Making it better
At a time of pretty easy credit, restructurings were relatively rare beasts in 2013. Houlihan Lokey managed to stay busy regardless, winning significant new mandates and providing both debtors and creditors with innovative solutions across multiple jurisdictions to become IFR’s Restructuring Adviser of the Year.
Already known as one of the best creditor-side restructuring advisers, Houlihan Lokey burnished its considerable reputation in 2013 by producing stellar outcomes with a leading role on company-side assignments in large and complicated cases.
The Los Angeles-based firm showed its ability to manage situations around the globe, using its experience of how creditor negotiations are carried out in the shadow of bankruptcy in different legal jurisdictions – leading to a successful year overall, at a time when easy refinancing put both fee pressure and shrinking deal flow in the way of the restructuring market.
“We have been fortunate this year,” said Houlihan managing director David Hilty. “We found our way on to every major US situation in some shape or form, whether advising a debtor or creditor. A number of our company assignments were large and multi-jurisdictional, and we spent a lot of time coming up with creative solutions to problems.”
At the top of Houlihan’s debtor-side list was Central European Distribution Corp, one of the largest vodka producers in the world, chaired by Russian billionaire Roustam Tariko. CEDC had no real assets in the US, but Houlihan advised the company to seek Chapter 11 bankruptcy reorganisation in the US after a carefully crafted pre-packaged plan was in place.
Secured bondholders were stripped of their collateral, mainly on operations in Russia and Poland, as a precaution to make sure no non-US proceedings were initiated that would render a US bankruptcy plan meaningless. The liens on the collateral were restored after the plan was implemented.
Even though the restructuring eliminated about US$665m of debt, it won approval from 99% of the holders of the company’s existing 2013 secured notes and 97% of the subordinated 2016 notes.
Holders of the 2016s received US$172m in cash, US$450m in new secured notes and US$200m in new convertible notes – equivalent to a nearly 84% recovery. The 2013 junior noteholders received a share of US$25m in cash and US$30m notes in Roust Trading notes, for a 35% recovery.
The deal was made significantly easier after Tariko’s private company Roust Trading – alongside a subsidiary of Alfa-Bank, controlled by fellow Russian billionaire Mikhail Fridman – put in new money during negotiations. This financing enabled Roust to take 100% of the new company’s resulting equity.
Houlihan took on a similar assignment in advising Kuwaiti fund Investment Dar on refinancing its US$3.7bn in debt without losing complete control of its assets. Overseen by David Preiser, senior managing director responsible for the firm’s expansion across Europe, the Middle East and Asia, the deal in effect ring-fenced luxury car maker Aston Martin from creditors.
Aston Martin, along with other trophy assets, was spun off into a new special purpose vehicle called Oasis, in which new third-party investors with Kuwaiti connections to Investment Dar retained an 85% stake. Creditors of the original fund accepted a 50% haircut on the debt in return for a 15% holding in Oasis. Rather than use the unfriendly local regime, the restructuring was carried out under Jersey law.
That was also the case with Arcapita, a Bahrain-based investment house. On this occasion Houlihan was advising the unsecured creditors’ committee. As with CEDC, Houlihan masterminded a comprehensive restructuring of the Bahraini company’s US$2.8bn debt under a US Chapter 11 process. Arcapita exited bankruptcy in September.
As part of the highly complex cross-border deal, Houlihan helped raise the first ever Sharia-compliant debtor-in-possession Chapter 11 financing from Fortress Credit Corporation. It also helped arrange exit financing provided by Goldman Sachs.
Back in the US, a significant domestic debtor-side deal was Gatehouse Media. Houlihan was able to keep this out of the bankruptcy courts by finding 81 creditors, who held US$1.2bn of the newspaper company’s debt, and convincing 100% of them to support a pre-packaged bankruptcy reorganisation.
“Even if it’s harder, it’s ultimately worth it to take a little more time at the front-end and find a consensual solution,” Hilty said. Helped in part by the strong financing markets, more US deals this year were able to avoid the cookie-cutter Chapter 11 treatment.
The sheer size of Houlihan’s restructuring practice almost requires that it has a large roster of deals to support it. And in a tight market for restructuring, Houlihan managed not only to keep its group together but to expand it. In addition to taking on new markets in Europe and Asia, it stepped up to advise the US government on a number of transactions.
Throughout 2013 the firm continued its work for the US in two primary areas. It is serving as financial adviser as the US Treasury exits the Troubled Asset Recovery Program’s Capital Purchase Program. Unwinding remaining TARP investments this year has been critical for both the remaining banks involved and the Treasury. The largest banks were quick to exit TARP, but many of the smallest financial institutions were unable to repay or refinance the debt.
Houlihan is also advising the Department of Energy in seven different situations to recover value where loans or grants have failed. So far it has taken three companies through the bankruptcy process on behalf of the DoE, including helping with the liquidation of Abound Solar, a Colorado-based solar company, and Beacon Power, a Massachusetts energy-storage firm.
On the other four, Houlihan’s work led to groundbreaking transactions, where for the first time a US government agency sold debt it owned through auction processes won by private sector investors.
A consortium led by Hong Kong billionaire Richard Li picked up hybrid-electric sports car maker Fisker Automotive after it went into Chapter 11 late in 2012. Li’s group did this by acquiring the DoE’s green-technology loan to Fisker at around 15% of par.
Elsewhere in the energy space, Houlihan advised first-lien lenders in ATP Oil & Gas in a complex transaction that ultimately saw these claims merge with US$800m of DIP financing. Together this group won control of ATP’s offshore assets from the US, UK, Netherlands and Israel, after a lowball M&A sale collapsed.
“We effectively had three separate restructuring processes going simultaneously,” said Houlihan managing director John-Paul Hanson.
The process, which saw clients sweep up some Gulf of Mexico assets in October, tees Houlihan up nicely for its role advising bondholders in Energy Future Holdings. The former TXU was bought out by KKR, TPG and Goldman Sachs for US$45bn at the peak of the leveraged buyout market in 2008.
Houlihan is also well positioned in Spain, which has long promised to be one of Europe’s most active restructuring jurisdictions.
Manuel Martinez-Fidalgo formally opened the firm’s Madrid practice at the beginning of the year. This year it closed on the refinancing of the complex €3bn debt pile accumulated by Spanish grocer Eroski. Also on the company side, Houlihan advised machinery rental business General Alquiler de Maquinaria on restructuring its €450m debts.
The firm has also won other significant mandates. It is advising an ad hoc committee of senior lenders to listed media giant Prisa, which has €3.2bn of debt, and a committee of noteholders in gaming company Codere’s ongoing US$1.3bn restructuring.
Houlihan also leads the way in shipping, advising a co-ordinating committee of lenders in the US$5.4bn restructuring of France’s CMA CGM, the world’s third-largest container ship operator, as well as bank creditors to Israeli shipping group Zim Integrated Finance, which has US$2.7bn to restructure.
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