyourproblem.The panelists agreed that having a management team that

knowshowtoguideacompanythroughtoughtimeslikethesecan,indeed,solvemanyproblems.Thereisaworldofdifference,saidHeisley,betweensomeonethatcanmanageadistressedcom-panyandsomebodythatcanmanageacompany.

Shapiro elaborated. He said one must have a managementteamthatsactuallyseentoughtimesbeforesoitwontadoptthepostureofadeer-in-the-headlights.Tome,though,asalender,oneofthebiggestchallengesishavingaprivateequityfundasaninvestorwhohasnoexperienceinarecession.Overthelastveyears,theprivateequityfundshavebeenlivingthroughgo-gotimes.Manyofthepartnersareatanagewheretheyreallyhaventbeenthrougharecession.Privateequityfundsareoftencluelessastohowtoimplementaturnaroundplan,hesaid.

Interestingly,Shapirosskepticismofprivateequityinves-torsparalleledaviewofferedatthe2007DistressedInvestingConference.There,ScottJ.Davido,thenexecutivevicepresi-dent, chiefnancialofcer and chiefrestructuring ofcer of

CalpineCorp.,saidthattheeasycapitalavailableduringthedaysofoldmeantthatanewclassofdistressedinvestorhadenteredthemarket.

Yousee a lot ofpeople playing inthe distressedinvestingspacejustbecause theyre looking for places toput moneytowork,Davidosaidbackin 2007.Insituationsthatwouldhavescaredthelivingdaylightsoutofmoretraditionalinvestorsade-cadeago,peoplenowembracetheseinvestmentsevenwithoutalotofdistressedexperienceorevenwithouta lotofindustryexperienceinsomecases.

The 2009 panel concluded with the moderator, DavidResnick,askingthespeakerswhichindustrieswillseethemos

activityin2009.Heisleyurgedinvestorstolookatthoseindustrieswhichhaveaninherentviabilitythatgoesbeyondthecyclesuchascommodities,andcompaniesthathavelargeamountsofmoneyin-vestedininfrastructure,liketheoilandsteelindustries.Thereasonforthat,explainedHeisley,isthatnobodyknowswherethebottomisinthismarket.Soyoubetterbeinvestinginindustrieswhichhaveaninherentviability,thatyouknowwillcomeoutontheotherside.Becauseifitgoesdeepenough,therearegoingtobealotofcompaniesthatdontcomeoutontheotherside.n

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Conference attendees meet, greet and share their thoughts

Siskin, Cross, Shaprio, Heisley and Resnick; a cross-section of accomplished investors


15/22


16/22



Crisis in Consumer ConFiDenCeAirlines, And gAming, And retAil. oH my!Thecrisisofconsumercondencehasbatteredthebusinessesof nearly every consumer sectorand times are going to getworsebeforetheygetbetter,accordingtothosewhospokeonthepanelCrisisinConsumerCondence:WhereWilltheOp-portunitiesBe?

Themoderator,HollyEtlin,amanagingdirectorofAlixPartners,where she provides restructuring and reorganization services,saidthat,overthe60dayspriortotheJanuaryconference,con-sumercreditbegantofallforthersttimeinmanyyears.More-over,thepanelistsagreedthat,whenitcomesto theshort-termoutlookforthedistressedconsumersectorandwhethertherearedealstobedoneintheconsumerspace,thereissimplynomoney

tonancemostdeals.Taketheairlineindustry.MichaelCox,amanagingdirectorand

partneratSeaburyGroupwhosworkedonmajorairlinerestruc-turingsbothintheU.S.andabroadoverthelast20years,saidthemoneyoutthereforairlinesnowisvery,verytight.Hesaidthequestionisnotwhethertherewillbeanairlineindustry,buthowbigitwillbeandwhowillbetheplayersinit.

Domestically,theairlinesectorisintheeyeofthehurricanerightnow,accordingtoCox.TheriseinfuelpriceshurtU.S.air-linesmorethantheirEuropeanandAsiancounterpartsbecause,saidCox,oilispricedindollars,socountrieswithhighcurrenciesasoflastsummeri.e.EuropeandAsiawerelessimpactedbyhighfuelprices.(Thoughsomeofthatpain,addedCox,wasoffsetlastfallwhenmanydomesticairlinesreducedstaff,movedtodropcapacityandofoadedplanes.)

Fromaviation, thepanelmoved onto theretail sector.Etlinaskedthepanelwhichcompanieswillbeabletorestructuresuc-cessfullyandwhy?

