Deloitte Debt & Capital Advisory

Transcription

1 Deloitte Debt & Capital Advisory Presentation to Enterprise Ireland November 2014

2 Debt Advisory Independent financing advice Agenda Introductions 3 Page David Martin Director Office: Mobile: davidmartin1@deloitte.ie What We Do For Our Clients 5 Case Study of Recent Transaction, Signs of a cash crises and Types of Insolvencies Overview of Bank and Capital Markets 14 8 Breandán O Callarán Senior Manager Office: Mobile: bocallaran@deloitte.ie Q&A 24 Gordon Naughton Manager Office: Mobile: gnaughton@deloitte.ie 2

3 Introduction

4 Deloitte Debt & Capital Advisory A team with significant Corporate Finance and Banking experience David Martin Breandán O Callarán Gordon Naughton Director Debt & Capital Advisory T: M: E: davidmartin1@deloitte.ie David Martin is a Director in the Corporate Finance Advisory Services Division of Deloitte, having joined the firm in March Prior to joining Deloitte, David was with Bank of Ireland for 8 years working in Business and Corporate Banking s. David is a Fellow of the Institute of Chartered Accountants in Ireland. David originated, structured and managed numerous debt facilities on a bilateral, club and syndicated basis across a wide range of trading sectors including hospitality & leisure, real estate, healthcare, medical devices, beverage and software sectors. Since joining Deloitte David has worked on a number Central Bank of Ireland assignments and is currently advising a number of companies across a broad range of sectors including hospitality, manufacturing as well as working as a coach for the Deloitte Best Managed Companies Awards. Senior Manager Debt & Capital Advisory T: M: E:bocallaran@deloitte.ie Breandán Ó Callarán is a Senior Manager in Corporate Finance Debt Advisory in Deloitte, having joined in July Prior to joining Deloitte, Breandán spent six years in Bank of Ireland Corporate Banking, managing banking relationships for a large number of mid-market and SME companies across a broad range of industries and sectors, including; construction, retail, food & beverage, hospitality & leisure and healthcare. Breandán is a member of the Institute of Chartered Accountants in Ireland (ACA), the Association of Chartered Certified Accountants in Ireland (ACCA) and of the Institute of Bankers in Ireland. 4 Manager Debt & Capital Advisory T: M: E: gnaughton@deloitte.ie Gordon joined Deloitte in 2013 and is a Manager in Debt and Capital Advisory team. Gordon is a member of the Institute of Chartered Accountants in Ireland (ACA) and of the Institute of Bankers in Ireland. Prior to joining Deloitte, Gordon spent six years with AIB in both business and corporate banking specialising in the SME market. He previously worked for PwC for four years.

5 What We Do For Our Clients

6 How we can assist you Providing solutions Typical Issues How Deloitte can help Strong underlying cash-flows: Unsustainable property debt overhang Strong growth prospects: Insufficient equity input/ over reliance on bank funding Separating the property debt from the business to provide a viable lending proposition for the existing or new Bank. Work with client to develop a viable lending proposition that has the flexibility to introduce junior debt and/or equity to part fund the expansion funding e.g. (NPRF / HNW). Strong EBITDA generation: Poor cash-flow management Work with the client in understanding their cash-flow requirements, improve cash-flow management, and recommend appropriate funding structure. Strong business: Poor MI provided to bank Potential new to bank customer: Existing loans acquired by a loan acquirer Existing Client: Covenant Breach Good Business: Little or no visibility on succession/exit Plan Work with client to provide appropriate MI, that in turn will support a viable lending proposition. Negotiate with the loan acquirer on the Borrowers behalf in determining an exit price, and managing the exit process from incumbent bank to new lenders. Work with client in determining why covenant breach occurred and create options report to include potential actions to include additional equity, security, margin, deleveraging, refinancing etc. Together with our in-house experts (M&A, tax, etc.), work with the client in determining an efficient exit mechanism that makes sense for owners and other key stakeholders. 6

7 How we can assist you Providing solutions Typical Issues How Deloitte can help Strong underlying cash-flows Inefficient / unsuitable borrowing structure Work with client in understanding their requirements and also work with our tax advisers to determine the most efficient and appropriate borrowing structure. Potential new to Bank customer Multi Banked Work with client and senior lenders in either ring-fencing particular assets and cash-flows or putting in place inter-creditor agreement. Balance Sheet - Cash-flow Lend Demonstrate whether a business can generate the relevant cash-flows to sustain debt (it shouldn t be just based on the underlying collateral i.e. it should be a cash-flow lend). 7

