Transcript ABI 28th Annual Spring Meeting

TMA EUROPEAN CONFERENCE
UPDATE ON RESTRUCTURING REGIMES IN
EASTERN EUROPEAN ECONOMIES
JUNE 11, 2010
Gordon Johnson
EM Advisors LLC, USA
Alexander Yerofeyev
Ernst & Young, Russia
Valeriu Nistor
SOAR, Romania
Candas Gulez
Nexia, Turkey
GLOBAL OUTLOOK: NPL HOT SPOTS
(Q4 OR END 2009)
Advanced Economies
Czech Republic – 5.3
France – n/a
Germany – n/a
Greece – 7.2
Ireland – 7.5
Italy – 6.2
Spain – 5.1
United Kingdom – 3.3 (June)
United States – 5.4
Germany – n/a
Source: IMF GFSR 2010
Emerging Economies: CEE
Albania – 9.7
Bulgaria - 6
Croatia – 6.4
Estonia – 5.2
Hungary – 5.9
Latvia – 16.4
Lithuania – 19.4
Macedonia – 9.5
Montenegro – 12.4
Poland - 7
Romania – 14.8
Serbia – 15.5
Turkey – 5.7
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GLOBAL OUTLOOK: NPL HOT SPOTS
(Q4 OR END 2009)
Russia & CIS
Georgia – 7.3
Kazakhstan – 21.2
Moldova – 16.6
Russia – 9.6
Ukraine – 33.8
Developing Asia
Pakistan – 12.2
Middle East / North Africa
Egypt – 14.7
Jordan – 6.4
Lebanon – 6
Morocco – 5.5
Source: IMF GFSR 2010
Sub-saharan Africa
Gabon – 9.8
Ghana – 14.9
Kenya – 8
Nigeria – 6.6
Rwanda – 13.6
Senegal – 18.7
Sierra Leone – 10.6
South Africa – 5.5
Swaziland – 8.1
Latin America
Brazil – 4.5
Colombia – 4.6
El Salvador 4.4
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TMA EUROPEAN CONFERENCE
UPDATE ON RESTRUCTURING REGIMES IN
EASTERN EUROPEAN ECONOMIES
JUNE 11, 2010
Gordon Johnson
EM Advisors LLC, USA
Alexander Yerofeyev
Ernst & Young, Russia
Valeriu Nistor
SOAR, Romania
Candas Gulez
Nexia, Turkey
TMA EUROPE CONFERENCE
Update On Restructuring Regime in Turkey
AS / NEXIA TURKEY
11 June 2010
CONTENTS
Introduction: Turnaround Management in Turkey
Features of Debtors & Creditors
Corporate Debt-Restructuring Methods
Out-of-Court Restructuring
Court Restructuring – Postponement of the Bankruptcy
Postponement of Bankrutpcy – Practices
Positive Results of the Postponement of Banktrupcy
Evaluation of the PoB Process
Other Features of the Turkish Restructuring Regime
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TURNAROUND MANAGEMENT IN TURKEY
In essence, corporate debt restructuring is the
main service provided by turnaround
professionals.
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Corporate restructuring (business reviews, SWOT
analysis, etc.)
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Restructuring of financial and trade debt of companies
(negotiations with creditors, projecting cash flows, etc.)
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Lender advisory
FEATURES OF DEBTORS & CREDITORS
Major features of the Turkish debtors and creditors
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SME-MME business segment companies are major targets for turnaround
management:
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Industrial sectors: Textile, Iron&Steel, Construction Materials,etc.
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Family owned – narrow shareholder base
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High financial debt relative to equity & too many creditors
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Reasons of distress:
 Wrong investment decisions, lack of feasibility analyses and low equity
 Problems of liquidity and working capital management rather than solvency
issues
 Vulnerability to domestic and external demand shocks
Low penetration of external advisory services regarding turnaround
management
Creditors, especially financial institutions have in-house remedial
management teams for NPLs or exit accounts.
CORPORATE DEBT RESTRUCTURING-METHODS
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Out-of-court restructuring
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Turnaround under the provisions of Execution and Bankruptcy Law
(EBL): After the Turkish financial crisis in 2001, EBL has changed in order to
permit rehabilitation of the companies without engendering terminal
insolvency.
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Postponement of bankruptcy (PoB) (aka Turkish Chapter 11)
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Reorganization by way of the abandonment of the debtor’s assets
OUT-OF-COURT RESTRUCTURING
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In Turkey, both creditors and debtors prefer out-of-court restructuring against court
restructuring, since
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Less legal interference
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More customized restructuring plans
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Turnaround professionals may have greater involvement in the out-of-court
restructuring process.