RonaldGreenspan,aseniormanagingdirectorinFTIConsultingscorporatenancepractice,said itsamazing that there isvirtuallyzerofranchisevalueinalmostalloftherecentlingsintheretailsectorfromLinensNThingstoMervynstoCircuitCityandLevitt.

IthinkwhatthismassivedowncycleisdoingiscompletingwhatIvealwaysdescribedastheWal-MartizationofAmerica,saidGreenspan.Thatthereisonlygoingtobeoneortwodomi-

nantplayersandifyourenotoneofthosedominantplayersyouregoingtohaveaverydifculttimesurvivingintheWal-Martage.Headded:Ifyourenotthattophorseorthesecondhorseitsgo-ingtobealiquidationdayratherthanarestructuring.

Greenspansaidthatmall-basedretailersareupagainstanalmost impossible situation because their xedcosts are sohigh.Whentherevenuestartstoshrinkandthemarginsstarttoshrinkandyourestillintherepaying$60,$80,$100or$200afootforyourspace,yourxedoverheadcostsaregoingtodriveyouout,hesaid.

Noconsumersectorisimmune,itseemsnoteventheonethaprovidesthebackdropforthedistressedinvestingconference.

EdwardWeisfelner,thechairmanofBrownRudnickLLPsbankruptcyandnancedepartment,saidthereareveryfewcasinosonthestripthatarentintrouble.Hesaidwhilecostsstaywheretheyare,spending-per-customerisdown.Bothsmokingbansandhighgaspricesarekeepinggamblersathome.Financingisinbadshapetoo.Thedebtthatgotpiledontodoacquisitionsisatickingtimebombandtheresnomoneytorenance,hesaid.

Casualdiningisalsotakingabighit.Etlin,themoderator,ob-servedthattheaveragerestaurantbillhasdeclined30%aspeoplearecuttingbackonalcohol,appetizersanddesserts.

Greenspanprovidedsomeinsightintowhatsgoingon.Hesaidthepremiumliquorsarebeingswitchedoutforso-calledstandardbrands,andpeoplearetendingtooptforthespecialsratherthanbuyinghigher-marginitemslikesteakandlobsters.Smokingbanshurt casinos and restaurants alike because not only do ticke

pricesgodown,butcustomerstendnottolingerasmuchwhentheyrenotdrinking.WhatisreallygoneiswhatIdescribeasthesillymoney,con-

cludedGreenspan.Thepeoplewhowereeatingoutfournightsweekbecausetheyhadjustpulled$100,000outoftheirhousereorbecausetheyhadaverylargebonusorbecausetheythoughttheyhadequityhereorthere.Now,peoplearegoingtobefeelingpoorerforalongtime.Theconsumerhad$5trillionofnetworthwipedoutabouthalfoutoftheirhomeequityandhalfoutoftheirmarketequity.Itsgoingtotakealongtimeforthattorecover.n

Holly Etlin of AlixPartners





Biff F. Ruttenberg, CTP, of Atlas Partners LLC asks a question after

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19/22



FunDinG tHe proCesstrends in dip finAnCingThecreditcrunchmeansmanythingstomanyentities,butforcompaniescontemplatingbankruptcyandlookingfordebtor-in-possessionandexitnancing,itmeanstheycantndthecashneededtogetthroughtheprocess.

Themarketforso-calledDIPloansordebtor-in-possessionnancinghastakenahugehitsincelastyearsdecisionbyGen-eralElectricCo.largelytohaltlendingtocompaniesinbankrupt-cy-courtprotectionornearit.

Itisastruggle,arealstruggletondDIPnancing,JonathanHenes,bankruptcyattorneyatKirkland&EllistoldtheWallStreetJournalinOctober.Intheolddays,likeearly2007,thebankswoulddoanoriginationandsyndicationmodel,wherehedgefunds

and[loanfunds]wouldgobbleupthoseloans,buttheydonthavethecapital.Theyareout.

SoitwasnosurprisethatattendeesoftheDistressedInvest-ingConferencepiledintohearthepanelentitledFundingtheProcess:TrendsinDIPFinancing.AmongthevepanelistswasDavidGozdecki,whoworksintherestructuringnancegroupofGECapitalandfocusesonDIPandexitnancings.

