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Turnround Management Association Europe – Dedicated to Corporate Renewal

TMA Europe Annual Conference, Rome, Italy. 9-10 June 2016


Presentations & Keynotes


Lack of insolvency regimes for European SMEs hampers restructurings, investors seek Spanish-style scheme of arrangement

By Dawn Gocock, Legal Analyst, Debtwire


The lack of European insolvency regimes designed specifically for SMEs is hampering restructurings , according to several panellists at the annual TMA Conference held in Rome last week (9-10 June).

Although an increasing number of struggling companies have started to spin-off their good businesses to avoid bankruptcy proceedings, Spain’s “scheme of arrangement” – modelled on the UK’s pre-insolvency legal framework – is one of the most effective tools in Europe for dealing with ailing SMEs, noted a speaker at a panel focused on trends, techniques and tools for SME Debt Restructuring in the main Continental European jurisdictions.

“Germany’s rules for large companies are not handy for SMEs. For instance, a small company in trouble can wait only three weeks before filing for insolvency [due to the country’s 21 day liquidity law], which is definitely not enough to organise a turnaround plan,” a second panellist commented. “From 2003 to 2009, Germany faced a boom of mezzanine facilities, eventually refinanced with Mittelstand bonds, where the default rate is 20%. Now we’re expecting SME debt to be the next big thing in German restructuring.”

France has an arbitration process – conciliation - in which an administrator is appointed to represent troubled SMEs, both listed or family-owned businesses, a third panellist noted.

"France has a local approach,” the third panellist said. “Banks changed their way to deal with a company in need of restructuring and as a result the process to ask for court protection is more transparent. It’s not an expensive tool for SMEs. The 2005 reform introduced specialised commercial courts usually designed for large companies.”

“In Italy the so called concordato preventivo, a sort of Chapter 11, is a powerful tool,” a fourth speaker said. “However, the silent approval rule of the creditor, whereby a lender’s non-vote to a restructuring plan is equivalent to a positive vote was deleted in last summer’s reform. This could jeopardise a speedy process, coupled with lenders’ generally passive approach to restructuring.”

Finding buyers for restructured SMEs remains challenging across Europe, the third panellist added.

“With regards to SMEs, the main problem is the investor base,” he commented. “Apart from Apollo, Oaktree and the usual suspects, it’s difficult to find buyers focused on middle market.”


Greek myths, Italian struggles

Speakers on a panel covering European NPL resolution and banking system clean-up efforts noted that recent Greek reforms are targeting the build-up of a servicing market. The Troika-spurred liberalisation of the Greek NPL sector was designed to beef up the country’s servicing capacity to deal with an economic problem and not a banking problem, a fifth panellist noted.

“Greek banks weren’t prepared to handle non-performing assets. The NPL ratio in 1H16 is 50% of the total loans, while back in 2009 it was 6%,” the fifth panellist said. “Although banks in the country are well capitalised, a lack of data on borrowers’ history when due diligence takes place is a key issue to be tackled.”

The Bank of Greece has put forward NPL targets for each bank under its supervision to reduce stocks in terms of value and ratio, which means lenders will be required to publish data on restructuring and viability of their corporate loans. Where the measures are not implemented, the banks will face a supervisory impact, a sixth panellist pointed out.

“From a bank’s perspective, if a lender manages to sell an NPL portfolio the problem is solved, but on the other hand there’s a borrower in trouble which still needs to be restructured,” a seventh panellist said. Unsecured and secured NPLs require different approaches and stakeholders to deliver mutually beneficial transactions for buyers and sellers, he noted.

“For example, consumer loans need good collection agencies, commercial real estate is easier to dispose of if the properties are already being rented and mortgages are usually a politically sensible matter,” he added. “SMEs is where the biggest price gaps lie, hence the political courage to set up an industrial policy is required.”

In Italy recently set up funds to deal with problem loans Atlante (Atlas) and Pillarstone are being closely scrutinised by other countries to potentially import the model to deal with their ownNPL burdened banking systems, speakers said.


“Atlas [an Italian private-public EUR 4.25bn fund] was a wise solution, but its priority is to guarantee Banca Popolare di Vicenza and Veneto Banca’scash calls,” an eighth panellist noted. “Predictability of the law is key, nobody wants to sell ahead of the implementation of new instruments like Atlante or Pillarstone Italy.”

However panellists criticised the ECB’s handling of the bail-in of four second tier Italian banks -Carife, Banca Etruria, Banca Marche and Carichieti - under extraordinary administration.