8 Case Studies of Recent Transactions, Signs of a cash crises and Types of Insolvencies

9 Deloitte Debt Advisory Case Studies Deloitte was approached by the owners of an Irish Exporting Company ( the Company ) with a view to restructuring its underlying capital structure. Although trading was affected by the global downturn, the Company continued to generate EBITDA of 2.3m p.a. The Company has good growth prospects and a strong management team. However, the owners are personally liable for c. 13m of debt against assets valued at 7m. Deloitte engaged with the incumbent Bank and are finalising a debt settlement agreement that includes asset disposals and a refinancing of the company with a new lender. The new lender has agreed to leverage the Company at c.4x EBITDA, which through projected uplift in trading coupled with aggressive debt payments will delever to c.2x in The proposed settlement protects employment at the Company, provides the incumbent Bank with a recovery in excess of that which could be achieved in an enforcement scenario and provides financial certainty for the promoters/ owners. Irish Export Company 9

10 Deloitte Debt Advisory A selection of our credentials High Net Worth Individual Debt refinancing and debt advisory services to Oliver Plunkett GAA Club Debt refinancing and debt advisory services to Russell Court Hotel Financial advisor for the raising of new debt finance to acquire commercial properties Commercial and Tax Advice on the development of a Fibre Optic Cable Business 0.250m Ireland m Ireland m Ireland m Ireland 2010 Discounted debt purchase from Ulster Bank and acquisition of majority stake to the City Bin company Debt refinancing and debt advisory services to the LED Group Settlement of debt facilities with existing lender, incorporating a refinance with new lender Business Modelling and Financial Advisory Services for funding of Biomass Gasification Facility 6m Ireland m Ireland m Ireland m Ireland

11 Early warning signs of a Cash Crisis Key Indicators INDICATOR SHORT TERM RESULT LONG TERM OUTCOME Over reliance on Bank Overdraft or over-reached facilities Incur high fees due to constant use of overdraft and high costs associated with exceeding agreed facilities Bank ceases to provide O/D facility in future Bank demands immediate payment of outstanding amounts Day to day running of the business becomes impossible Increase in Payable Days Increase in Receivable Days Loss of supplier discount Inadequate liquidity & health ratios Acid Test ratio below 1:1 Current ratio below 2:1 Interest Cover below 1 Suppliers will discontinue supplying company and trading will become impossible Breach of bank covenants; bank has righto demand immediate payment of outstanding facilities Receiver appointed in worst case scenario Unbudgeted/ unexpected Sales decrease or static sales Increase in inventory days - Build up of stock Incur costs associated with storing stock & stock becoming obsolesce Liquidity decreases and relevant ratios effected Operating Profit /EBITDA decreases Possible loss of debt & equity funding 11

12 Types of Insolvencies Type Key Details Irish Examples Examinership A mechanism for the rescue and return Eircom to health of an ailing but potentially 54 days in viable business. Examinership Examiner is appointed to scrutinise 1.8bn debt reduction company s affairs and to formulate Also B&Q and proposals for a compromise between Pamela Scott. companies stakeholders. Reports to Court within days. Protection of Court during this time. Management & Directors remain in control of the company. Receivership A debenture holder appoints a Receiver over a company who is actively realising and receiving its assets and/or managing its affairs in the hope that debts outstanding to the debenture holder can be met. Best Case scenario; All debts are paid/ agreement is reached with debenture holder company s status returns to normal. Worst Case scenario; No satisfactory arrangement is reached and company enters liquidation. Greenstar 18months in receivership Sold to Cerberus Capital Management US P.E firm Debt restructured and now trading normally. 12

13 Types of Insolvencies continued Type Key Details Irish Examples Pre-pack Receivership Same concept as full Receiverships Cleary s SuperQuinn however prior to formal appointment of the Receiver, a purchaser is identified and terms of sale are agreed for assets Company bought by Musgrave Group plc in 2011 in question. Remaining assets in Remaining stores business are left to unsecured creditors. became SuperValu in Less costly and no diminution in asset value as Goodwill remains intact Liquidation Liquidator is appointed by the High Court on foot of a petition to wind up company made by a director, creditor, shareholder or the company itself. Creditors can voluntarily decide to wind up company if insolvent; Creditors Voluntary Liquidation. Setanta Insurance Ireland Creditors Voluntary Liquidation Ongoing. 13

