Insights – Key takeaways on Rescue Financing from 6th Annual Legal Era Insolvency Summit 2021
An engaging and insightful panel discussion on “Rescue Financing” at the Legal Era 6th Annual Insolvency Summit 2021 held on 8 October 2021.
DHC Capital Partner, David Chew participated on a panel discussion with panel members Jyoti A Singh (Founder, AJA Legal and Associates), Pooja Mahajan (Managing Partner, Chandhiok & Mahajan) and Kumar Saurabh Singh (Partner, Khaitan & Co). The panel was moderated by Nitin Jain (Partner, EY India).
Key takeaways from the panel discussion:
Key factors to be considered by distressed investors when assessing rescue financing opportunities:
Viable business post restructuring. Understand what went wrong, business plan, path to profitability and cash flows
Debt structure. Type of debt (bilateral loans, syndicated loans, bonds, institutional or retail) and structure (onshore vs offshore)
Industry dynamics. Is the company relevant? Does it need to be around? Does it have real a differentiated product?
Valuation dynamics and investment entry point. Assess going concern and liquidation value and where value breaks in the capital structure. Assess investment entry point options and whether the best entry point is buying secondary debt in the fulcrum security as part of loan to own strategy, distressed M&A to acquire pre-insolvency, white knight investment or wait for insolvency sale
Downside protection
Illustrated the key factors based on recent cases, Pacific International Lines (Pte) Ltd (click here for more information) and Viking Offshore and Marine Ltd (SGX: 1Y1) (click here for more information)
Investor priorities in the risk-reward matrix when extending rescue financing to a distressed borrower
Managing the downside via security over hard assets in jurisdictions where enforcement is predictable and bespoke structuring such as use of covenants, limitations on use of funds and cash reserve accounts
Use of warrants and/or equity to capture upside and maximise returns
Elements needed to develop a vibrant rescue financing market
Legal infrastructure in place (e.g. super priority status)
Lenders willing to sell at discount or take write offs when value is impaired or out of the money
Corporates taking early action to restructure or raise new capital
Special thanks to Legal Era-Legal Media Group for hosting the virtual event.
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