“Despite its comprehensive assessment of Italian banks in 2014 highlighting a EUR 10bn capital shortage, the ECB evaluated the four banks’ NPLs as below the Italian average. In other words we had a different assessment by the regulator on the same asset class,” a ninth panellist pointed out. “The Italian NPL coverage ratio stands at 60% with outstanding NPLs totalling EUR 83bn, whereas the firepower ofPillarstone Italy and other funds such as Idea Capital – HIG is only equal to EUR 1.5bn. There is a reason the Italian NPL pile is still there.”

TMA Europe 2016 Turnaround of the Year Awards

Two outstanding examples of turnaround management have been recognised by the European body dedicated to corporate renewal.

The winners of TMA Europe’s annual Turnaround of the Year awards were announced at its annual conference earlier this month as Freshfields Bruckhaus Deringer for its turnover of a large company and Rcapital for its turnover of a small company.

The awards, which are now in their fifth year, aim to celebrate the achievements of the individual or team of TMA turnaround professionals who have orchestrated the most successful recovery of a struggling company. Submissions are assessed on the actions taken to bring around the turnaround, the issues that arose and how they were overcome, as well as the eventual outcome. The small company category is for companies whose revenue at the onset of the turnaround was less than 100 million Euros, and the large company category is for companies whose revenue at the onset of the turnaround was more than 100 million Euros.

David Bryan, TMA Europe's Financial Director, who sat on the judging panel, said: "Both these cases are outstanding examples of what can be achieved by determined and hard-working turnaround management teams. Although the two cases are very different, what is clear from both is how with some innovative thinking, and decisive and quick action, businesses in real distress can be rescued and transformed into viable and profitable concerns. Congratulations to the two teams involved who are very worthy winners of our annual awards."

Large Company Rescue - Freshfields Bruckhaus Deringer LLP

Jukka Pekka Joensuu presenting the Large Company award to Iñaki Gabilondo and Jesús López Bragado

The winning large company turnaround saw a team from Freshfields working against the odds to  prevent Pescanova, the largest fishing company in Europe, from going into liquidation. The Spanish-based multinational, which had 80 subsidiaries operating across 27 countries with more than 12,000 employees, filed for insolvency in April 2013 with extensive debt issues, prompting a group of seven lenders to appoint Freshfields to work on its behalf to prevent Pescanova's liquidation. The team, after establishing that a significant portion of the debt had recourse to the Spanish parent company and 12 of its Spanish operating subsidiaries, decided that an unprecedented group restructuring within the framework of Spanish insolvency proceedings was the best course of action. A Composition Agreement and rescheduling of debt was approved for the parent company, and each of its Spanish subsidiaries, which were then merged into the parent company to consolidate the debt. The business was then segregated to create a new company, Nueva Pescanova, which received the assets and the restructured debt. A capital increase followed to give creditors access to a large percentage of the share capital of the new company. The successful - and groundbreaking - turnaround ensured compulsory lay-offs were largely avoided and salaries were paid. The company is now a viable business and well positioned to be profitable again in the near future.

Iñaki Gabilondo, Partner at Freshfields and lead advisor on Pescanova, said: "We are delighted to be receiving this award. The deal was certainly complex, having to address a huge amount of debt, fraudulent accounting practices and a number of intricate corporate, finance, tax, insolvency and criminal law issues in various jurisdictions. It was a real challenge that required innovative solutions and truly put our team to the test. We are very proud of the successful resolution. An opportunity to take on a transaction like this does not present itself every day and it was an honour to work on this with all stakeholders involved."

Small Company rescue Rcapital Partners LLP

Jukka- Pekka Joensuu presenting the Small Company award to Phil Emmerson & Chris Campbell

The small company case involved private investor Rcapital's transformation of the retail proposition of the Rolling Luggage business in just 12 months. The Rolling Luggage brand was part of the Tie Rack group, which Rcapital acquired in September 2013, following significant losses over a number of years. Rcapital identified an opportunity to untangle Rolling Luggage, which had continued to operate successfully from airports globally, from the terminally distressed Tie Rack group. The turnaround saw a new management team introduced, costs significantly reduced and an overhaul of the retail estate, leading to a seven-year lease deal being agreed with Heathrow Airport in late 2014. Following a period of intense operational and financial restructuring in February 2015 Rolling Luggage was sold to Samsonite, the world's largest luggage brand, for £15.7m.

Jamie Constable, CEO of Rcapital, said: "I am incredibly proud to accept this award on behalf of the Rcapital team and those involved in the turnaround. The success of this investment can be attributed to the winning combination of restructuring and retail skill, teamwork, energy and sheer tenacity throughout a very challenging period."

Entries for the Turnaround of the Year Awards 2017 will open early next year.

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