Vol 6 (2009) - Issue 1

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Ben Larkin (ed.), Restructuring and Workouts – Strategies for Maximising Value

They say ‘timing is everything’. This publication comes along at the right time. Globe Business Publishing has published a book that is the amalgamated works of several participants in the restructuring and workout world in a book entitled Restructuring and Workouts – Strategies for Maximising Value. This review is written so the reader can get a quick overview of the contents of the book and its chapters – and does not do proper justice to the underlying content. Ben Larkin (Head of Restructuring at Berwin Leighton Paisner LLP) wrote the ‘Introduction’ and sets the tone in the current climate where even ‘the Bank of England formally accepted that the UK is heading into recession’.

While the titles of the chapters are diverse, the content is generally quite good. The chapters deal with the real intricacies of workouts in the corporate world from contributors that have much to offer from their knowledge and depth of experience.

Chapter 1, written by Martin R Gudgeon and Sharish A Joshi of Blackstone, acknowledges the complexities of workouts in the EU where there is no pan-European insolvency protocol which accounts for the high percentage of European restructurings being accomplished on an out-of-court or ‘consensual’ basis. Consensual restructurings have their own complexities with jurisdictional issues, complex capital structures, and types of debt and investor classes. These complexities lead to increased uncertainty and execution risk in the restructuring process.

Chapter 1, written by Martin R Gudgeon and Sharish A Joshi of Blackstone, acknowledges the complexities of workouts in the EU where there is no pan-European insolvency protocol which accounts for the high percentage of European restructurings being accomplished on an out-of-court or ‘consensual’ basis. Consensual restructurings have their own complexities with jurisdictional issues, complex capital structures, and types of debt and investor classes. These complexities lead to increased uncertainty and execution risk in the restructuring process.

Chapter 3 is written by Karl Clowry of Cadwalader, Wickersham & Taft LLP and is entitled ‘Debt for equity swaps’. The chapter seeks to focus on the common factors with any debt-for-equity swap and how they are addressed by the various stakeholders. Historical examples including Telewest, British Energy, and Jarvis are cited. The article reveals the principal methods of effecting conversion of debt-to-equity and provides an up-to-date jurisdictional road map providing comparisons among statutory schemes and arrangements. An overview of tax issues on both the creditor and debtor sides of a restructuring is included.

‘Pre-packs at an operational level’ is the subject for Chapter 4 by Mark Shaw of BDO Stoy Hayward LLP. The article recognises the increasing use of pre-packs with the clear aim of preserving value. In this context, the ‘pre-pack’ is defined to cover a multitude of transactions resulting in the sale of a business. The chapter is a high-level discussion of the issues affecting pre-pack sales at an operational level, starting with the decision to pre-pack, documenting the decision, and choosing the appropriate insolvency process.

Chapter 5 is a fairly comprehensive overview of the ‘Valuation of distressed businesses’ by Alastair Beveridge, Paul Hemming and Graeme Smith with Zolfo Cooper. This chapter describes the more rigorous examination that needs to take place with a distressed business. A relevant discussion on a company’s business plan and the pitfalls of taking the financial forecasts at face value is important – especially in these difficult times and with so much future uncertainty. Particular areas to be explored include an in-depth review of earnings, working capital and other cost cutting that could have material impact on value. The authors also provide a probabilityweighted valuation analysis to the discounted cash flow valuation methodology.