TMA Europe Annual Conference 2013
TMA Europe celebrates achievements at London conference
By John Willcock, Editor, Global Turnaround
TMA Europe’s sixth annual conference in London attracted the most attendees at any of its meetings so far, as over 170 people from nine national chapters met to discuss distressed investing opportunities and celebrate the growth of its Pan-European accreditation programme.
The first ten holders of the recently launched the European Association of Certified Turnaround Professionals (EACTP) were on hand at the dinner the night before, demonstrating that the process is well and truly up and running.
Based on TMA’s existing global CTP accreditation programme, individuals from across Europe who are able to demonstrate relevant academic qualifications, skills, experience and continuing practice will qualify for membership of the association.
The first president of the EACTP, Tyrone Courtman, as well as its recently appointed chief executive Vera Sabeva told the conference the next day about the progress, and how attendees would benefit from holding such a global ‘passport’.
Courtman said: “The EACTP initiative aims to provide education and career development opportunities and resources for people in the early stages of their careers in the turnaround and corporate restructuring industry.”
Bryan Green, this year’s president of TMA Europe added that “the idea is to provide a reassuring ‘kite mark’ of quality to professionals which will appeal to the buyers of their services, in particular banks and corporates”.
The American leadership of TMA were also attending in force, including Ronald Sussman, TMA chairman and Thomas Kim, TMA president, as well as the organisation’s chief executive Greg Fine. It is the EACTP’s ability to slot into the TMA existing CTP structure which gives it global force, and the Americans are giving it their enthusiastic support.
Also on the conference agenda was how TMA Europe could cultivate and encourage the next generation of turnaround practitioners through its nascent NextGen programme, already a major force in identify and promoting rising stars in the US.
The day itself kicked off with the conference co-chairs, Adrian Doble of FRP Advisory and Enrica Ghia of Studio Legale Ghia. They introduced the keynote speaker, Lord Maurice Glasman , advisor to the UK’s Labour party and a founder member of ‘Blue Labour’ which is dedicated to figuring out a way forward using the experience of the immediate past; or in Glasman’s words: “to take the years when Gordon Brown was in charge of the UK’s economy, and do the complete opposite.”
Europe needs a CRO
In a hard hitting address, Lord Maurice Glasman compared the highly London-centric and centralised UK financial system with Germany’s federal / regional structure. He commended Germany’s focus on vocation and training in a decentralised economy where workers play a part in management decision making and where those German regional banks that are constrained to lend within their region with focus on long term gain over short term profit. He contrasted this with the decimation of the mutual sector in Britain. In his view it was the absence of this relationship in European money centres that “provides the fundamental explanation of the crash of 2008”. Relating this directly to Europe as a State, Glasman highlighted the necessity to develop an alternative to the relentless centralisation of decision making. In his words “Any serious reflection on Restructuring Europe must confront the centralisation of capital and the state and seek to constrain both through the endowment of decentralised regional and sectoral institutions that constrain centralisation and preserve and renew traditions of virtue within the economy.”
A panel chaired by Lars Westpfahl of Freshfields Bruckhaus Deringer, discussed Lord Glasman’s provocative musings, which produced much debate. For instance:
Alan Tilley of BM&T suggested “Europe needs a CRO.”
Westpfahl retorted: “It already has one – Angela Merkel.”
Distressed investing in Europe
John Arney, managing partner of Arle Capital Partners and a highly active investor in Europe, discussed the topic ‘Barriers to and opportunities for investment in Europe.’
Global Turnaround was media partner with the TMA Europe conference, and editor John Willcock chaired a six-strong panel of investors, financial advisers and lawyers to discuss the issues raised by Arney’s presentation.
Ever since the global financial crisis broke in 2007-8 private equity and hedge funds have amassed huge piles of cash earmarked for distressed opportunities in Europe. There is an estimated UK£75 billion targeted at European distressed situations at the moment. The trouble is that the banks do not want to sell at too low a price, since taking such a write-down will handicap their attempts to rebuild their shattered balance sheets; while the funds do not want to pay too much since this will hit their expected rate of return.
The result is an infamous price gap which has led to far lower rates of transactions than anyone hoped for in Europe. Will this be the year that changes?
Lukas Fecker of KMPG in London pointed out that Basel III and Solvency 2 may prompt banks to dispose of more assets, especially retail estate loans, since they will become more expensive to hold. Fecker belongs to the London restructuring practice that has been dealing with MF Global and other distressed financial institutions, and he thought this year would bring big opportunities.