MichaelFixler,amanagingdirectorofCM&DCapitalAdvisorswhomoderatedthepanel,commencedbytickingofftheindustriesthatdominatedtheDIPmarketin2007and2008:manufacturing,automotive,consumerhouseholdproducts,realestateandretail.Hesaidthat,goingforwardin2009,theindustriesthatrequireDIPnancingwontchangemuch.Yet,thequestionremains:AsthedemandforDIPloansgoesupinthecomingyear,wherearethoseloansgoingtocomefrom,giventhelackofmarketdepthandtheconstraintsfacedbyailingnancialinstitutions?

GEsGozdeckisaidthat,in2009,heexpectstoseemuchlessontheunderwritingsideandmoreonoftheclubfacilitytypestructure.

Onthequestionofwherethecapitalmaycomefrom,KevinPhillips,fromtherestructuringgroupofBancofAmericaSecuri-ties-MerrillLynchsaidthat,giventhenumberoftraditionallend-erswhohavebeenoutofthemarketinthelastyear,offensiveDIPlendingisattractivefromarisk-rewardperspective.(OffensiveDIPlendinginvolvesaDIPlenderseekingtomakeaprotwiththe

leastamountofrisk,includingsituationsinwhichtheDIPlenderismakingtheloanwiththegoalofacquiringthedebtororassetsfromthedebtor.Thisstrategycanbeeffectivewherethedebtorisoutofmoneyandhasnoothersourceoffunds.)

TiffanyKosch,apanelistfromBaysideCapital,a$3billiondis-tressedinvestmentfund,providedtheperspectiveofthefundsandsponsors.ShequaliedheranswerbysayingthatwhatfundslikeBaysidewillbe able todo will bedirectlydriven bywhatpeoplelikeGozdeckiandPhillipsaredoingatGEandBofA.Butwellpickupthepiecesaroundthem,shesaid.Ifitsuglyand

itscomplicatedand itsdifcult,thenthatsforus.SheaddedPeoplelikeBaysidewillbeactiveinthemarketbecausethenexbestalternativeforbusinesseswillbetoliquidate.Andthatwillbeunattractiveintermsofarecoveryinthemarketplace.SoIwoulanticipatethatyoullndalotofnontraditionallenderswhohavecapitaltobeparticipatinginwhatistrulyaverygoodrisk-rewardproperlystructured.

BrettBarragate,anancingpartnerwithJonesDay,provided

thelawyersview.Ifyoureinthepositionofrepresentingadebtororpotentialdebtorandyoureworkingwiththeinvestmentbanksizingandnancing,youpiecetogetherasmanyofyourexistinglendersasyoucandragalongwithyou,andthenyouhavetolookforthatmissingpiece.Itcouldbeaprivateequitysponsorthatwasinvolvedinthedeal.Thatsgoingtobeapotentialwayforsponsorstorecoversomeofthelostvalueincompanies.

Twoofthepaneliststhenremindedthecrowdthatifallelsefails,theresalwaysthegovernmentthelenderthatFixler,thmoderator,calledtheultimatelenderoflastrecourse.n

David Gozdecki of GE Commercial Finance



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Turnaround Management AssociationDedicated to Corporate Renewal

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The Deal Pipelines Bankruptcy League TablesRanked by new assignments gained within active bankruptcy cases for the fourth quarter of 2008

TOPBANKRUPTCYLAWYERS

Rank LawyeR Law fiRm no. of active assignments

TOPCRISISMANAGEMENTPROFESSIONALS

Rank aDviseR fiRm no. of active assignments

TOPINVESTMENTBANKERS


TOPNON-INVESTMENTBANKERS


1 Leanse, Thomas KattenMuchinRosenmanLLP 416

2 Pollack, David BallardSpahrAndrews&IngersollLLP 355

3 Bahr, Biner White&CaseLLP 325

4 Huben, Brian KattenMuchinRosenmanLLP 240

5 Carr, James KelleyDrye&WarrenLLP 239

1 Glass, Ronald GlassRatnerAdvisory&CapitalGroupLLC 54

2 Shandler, Chad TraxiLLC 24

3 Schnelling, Anthony BridgeAssociatesLLC 22

4 Eisenband, Michael FTIConsultingInc. 20

5 Ratner, Ian GlassRatnerAdvisory&CapitalGroupLLC 17

1 Casas, Edward NavigantCapitalAdvisorsLLC 16

2 Feltman, James MesirowFinancialHoldingsInc. 12

2 Luria, Neil NavigantCapitalAdvisorsLLC 12

3 Lattig, Larry MesirowFinancialHoldingsInc. 10

1 Carson, Jonathan A. KurtzmanCarsonConsultantsLLC 157

1 Kurtzman, Eric S. KurtzmanCarsonConsultantsLLC 157

2 McElhinney, Daniel C. EpiqBankruptcySolutionsLLC 131

3 Salter, Peter DeloitteToucheTohmatsu 119

4 Feil, Tinamarie BMCGroupInc. 95

Source: The Deal Pipeline, http://pipeline.thedeal.com


22/22

Thanks To all The companies ThaT aTTendedThe 2009 disTressed invesTing conference77 Enterprises LLC A S K Financial Accord Financial Inc. Accretive Solutions AccuVal Associates Incorporated AIC Ventures LP

