Americas Restructuring Adviser
Old kids on the block: There are a few marquee restructuring advisers that the largest companies call on when they are in deep trouble. During the credit crisis, some of the biggest called on Evercore, which not only won the mandates but proved it could shepherd clients through restructuring with undeniably successful outcomes. Evercore is IFR’s Americas Restructuring Adviser of the Year.
No one would ever really mistake the principals of Evercore Partners’ restructuring group for new kids on any block. The co-heads of the group, Bill Repko and David Ying, have been building their reputations as go-to guys for troubled companies for 30 years. Evercore founder Roger Altman gave them the platform to work together, hiring Repko and Ying in 2005. Daniel Celentano joined in 2008.
In the wake of the Lehman Brothers collapse, the team would manage three of the largest restructuring assignments in history, including General Motors, CIT and LyondellBasell, quickly joining the roster of restructuring advisers capable of managing large complex restructurings.
Evercore’s restructuring group is focused on large companies with a view to providing “a full life-cycle set of advice to a company through good times and bad”, said Ying. He likens the complicated role of advising a company through a restructuring to being a quarterback.
“You get to call the plays, you dictate how the defence reacts, you have to orchestrate the offensive line and the receivers,” he said. “You are the driving force behind all these complicated transactions.”
Repko is the former chairman and head of the restructuring group at JP Morgan. He retired from JP Morgan in 2005 and is often referred to as “the best-known restructuring banker in America”. He began his restructuring career in 1980 doing workouts for Manufacturers Hanover Trust, which later became part of JP Morgan.
Ying was formerly a managing director at restructuring boutique Miller Buckfire before accepting an invitation from Altman to create a restructuring shop for Evercore. He began as an investment banker with Shearson and his career includes running restructuring groups at Smith Barney and Donaldson Lufkin & Jenrette.
Celentano joined Evercore from Bear Stearns after that firm was sold to JP Morgan. He began his career with Citibank in 1977. In 1986, he left Citibank for Oppenheimer-Palmieri and in 1988, joined Bear Stearns’ investment banking division, taking over the restructuring group in 1989.
At Bear, Celentano advised General Motors on the Delphi bankruptcy and as the company collapsed into bankruptcy GM stayed with Celentano and hired Evercore as its financial adviser. Repko, who had worked with GM on many auto-related financings, led the team working with GM.
Tough field
The competition to advise companies during the restructuring process has become intense and the field is shifting. There was a point when top assignments would automatically go to a few choice advisers. That field has opened wider than ever but few have been able to match what Evercore accomplished with CIT and LyondellBasell, enormous restructurings for companies at death’s door.
Both needed in excess of US$3bn, immediately. That would have been a tall order under any circumstance, but Evercore was tasked with finding financing for these companies when capital markets were effectively shut. In the case of CIT, Evercore joined with Houlihan Lokey, which was advising bondholders, to put together an emergency financing. For LyondellBasell, Evercore worked though the 2008 holiday season to put together financing, in the shadow of Lehman’s collapse.
As with almost any distressed company, the initial negotiating position of secured creditors that expect to be repaid in full is to suggest a liquidation. For Lyondell, one of the largest chemical producers in the US, a call for liquidation from banks with significant exposure to the company was more threatening than normal.
The critical nature of the chemical business demanded continued operation and necessarily the continued flow of cash to operate. Selling at that point was also not an option. Although Lyondell would eventually have to fight off a suitor in bankruptcy court, there was no white knight willing or able to write a multi-billion cheque without due diligence.
Evercore’s Lyondell team, led by Celentano, won investors over by using a roll-up feature to create what would be the largest debtor-in-possession financing loan ever. Under the proposed DIP structure, creditors with existing exposure to LyondellBasell would be allowed to roll up that existing debt into the new facility on a dollar-for-dollar basis.
For every dollar of new financing, creditors would essentially extend the protections of the priority-status loan to existing debt.
The US$8bn DIP comprised US$4.75bn in fresh capital including a US$1.5bn new money asset-backed revolver and a US$3.25bn term loan and US$3.25bn roll-up term loan.