Carlos Gila, an adviser with Oaktree and former president of TMA’s Spanish chapter, suggested that “everything is driven by the ECB (European Central Bank).” There are zombie companies that can only just service their debt interest because there are zombie banks that cannot afford to restructure or liquidate them. And there are zombie banks, said Gila, because the authorities led by the ECB are determined not to allow any banks to fail, since even one failure could trigger a systemic meltdown of the Eurozone’s financial structure.
Gila also pointed out that Spain’s ‘bad bank’ Sareb, launched at the beginning of this year as a condition of receiving an emergency banking bailout from the EC, was struggling to meet its ambitious targets.
In theory the launch of Sareb, like that of Ireland’s own bad bank NAMA, should promote lots of distressed investing activity, since it is designed to take troubled assets out of banks and work them out over time.
Some haircuts Sareb has imposed on banks have been as high as 95 per cent for distressed loans, real estate and shares, illustrating the depths of the Spanish crisis. Sareb faces two big challenges, said Gila; it has way too few people working for it and the timescale it faces for collecting and selling off troubled assets is way too ambitious.
For instance, this year Sareb is charged with selling off 6,500 packets of assets. It looks like it will manage 600.
Turning to Europe’s largest economy, Germany, Sacha Lürken of Kirkland & Ellis in Munich pointed out that it is a paradox of insolvency and restructuring markets that they tend often to be busier in healthier economies than depressed ones.
German insolvencies are running at a far higher rate than the UK, for instance, despite the German export machine powering on while the British finance-dominated economy sputters along in the slow lane.
This is because the German banks are in better health than their UK counterparts, and can therefore afford to take the write-offs involved in insolvencies. Less zombie banks mean less zombie companies.
Furthermore, said Lürken, the restructuring and turnaround market has been boosted by legislation introduced last year which makes it easier to rescue companies in Germany.
The so-called ‘ESUG’ legislation gives creditors a voice in selecting the administrator for the first time in Germany, and also provides greater predictability to the rescue process. Hopefully this will encourage distressed investing, said Lürken.
The situation was quite different in the Netherlands, according to one of its leading turnaround investors, Patrick Kalverboer of H2 Equity Partners. There, the lack of a pre-packaged administration mechanism was a barrier to investment. Gila added that the lack of a cram-down mechanism in Spain was also a barrier. Both Spain and Germany would benefit from a cram-down mechanism similar to the English Scheme of Arrangement, the panel agreed.
James Katchadurian of Epiq Systems has worked with a number of the Icelandic banks that were allowed to go into insolvency in the recent crash, and where the ‘bad bank’ model was used to handle underperforming assets. The high hopes for portfolio sales from the banks have not been fulfilled, however, Katchadurian added.
TMA Europe will return to this theme again on 19 September, when it holds its second Distressed Investing conference in London. The inaugural event last year attracted 150, and this year TMA Europe is aiming for 350.
As for the June conference, Peter Davies gave a first-hand account of the turnaround of Air Malta, where he is CEO.
Peter Davies, the CEO of Air Malta, then spoke about his cross border experiences in restructuring this state owned airline, the cultural difficulties that he encountered and the enormous task of updating booking systems in a business that had been neglected for years.
In the afternoon, ‘Soccernomics’ author and Financial Times columnist Simon Kuper addressed the conference on the European football revolution. He stressed on how bigger clubs are moving towards player selection based on statistical analysis as opposed to gut feel and drew parallels with the restructuring industry on the preservation of talent and investment in people. He examined how clubs that have embraced foreign players and management techniques have prospered financially and with success in the Champions’ League through a sharing of new ideas and skills. The panel, led by Marcel Windt discussed inter alia how the TMA could develop its international appeal through these techniques.
An all-female panel of leading restructuring lawyers, led by Jenny Clift of UNCITRAL presented a topical and technical update reviewing progress on European insolvency law. Louise Verrill from London’s Brown Rudnick office spoke about the debilitating effect of Rubin V Eurofinance on forum and COMI whilst Sonia Jordan of Dentons spoke about the willingness of Courts across Europe to accept a migration of COMI in circumstances where a move of COMI achieves a better outcome for the company and its creditors. Federica Pietrogrande of Bird & Bird, Milan set out the progress towards implementation of an Italian style Chapter 11 plus provisions for smaller company rescues. Helen Sevenoaks from Toronto’s Bull Houser & Tupper gave a practical update on the restructuring landscape in Canada.
