Proactive Restructuring, Values Preserved

What to do when earnings fall, liquidity becomes scarce and existing investors say no?

In crises such as COVID-19, the first priority is to ensure the company’s liquidity by taking advantage of all aid programmes and by securing promotional and guarantee loans. However, falling earnings and cash flows and weak liquidity also require rapid operational and financial restructuring to make the company weatherproof in the long term.

While the basis of a restructuring is of course always a solid operational restructuring concept, the existing capital structure must be adapted to future cash flows with the same high priority. Refinancing/rescheduling of debt and the sale of non-strategic or non-operational assets are often essential elements in this process.

Dissolve blockade with a clear concept for restructuring

Although a good operational concept often exists, unfortunately many companies slide into insolvency despite good approaches because they cannot (or not fast enough) explain to stakeholders what the concept means for them financially and what their specific benefit will be after its implementation.

In more complex cases, a financial restructuring concept depicting the cash flows and values throughout the restructuring phase and thereafter across the various financing instruments and capital providers is required. The concept clarifies to all stakeholders the consequences of the restructuring for their own values and the associated opportunities and risks. A consensus can only be reached if this is done professionally, i.e. if each stakeholder knows his options and perspectives.

The capital structure must be adapted as best as possible to the new cash flow patterns in the crisis. In this way, insolvency can be avoided, values preserved, and the success of the company secured.

Capitalmind case study Wohnbau Mainz

Clear restructuring concept, debt payback via sale of non-core assets and subsidiaries, refinancing via syndicated loan

Due to inefficient operating structures, excursions into risky project development and a barely manageable complexity of bilateral loan agreements and special purpose companies, the residential real estate company of the City of Mainz was plunged into an earnings and liquidity crisis with dimensions threatening its existence. We were given the mandate to develop and implement a concept for the financial restructuring of their approximately € 1bn million balance sheet.

Standstill agreement and restructuring agreement negotiated

Following our appointment, we worked with the CRO and the operational restructuring advisors to develop a viable restructuring concept for the shareholders’ meeting and the creditors’ committee, within a few weeks. The concept detailed and clarified the rating and valuation consequences of all structural and operational measures as well as the sale of assets proposed by us for the individual stakeholders.

On this basis, we were first able to conclude a standstill agreement with the lenders and then based on an IBR (IDW S6 expert opinion) we were able to negotiate a restructuring agreement with all parties.

Conversion and refinancing in syndicated loan for Wohnbau

The agreed sales and cost-cutting measures were implemented, thereby improving the debt capacity and debt service capacity of Wohnbau Mainz.

The company was split up into a stable residential construction company with an investment grade rating and a rather risky project development company. Non-strategic property portfolios were sold. The proceeds were used to reduce debt and to renegotiate over 80 bilateral and cross collateralized loans that were ultimately bundled into a syndicated loan.

Solidly positioned after successful financial restructuring

Today Wohnbau Mainz is once again a solidly positioned company with a stable and sustainable financing structure. The value of the company has been maintained for the shareholders and creditors. An insolvency and thus a massive destruction of value was avoided.

Capitalmind has successfully accompanied more than 60 financial restructurings over the last decade

Capitalmind, has been assisting its clients in such complex refinancing and restructuring transactions for over 15 years. We know the objectives of all stakeholders well, having successfully solved cases for companies and their shareholders as well as for banks and other creditors. In over 90% of cases, on whichever side, we have been able to reach a consensus between these groups on the necessary restructuring measures.

Core competences, company valuation, rating, financial modeling, capital raising and Selling companies

Our core competencies include financial modelling, rating analysis and company valuation as well as the preparation of internal committee documents for banks/creditor pools and shareholder/supervisory bodies. We develop a conclusive debt and equity story for existing creditors and new debt and equity investors.

We subsequently implement the measures, negotiate restructuring agreements and raise capital. We support you in the sale of subsidiaries and non-strategic business units through restructurings which are advised in close cooperation between our global sector teams and our capital advisory groups.

Ervin Schellenberg
Ervin Schellenberg
Managing Partner
Germany
Thorsten Gladiator
Thorsten Gladiator
Partner
Germany