As much as the financing was done in the shadow of Lehman Brothers, the DIP financing was done in the shadow of bankrupt auto parts supplier Delphi. Historically, DIP loans are repaid in cash in full upon exit from bankruptcy. Delphi’s inability to refinance its DIP loan trapped the parts maker in bankruptcy. The requirement to be paid in full gave DIP loan holders significant leverage.
Evercore designed LyondellBasell’s DIP to avoid the pitfall. The loan would not need 100% support of the roll-up lenders to exit bankruptcy. Needing to raise US$3.25bn to refinance the roll-up would have added another layer of complexity to meeting exit financing requirements. Evercore proposed, and for the first time the bankruptcy court agreed, to allow a portion of the DIP to be repaid with new notes.
More than 100 individuals representing 15 financial institutions came together in the week of December 29 2008 and participated in round the clock negotiations to get a deal in place. In the meantime, Citigroup stepped in with a US$100m emergency loan. Among the 15 institutions, Apollo Capital Management proved instrumental in helping to pull the company out of bankruptcy.
While the DIP was historic for its size and repayment features, investors insisted on the right to “review management”. Four months into the bankruptcy, the company had a new chief executive in James Gallogly, former executive vice-president of exploration and production at ConocoPhillips.
LyondellBasell was the result of a US$20bn leveraged buyout of Lyondell by Netherlands-based Basell AF, which was owned by Access Industries Holdings. The deal closed in December 2007 and the company filed for bankruptcy protection a year later. Unsecured creditors argued that the banks that backed the deal knew or should have known that the company could not carry the debt from the LBO.
Without it becoming an unwieldy distraction, Lyondell was able to settle a fraudulent-conveyance lawsuit launched by unsecured creditors for US$450m. Others have attempted to follow the model set by Lyondell with limited success.
The phenomenal result at Lyondell is only magnified by the context that Evercore was at that moment preparing General Motors for a bankruptcy the scope of which had never been seen.
While competitors have attempted to marginalise the role of the adviser in the GM bankruptcy, the precision of such a herculean effort required everyone to play their part.
“The ultimate deal that was done was the result of exploring many solutions from the fall of 2008 up until the company filed,” said Ying.
The same factors that forced a slew of chemical companies into bankruptcy protection dragged down Lyondell. A company of its size and resources should have been able to weather the storm but the sheer size of its debt load made that impossible. It had US$1.9bn of working capital financing, US$12.2bn of first lien bank debt and US$8bn of hung bridge loans related to Basell’s 2007 acquisition of the company. The bridge debt comprised of US$5.5bn second lien notes and U$2.5bn third lien notes.
The company filed Lyondell Chemical in the US but kept the global operations out of bankruptcy. The debt cut and held throughout the world had claims on international assets requiring a tight forbearance agreement to keep creditors in line.
Lyondell emerged from bankruptcy protection in April 2010 after 16 months. Global debt was reduced to US$7bn from US$25bn, essentially handing senior lenders the majority of the company’s equity for a 66.1% recovery. The US$300m 2027 unsecured Basell notes stayed in place based on their collateral.
The company emerged with more than US$5.5bn of new financing: a US$1.75bn ABL revolver; a €450m securitisation facility; US$500m of covenant-lite term loans and US$2.75bn of new secured notes. The company also raised US$2.8bn from a rights offering backed by Apollo, Ares Management and Access.
If Lyondell was a case study in how to manage a free-fall bankruptcy, CIT represented the other end of the spectrum. When large financial firms collapse into bankruptcy protection, conventional wisdom is that they die there. One of the largest challenges for advisers to CIT was convincing all the players that a deal could be done in bankruptcy court that would allow the company to survive.
CIT filed for bankruptcy protection on November 1, listing assets of US$70bn and debts of US$50bn, and exited on December 10. Through the process CIT shaved US$10.5bn in debt from its balance sheet, pushing out maturities on US$23bn in unsecured bond debt that was swapped for new second lien debt.
Evercore’s key roles in these mega-deals make it IFR’s US Restructuring Adviser of the Year.
Philip Scipio