Neil Cooper, Mike Cappy and Jukka-Pekka Joensuu then ran an open forum, allowing delegates to air their views and discuss what they had learnt during the day.
Following the success of the London event, eyes now turn to Germany, which has one of the continent’s strongest TMA chapters, and where TMA Europe will hold next year’s annual conference.
TMA Europe looks forward to welcoming you to the second annual Distressed Investing Conference in London on 19 September, 2013. For further details see the Events Page.
TMA Europe 2013 Turnaround of the Year Awards
Large Company Rescue – Solon Group; Rüdiger Wienberg of hww wienberg willhelm
With revenues of €815 million and an EBIT of €57.7 million in 2008 the sun was really shining on SOLON Group, a German manufacturer of photovoltaic modules and the construction of solar power plants. And then the lights went out when first the Lehman crisis hit credit markets and then state subsidies needed to bridge the gap between solar and conventional energy generation dried up. Add to that the entry of lower cost government subsidised Chinese manufacturers forcing prices down by two thirds and a perfect storm was created. Revenues halved, losses soared and covenants were breached. By December 2011 creditor pressure had forced production almost to a standstill and liquidity had all but dried up. Insolvency was inevitable but within the group viable elements remained. Enter Rüdiger Wienberg and his team from hww wienberg Wilhelm as preliminary administrator with just a limited period of about three months of state assistance with German payroll to trade the viable entities and find a buyer.
In the very short time available the team stabilised the business and kept operating entities intact, negotiating concessions with unions and suppliers and other critical stakeholders. Adequate liquidity was created by aggressive cash control and a data room established to accelerate the sale. Critical in these early days was the establishment of trust and transparency with creditors and suppliers and with customers the provision of future warranty guarantees. Over 76 potential investors were contacted and intense negotiations undertaken worldwide with the cooperation of the secured creditors. In record time and within the scope of the preliminary insolvency proceedings the core assets both in Germany and abroad were sold to an Arabian- Indian investor and over 92% of the jobs preserved. The sale represented the best result for the creditors in what were very unfavourable circumstances for the photovoltaic solar energy industry.
Small Company rescue – Creative Solutions; Giles Campbell and David Bryan of BM&T LLP
In December 2012 things looked grim for the US owner of this Transatlantic B2B services company. Whilst his US business was profitable and growing he had a UK subsidiary facing insolvency with 1.5x annual revenue in creditors and costs exceeding income. Exposed was not only his investment of over $1 million in the UK business but potential covenant breach and insolvency in USA from a write off of intercompany balances. Established to service his international clients the UK business had suffered through poor financial management. Changes to the leadership were about to bear fruit with a major contract imminent which would save the business over time. Time was however at a premium as creditors were threatening legal action which would have forced insolvency and loss of client confidence and future contracts. Some of the creditors too were faced with insolvency as they were small businesses and the potential write offs significant to their survival. Emotions run high.
Through TMA connections he contacted David Bryan of BM&T. Engaged by the owners, David and Giles Campbell worked with local management to put in place a ground breaking Creditors Consensual Composition (CCC) across over 30 creditors representing 90% of the overdue balances to avert insolvency. Neither a Creditors Voluntary Arrangement (CVA) nor a pre-pack insolvency would have avoided the loss of critical new business. Through patient negotiations to create a legally binding 3 year instalment repayment composition the CCC ensured a forecast 100% recovery of €1.8m for the creditors and the survival of the business with no loss of employees.
BM&T installed budgets, cost controls and selective invoice discounting to return the business to positive cash-flow in 2 months with profitability achieved in 4 months. Furthermore Giles Campbell worked with the US owners to install a corporate strategy for expansion, enhanced financial controls across the whole business and led negotiations in USA to refinance $1m (€0.8m) of bank debt into a private placement to fund the expansion.
Presentation & Keynotes
- Lord Glasman - Restructuring Europe (PDF)
- Federica Pietrogrande - Italian Recent Developments (PDF)
- John Arney - Barriers to and Opportunities for Investment in Europe (PPT)
- Louise Verrill - Cross Border Restructuring and the Global Village (PPT)
- Simon Kuper - Talent Recruitment, Talent Management: Lessons from Football (PPT)
- Celine Domenget-Morin - Key Legal Trends: Accelerated Financial Safeguard (PPT)
Please note: Peter Davies’ presentation is not available due to confidential information that it contains. If you would like to contact Peter, you can do so via his email - firstname.lastname@example.org