“Restructuring is about how you make lemonade out of lemons,” said Tim Coleman, head of the restructuring and special situations group at PJT Partners. The crucial part is keeping warring creditors from destroying the lemons – or breaking the jug.
In another relatively quiet year for restructuring, PJT was ranked at the top of the list for closed assignments owing to the firm’s determination to push transactions over the finish line, getting the best result for all parties involved.
It was honest broker in significant deals in energy, gaming and banking as well as the municipal space.
One of the best examples of PJT’s skills was the speed with which it moved Arch Coal through the bankruptcy process in less than nine months.
“So much of a company’s success in managing the process is who they align with from a financial advisory standpoint,” said John Drexler, chief financial officer at Arch Coal.
The ongoing collapse of coal prices pushed some of the largest and strongest producers over the edge in 2016. PJT’s deep sector experience made it well prepared to advise Arch. Initially, the firm worked on a distressed debt exchange for Arch but the continuing fall in prices made that unworkable.
When Arch filed for bankruptcy protection in January it had plenty of company. Rivals to follow suit included Peabody Energy, Alpha Natural Resources, repeat offender Patriot Coal and Walter Energy, which PJT also advised.
“When we started the case we told the judge it was our goal to emerge from bankruptcy protection in September,” said PJT partner Mark Buschmann.
The firm was determined to drive the process and that meant keeping creditors engaged and willing to negotiate.
“From the time we filed bankruptcy to the time we reached a consensual resolution between the secured lenders and the unsecured parties, the entirety of the focus was to get us in position to allow those groups to arrive at a consensual agreement,” Drexler said.
That put PJT in the middle as the honest broker closing the gap between the two groups. When PJT put the creditors in a room to hammer out a final agreement it was risky but it paid off. An agreement was struck in July allowing Arch to eliminate US$4.8bn in debt.
The spot price of the metallurgical coal that Arch mines was US$70 per tonne when the company filed. The company emerged from bankruptcy protection in October. By November the price of met coal had surged above US$300 per tonne.
“So this has all been a significant incremental value for us,” Drexler said. “Despite the fact that we’ve seen this type of market recovery, without a restructuring it still would have been incredibly difficult to support the US$5bn debt load.”
PJT was also able to complete a 35-day pre-packaged bankruptcy reorganisation for Halcon Resources. The energy company had 15 creditor classes – including first, second and third-lien bank debt – but cashflow too weak to service the debts.
PJT was able to reinstate the second lien and renegotiate with the third-lien holders and other categories of unsecured creditors to get value down to the equity. “It was not an easy negotiation,” Coleman said. “But we got the votes.”
Another innovative deal saw PJT advise insurer MBIA on its position in Puerto Rico, as the commonwealth succumbed to a US$70bn debt crisis. The firm took a leading role restructuring the state power utility’s debt, creating a template for a larger restructuring of the island’s liabilities.
Winning over private equity
A key element of PJT’s success this year was that since it was no longer part of Blackstone, it was now able to advise other alternative investors more freely in their restructurings. Even under the Blackstone umbrella, the practice was strong enough to be able to pick up some prized mandates.
It is advising Apollo and TPG, for example, in casino group Caesars Entertainment’s restructuring. That long-running case may finally close if a novel approach advocated by PJT to turn Caesars Entertainment Operating Co into a real estate investment trust wins approval.
“This was one of the last pre-crisis LBOs – Apollo and TPG will retain a sizable equity interest in the company – an equity interest that probably was not worth anything before the restructuring,” said PJT partner Steve Zelin.
And in Energy Future Holding – formerly TXU – PJT was engaged by KKR and TPG, even though at the time it was still part of Blackstone, which through its GSO Capital credit investment arm was a creditor in the case, opposed to the interests of KKR and TPG.
“It was monumental for us to advise KKR,” Coleman said. “We were told that we could never win them as a client.”
Now freed from potential conflicts of interest, PJT has been successful in building its financial sponsor business, advising private equity sponsors such as Bain, Carlyle, Charterhouse, TDR and Terra Firma, and their portfolio businesses, including Verso, Ascent, CHC and Key Energy.
Progress on this front has been particularly noticeable in Europe, where the firm has advised SDC Investimentos on its US$1.4bn restructuring, shareholders of Tirreno Power on its US$1bn situation in Italy and Norway’s Prosafe on its US$700m workout, all of which have closed.
“The team here is busier than ever with 16 new announced mandates in EMEA in 2016, as we continue to ramp up the business post spin-out from Blackstone,” said Tom Campbell, a partner in PJT’s EMEA restructuring and special situations business.
“Now we are no longer in Blackstone our private equity business will continue to grow.”
Other new mandates include advising Nigerian oil producer Afren on its US$1.5bn restructuring, storage business Algeco Scotsman on its US$3.7bn situation, Kenya Airways on its US$2.5bn debt reprofiling and German retailer Jack Wolfskin, backed by Blackstone, on its US$365m restructuring.
All these are company-side mandates. It also has creditor roles at Russia’s Brunswick Rail, retailer Edcon in South Africa, UK care home operator Four Seasons, Greek drinks cooler business Frigoglass, Spanish energy developer Isolux Corsan and Ukrainian steel producer Metinvest.
One significant deal where PJT’s advice made a difference in unpicking a stuck restructuring situation was in Iceland, where the firm was engaged last year by creditors of one of the country’s failed banks, Kaupthing.
Until PJT became involved, creditors of all three of the country’s main banks – negotiating with the Icelandic government to lift capital controls, and so release their claims – had decided to act together in these talks.
That situation changed when PJT came on board for Kaupthing’s creditors, recognising that their US$14.7bn of assets were differently positioned from the other two sets, linked with Landsbanki and Glitnir.
Most of these assets were already “offshore”, related to non-Icelandic borrowings and only nominally held in Iceland. Reclaiming them, PJT argued, should not have a dramatic effect on the country’s balance of payments.
PJT’s persuasion helped convince the failed bank’s winding up committee as well as the Icelandic government to accelerate progress on unlocking the substantial monies. This was one of the firm’s biggest completed deals of the year.
“This deal took six years to be solved,” Coleman said. “We were the first of three banks to do a deal. That changed the dynamic.”
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