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Successful out-of court restructuring involves:
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Creditors receive additional security (e.g. lien against guarantor’s real estate, receivables, etc.)
or shareholders are induced to sell personal valuable assets in order to raise equity
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Revolving and overdraft lines are converted into middle-long term loans in order to oversee the
debtors’ cash flow
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Revolving lines are rolled over after the interest is paid, in order to provide a grace period
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Interest rates on loans are revised downwards
COURT RESTRUCTURING – POSTPONEMENT OF BANKRUPTCY
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Most frequent way of debt restructuring. Approval conditions:
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Major goal is to preserve company assets and to gradually diminish company
debt with a viable development plan in order to prevent terminal insolvency.
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Major requirements: Liabilities excess company assets and company must
present a viable development plan for the future. However, the plan need not
be submitted to creditors’ approval or without the opinion of any third party
turnaround management company.
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Automatic stay is granted after the court has examined the company’s
compliance to the requirements stated above and trustee is appointed
immediately.
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Duration: 1+4 years, subject to trustee recommendation and court approval.
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POSTPONEMENT OF BANKRUPTCY-PRACTICES

Company and its guarantors pool their tangible assets (including
individual if necessary) as collateral for all the financial creditors.
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Temporary suspension of litigations.
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All financial debt are pooled and restructured as a single amortizing
loan and paid periodically (quarterly or semi-annual) pro-rata.
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Cash flow projections and debt repayment capacity are analyzed by
the leader creditor or an external advisor.
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Role of the trustee: Trustee had to approve the whole process.
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EVALUATION OF THE PoB PROCESS
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Problems in the “institution of trusteeship”:
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Trustees are not turnaround professionals and do not have the necessary skills and experience
to manage the troubled company.
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They are not able to yield the neccessary power to manage the company. Most of the time, the
same management which has brought the company to the brink of bankruptcy continues to
manage the company. Trustees only signs off the management’s decisions.
Courts grant PoBs and automatic stays rather hastily and without consulting
neither to the company’s creditors nor to the third party turnaround
proffesionals.
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Courts are not specialized in assesing the bankruptcy process.
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When company files for the PoB, it is not announced to creditors, hence creditors’ views are not
sought regarding the proposed development plan.
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Distressed companies exploit the automatic stay provisions in order to protect shareholder
assets from the creditors.
OTHER FEATURES OF THE TURKISH REGIME
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Lack of distressed lending: Banks and other non-bank financial
institutions are hesitant in lending to companies under distress or
under the PoB protection.
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Immature secondary market for NPLs: Lack of dedicated, expert
investment banking companies eager to buy NPLs.
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The legal framework is lenient on debtors.
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Low recovery rates
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High costs regarding restructuring, including taxes and
administrative fees
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THANK YOU…
Candas Gulez– +090.212.225 68 78
[email protected]
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A Romanian Turnaround Perspective
Valeriu Nistor
Managing Partner
SOAR Management si Investitii
Romania
June 11, 2010
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OUTLINE
Current situation
Overview of the main actors
Regulatory framework
Key challenges
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Current
situation
Total value of non-performing loans as % of total loans
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Current
situation
Total number of companies that entered insolvency procedures
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Current
situation
Unavoidable capital destruction
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Current
situation
Great deal of uncertainty and lack of decision making/expertise
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Overview of the main actors
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Overview of the main actors
Banks and leasing companies
Suppliers
Authorities
Labor
Judicial administrators
Consultants
Turnaround firms (in very short supply)
Sources of capital
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Regulatory framework
Insolvency Law 85/2006
Key player: judicial administrator
Two main types of procedures:
 Common procedure
 Simplified procedure
Hurdle claim of EUR 7,500 for filling an insolvency petition
Four classes of claims:
 Secured claims
 Budgetary claims
 Unsecured claims from essential creditors
 Other unsecured claims
The reorganization plan proposed by:
 The debtor
 The judicial administrator
 The creditors holding together at least 20% of the claims
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Key challenges
Large number of stakeholders with conflicting
interests
Very slow decision making
Shortage of turnaround practitioners
Limited experience and history of successful
reorganizations
Lack of turnaround financing (banks, private
investors, investment funds etc)
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CONTACT
Valeriu Nistor
Managing Partner
SOAR Management şi Investiţii S.A.
9 Tokio Street,
011765 Bucharest,
Romania
T : +40 31 102 57 46
F : +40 31 102 57 47
E : [email protected]
W: www.soar.ro
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