Restructuring Adviser
Keeping busy: Houlihan Lokey stayed busy during a lull in the restructuring cycle by focusing on distressed areas such as real estate and leisure, winning mandates from debtors as well as its traditional creditor clients. This consistent high-quality approach makes Houlihan Lokey IFR’s EMEA Restructuring Adviser of the Year and Restructuring Adviser of the Year.
Many firms were scrabbling for mandates in a quieter year for corporate restructuring amid low default rates in the first half of 2011. Only firms with the flexibility to take instructions from both debtors and creditors could really thrive in these leaner times.
Of the handful of practices that could do this, Houlihan Lokey stood out due to consistent levels of activity. In the first nine months of 2011, the number of deals completed worldwide fell by 32% to 296, according to Thomson Reuters.
Houlihan, however, retained its top spot with a role on 27 transactions with a total value of US$29bn and also topped the table in terms of active mandates. Having a broad scope helped the firm to tackle and complete some of the largest and most complicated deals for debtors and creditors.
“Unlike others, we are committed to restructuring whether financing or M&A is at high or low levels,” said David Preiser, Houlihan’s senior managing director.
In the US, the firm advised the steering committee of secured lenders of iconic film studio Metro-Goldwyn-Mayer, whose library includes 4,100 film titles, and more than 10,000 television episodes. MGM’s syndicate had more than 270 lenders, including investor Carl Icahn.
Icahn objected to a plan to equitise the secured debt and preferred a scheme that would merge MGM with another movie studio that he owned. Icahn launched a tender for MGM’s secured debt, hoping to buy enough to take control of the syndicate, but failed.
Houlihan and JP Morgan were able to drum up enough support for a pre-packaged deal to convert more than US$4bn in secured debt into equity and even won Icahn’s support. As part of the restructuring, US$500m in new financing was raised to give the movie studio a cushion to execute its business plan, which included funding new film projects.
In Europe, the firm finally completed its work for German automotive supplier Schaeffler on a high-profile €12bn debt restructuring resulting from the company’s mistimed purchase of Continental four years earlier.
The solution saw Schaeffler split the debt between its operating business and a holding company, combined with a €1.8bn fundraising for Schaeffler through the sale of Continental shares. The Schaeffler family retained control of its business, and also ended up paying less interest on its outstanding facilities.
In what was perhaps the firm’s most innovative solution, Houlihan also persuaded Belgian directories business Truvo to file for bankruptcy reorganisation under Chapter 11 in the US. This was the first time a European operating business managed to pull off such a daring feat and showed Houlihan’s mastery of bankruptcy regimes across many jurisdictions.
Global expansion
Houlihan has expanded globally during the past few years, from its US, UK and German heartlands. The firm has picked up significant mandates in France, where it advised creditors to container shipping group CMA CGM and in the Nordic countries as well as Spain and Greece.
In Greece, Houlihan is advising a major real estate owner and has also been appointed to advise the Greek privatisation agency, which points to an upturn in restructuring activity in peripheral European countries in 2012.
Further afield, the firm is working on complex situations in South Africa at Afrisam and Bulgaria, with Vivacom, and flags have also been planted in India and China. At Afrisam the firm is advising the company; at Vivacom, the mezzanine creditors which typifies Houlihan’s enviable ability to play both sides of the equation.
Houlihan started advising senior lenders to the German building materials business Pfleiderer, but was appointed by the company itself after its original adviser was replaced. The move could have raised questions about conflicts of interest from competitors focusing on debtor mandates as a route to further financial and strategic advice.
To counter potential criticism, Houlihan emphasised its integrity and the complete trust it engenders from both creditor and debtor clients which is highlighted in cases such as Pfleiderer, along with repeat work for both hedge funds, such as Oaktree, Babson and Harbourmaster, and private equity sponsors, such as Carlyle and Goldman Sachs.
As well as pushing into new markets, Houlihan carefully focused on industries where restructuring activity promises to pick up, with a view to dominating these areas of potential stress and distress.
Sectors targeted include real estate and leisure and gaming and the firm was active in more than six cases in each sector in the last 12 months. In the US, Houlihan advised the first-lien lenders in Green Valley Ranch Gaming, first-lien lenders in Aliante Gaming and second-lien debt holders in Centaur, a majority holder of third-lien notes in Indianapolis Downs. It is also advising an ad hoc bondholder committee in Project Casino.
In Europe shipping is becoming a more interesting sector from a restructuring point of view, along with renewable energy, and Houlihan has advised several parts suppliers to the renewable industry on financial restructurings.
US stronghold
In the US, there was almost no deal that Houlihan was not seen on due to the strength of its creditor advisory operation. Houlihan had a virtual monopoly on advising creditors for many years as investment banks competed over advising troubled companies.
Irrespective of which side won the mandates, the company’s advisers would often find themselves negotiating with Houlihan, which would be advising creditors. That dynamic has changed.
Firms such as Lazard, Blackstone and Rothschild have taken on creditor assignments and Houlihan is doing more company or debtor assignments but the firm still reigns as the premier creditor-side adviser with the right mix of aggression, cunning and intellect.
Houlihan advised first-lien creditors in American Safety Razor. The creditors offered the ailing company DIP financing and later became the stalking horse bidder in a 363 auction. The company was ultimately sold to Energizer, giving the first-lien creditors a 100% recovery.
As well as advising MGM creditors, in the film rental pace, Houlihan was also the financial adviser to the first-lien lenders in Movie Gallery and secured lenders in Blockbusters, although both companies were deemed beyond restructuring and were liquidated.
Houlihan continues to advise Lehman Brothers unsecured creditors committee, which is nearing completion after three years, and to the unsecured creditors committee in real estate company Capmark Financial Group, which emerged from bankruptcy protection at the end of September.
It is also advising second-lien bondholders in struggling papermaker NewPage, as well as an ad hoc committee of secured creditors at Trico Shipping, and is helping to forge a restructuring based on a debt for equity exchange.
The firm represented an ad hoc bank group in the restructuring of transportation service company YRC Worldwide. More than US$1bn of YRC’s credit agreement claims was converted into 72.5% of the restructured company’s equity and a US$140m convertible.
Many of the firm’s rivals are looking at providing financial advice to troubled credits in the hope of gaining future business. Houlihan is more than capable of this, but as a dedicated restructuring practice, showed again in 2011 that it remains the firm to call for its in-depth creditor knowledge when a significant problem requires unblocking.
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