Akin, Gump, Strauss, Hauer & Feld LLP AlixPartners, LLP Allegiance Capital Allen Group Capital Advisors Alliance ManagementInc. Alvarez & Marsal American Management Advisors Inc. Amherst Partners LLC Apex Financial, LLC Archon Group, LP Arent

Fox LLP ASK Financial LLP Atlas Partners LLC Atwell Curtis & Brooks Ltd Aurora Resurgence Fund Balmoral Advisors LLC Banc of America Merrill Lynch Bank First Bank of America Business Capital Barclays Capital Barrier Advisors Inc. Bascom Portfolio

Advisors Bayside Capital BDO Consulting Corporate Advisors LLC BDO Dunwoody Limited BFL Associates Big Lots Capital Inc. Bingham McCutchen LLP Black Canyon Capital Black Eagle Partners Blake Cassels & Graydon LLP Bloomberg News Blue Wolf

Capital Management BMC Group Bridge Associates LLC Broadlands Financial Group LLC Broadpoint Capital Brookeld AssetManagement LLC Brown Gibbons Lang & Company Brown Rudnick, LLP Bryan Cave LLP Brynwood Partners Burns & LevinsonLLP Business Capital Candlewood Partners LLC Carl Marks Advisory Group LLC CarVal Investors Cassels Brock & Blackwell

LLP Cedarwood Associates LLC Centurion Credit Management Cerberus Capital Management LP Chanin Capital Partners ChaseBank Citibank Clear Thinking Group Clearlake Capital Group Cloyses Partners LLC CLT Financial Solutions CM&D Capital

Advisors LLC Cohn Whitesell & Goldberg LLP Columbia Business School Columbia Law School Conway MacKenzie, Inc. CooleyGodward Kronish LLP Corporate Funding Creo Capital Partners CRG Partners Group, LLC Crum & Forster Crystal Capital Fund

Management LP D.E. Shaw & Co. Day Pitney LLP Debtwire DeFalco Auctioneers and Consultants, DeFalco Real Estate Group Deloitte Financial Advisory Services LLP Dept of Finance National Taiwan University DISH Network DLA Piper US LLP Donlin

Recano & Company Dresner Partners Dunne Investments Inc. Electronics Diversied Elm City Partners LLC Eos Partners EPIQSystems Inc. Executive Sounding Board Associates Inc. Federal Reserve Bank of Chicago Fenix Management Fennemore Craig FGI

Finance FirstCity Crestone LLC FocalPoint Partners LLC Fortress Investment Group Frandeli Group LLC Friedman, Fleischer &Lowe FTI Consulting Inc. Fuel Break Capital Partners, LLCC Fulbright & Jaworski LLP GE Capital, GSF Special Situations Group

GE Commercial Finance Generation Growth Capital GESD Capital Partners Getzler Henrich & Associates LLC GF Management Inc. Gibson, Dunn & Crutcher LLP GlassRatner Advisory & Capital Group LLC GMAC Commercial Finance, Structured Finance Division

Goldman Sachs & Co. Gordon Brothers Merchant Partners Goulston &Storrs PC Grant Thornton LLP Graue Mill Partners Great American Group Greenberg Traurig LLP Greenwich Chemical Partners Growth Capital

Partners Hahn & Hessen LLP Harbour Group Harvard Group International HDUSA Heenan Blaikie LLP Heico Acquisitions Hilco Merchant Resources

LLC Hilco Receivables, LLC Holme Roberts & Owen LLP Houlihan Lokey Howard Industries HSG Services Inc. Huron Consulting Group Hydra

Professionals LLC HYDRA Professionals, LLC Independent TurnaroundExecutive ING Capital LLC Innovar Partners LLC Insight Equity

International Financing Review IntraLinks, Inc. Jack Dennison Attorney atLaw James/United Management Partners JC Jones & Associates LLC JMB

Capital Joe Foster Real Estate Advisors Jones Waldo Holbrook & McDonough K2 Investment Management Kachi Partners Katten Muchin Rosenman LLP Kearney & Phelan Kellogg School of Management

Kirkland & Ellis LLP Kirkland & Ellis LLP KPS Capital Partners, LP Kurt Salmon Associates Kurtzman Carson Consultants KutakRock LLP Lake Pointe Partners LLC Land South Lawrence Morrison PC Lazard Freres & Co. LLC LBC Credit Partners Inc.

Levenfeld Pearlstein LLC Levine Leichtman Capital Partners Lincoln International LLC Livingstone Partners Locke Lord Bissell &Liddell LLP Lockton Companies, LLC - Northeast Loeb & Loeb LLP Longroad Asset Management LLC Loughlin Meghji & Company

Lovells LLP M/C Venture Partners Magnaprincipals LLC MainStream Management Manier & Herod Margolin Winer & Evens LLP Marlin Equity Partners Marshall & Stevens, Inc. McColl Partners LLC McDonald Hopkins LLC Melville Capital Mesirow FinancialConsulting LLC Metrostamp Midwest Inc. Miller Johnson Mohawk Machinery Inc. Morgan Stanley Investment Management

MorrisAnderson MSI Financial NachmanHaysBrownstein Inc. NatCity Investments, Special Situations Group Nathaniel I. LandConsulting National City Capital Markets, Investment Banking NBD Solutions Nera Economic Consulting NRC Realty Advisors LLC

Oakley Consultants Inc. Ocean Ridge Capital Advisors LLC Odyssey Investment Partners OKeefe & Associates Consulting LLC Opal Financial Group Inc. Oppenheimer & Co. ORIX USA Corporation Osler Hoskin & Harcourt LLP Otterbourg Steindler Houston

& Rosen PC Pachulski Stang Ziehl & Jones LLP Pacic Biometrics Inc. Pacic Pearl Group Pandesa Corporation Parker HudsonRainer & Dobbs LLP Partners for Market Leadership LLC Perkins Coie LLP Plante & Moran PLLC Platinum Partners PNC Business

Credit Presidential Healthcare Credit Prime Locations LLC Qorval LLC Quest Turnaround Advisors LLC r2 advisors, llc Rabobank Ramex Inc. Ramius LLC Reach360, M-Tec Corporation Realty Income Rebecca O Fruchtman Law Ofces Red Diamond Capital

Inc. Regions Business Capital Renee Fellman & Associates Renovo Capital, LLC Republic Financial Corporation Resilience CapitalPartners Reuters News Riemer & Braunstein LLP RJ Reuter Business Consulting Robert W Baird & Co Inc. Rodman & Renshaw,

LLC Rothschild Inc. RR Donnelley Saban Capital Group Sager Company Saul Ewing LLP SB Capital Group LLC SBZ Select

Investments LLC Scouler & Company LLC SecondMarket Sentinel Capital Partners Seyfarth Shaw LLP Shearman & Sterling Skadden, Arps, Slate, Meagher & Flom LLP Societe Generale Sommer Barnard PC Southwest USA Bank Spevco, Inc. Spring StreetCapital LLC Stevens & Lee PC Stonehill Financial LLC Strategic Warranty Services Tactical Financial Consulting Tara Jayde LLC

Tatum LLC Taylor & Martin Inc. The Anderson Group The Atalon Group, LLC The Blackstone Group The Claro Group The FinleyGroup Inc. The Garden City Group Inc. The Gores Group The Heico Companies, LLC The Hilco Organization The Meridian Group The New York Times The Seabury Group Tiger Global Management, LLC Tower Three Partners Treadstone Capital Partners LLC

Tucker Arensberg PC U.S. Bankruptcy Court UBS Investment Bank Univ of Chicago Booth School of Business University ManagementAssociates, & Consultants Corp. US Capital USC Consulting Group LLC Versa Capital Management Inc Vinson&Elkins V-Rooms

Virtual Data Rooms Wachovia Capital Finance Wayzata Investment Partners WCM Associates LLC Weil, Gotshal & Manges LLP Wells Fargo Business Credit Inc. Wells Fargo Foothill Western Asset Management Company William Blair & Company LLC Willis

Group Holdings Willis HRH Windsor Park Management Company, Windsor Park Capital Wingate Partners Winston & Strawn LLP Winston Asset Management Ltd Wynnchurch Capital Ltd Yantek Consulting Group Inc. ZM Equity Partners, LLC

s t tThe2010

disTressed invesTing conference

Jauay 27-29, 2010Blla htl, La va, naa

distressed investing 2009

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