14 Overview of Bank and Capital Markets in Ireland

15 Irish Lending Market Overview Competing Banks Divesting Banks Portfolio Acquirers Lending Funds and Private Equity 15

16 Divesting Bank Overview The manner in which Banks are addressing their non-performing Loans and exit from the Irish Banking market varies significantly. Loan sales have seen significant investor appetite leading to further tranches. Lender Key attributes Loan sales completed Pipeline BOI Policy of no debt forgiveness Shelbourne Hotel Capital Collection- Irish Retail & Office properties UB/RBS Non performing loans are been dealt with through settlements and loan sales Project Elliot Project Achill (Pool A-E); Project Aran; Project Nadal Anglo/IBRC In liquidation through the Special Liquidator. Some residual borrowers remaining not sold as part of loan sales. Project Stone (TR. 1,2,4,6,7,8) ; Project Rock & Salt; Project Evergreen (TR. 1, 9, 14); Project Sand; Project Pebble Project Quartz (Stone); Project Amber (Evergreen); Project Pearl BOSI/Certus/ Lloyds The book is being wound down. No new lending. 75 St. Stephens Green; Project Pittsburgh; Project Phoenix; Project Lane; Project Prince; Project Pert Project Paris; Project Parasol; Project Spectrum; Project Cherry ACC The book is being wound down. No new lending. n/a n/a PTSB The book is being wound down. n/a Irish CRE portfolio; Project Springboard AIB The book is being wound down Project Kildare n/a NAMA The book is being wound down. Project Holly; Project Club; Project Spring; Project Tower; project Aspen Project Cherry; Project Parks; Project Venue Danske Bank The book is being wound down. Exit from Irish Market Project Circle; Project Arc (ongoing) Project Cherry; Project Griffin 16

17 Competing Banks Overview New lending in Ireland varies depending on the Bank, the company size and the sector. Focus is on cash generation rather than asset values. New lending has become more accessible over the last 2 years with BOI establishing New Business teams at Corporate and Business Banking levels. UB s appetite is limited to certain sectors. Where available, typical lending criteria to the mid corporate/sme market includes: Composite debenture with full cross guarantee structure; 3-5 year term; Debt amortises over the term with very little refinance risk on maturity; Max senior debt c. 3.0x 3.5x EBITDA with interest cover > 3x; and; Senior priced at circa 3.5%+ with arrangement fees, however margins are tightening. Banks will lend against property, but property must be income generating with a strong lease. Typical lending criteria is: 50% to 65% loan to current market value; Greater than 2 times interest cover; Surplus income is used to amortise debt; AIB Lending at c.3x to 3.5x EBITDA multiples and restricted term. Anecdotal evidence of providing longer term facilities. Actively seeking new lending opportunities. Focus is on trading businesses and residential mortgages. BOI Lending at c.3x to 3.5x EBITDA multiples and restricted term. Actively seeking new lending opportunities. Focus is on trading businesses. UB/RBS Limited lending to the corporate and semi state market, and to the mid corporate/sme market. Little appetite for property lending. Barclays Lending to the Irish large corporate and limited investment property deals. Close Brothers Specialist in leasing and invoice discounting. Looking to expand in the Republic. Rabo Bank Appetite for new lending into Food & Agri sector. HSBC Limited appetite for new lending in Ireland. Term is 5 to 7 years but amortisation profile is based on a 15 to 20 year period. Banks are viewing lending as part of an overall relationship i.e. no longer a standalone product. The potential for other income streams is considered key to getting approval for the debt facilities e.g. deposits, cash collections, foreign exchange etc. 17

18 Relationship Banking Borrower and Lender have their own set of objectives however a strong working relationship is based on finding the common ground Borrower Stability and certainty Access to funding / credit lines Quick decision making process and access to decision makers Funding package that reflects the profile of the business Leaves management get on with running the business i.e. no onerous conditions Will work with management if the business underperforms Lender Stability and certainty Good quality information Full banking relationship to maximise overall share of wallet Clear repayment strategy If the company is stressed clear exit strategy that demonstrates why existing management are best placed to maximise the Banks recovery Minimise losses and timeframe to exit Key Considerations No surprises! Provide relevant financial information Provide solutions 18

19 Strategic Banking Corporation of Ireland A recent boast to the Irish SME Lending Market Key Details The Strategic Banking Corporation of Ireland ( SBCI ) was established by the Government in May 2014 and incorporated as a company in September Tranche 1: 150m provided by German Development Bank KFW 650m provided by EIB and ISIF It s core purpose is to improve funding mechanisms and access to finance for Irish SMEs. Tranche 1 (consisting of 800m in loans ) will be made available primarily from: the Ireland Strategic Investment Fund ( ISIF ); the European Investment Bank ( EIB ); and the German Development Bank KFW ( KFW ). Under the scheme, existing retail banks will borrow from the SBCI (who will have a lower cost of funding) and will then lend to SMEs. The banks must demonstrate that the lower cost of their sourcing the funds is passed on to SMEs, in order to avoid a serious breach of European state-aid rules. The banks will be responsible for accessing SME s borrowing proposals and will hold that risk. Long Term, the legislation establishing the scheme will facilitate up to 4bn in lending if there is sufficient appetite. Source: Footer 19

20 Strategic Banking Corporation of Ireland Key Criteria Key Criteria to Qualify for an SME Loan SBCI loans will be available to full range of SMEs, from micro one person enterprises to medium sized businesses. SMEs defined using the Europeans Commission s definition; Enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50m and/or an annual balance sheet total not exceeding 43m. According to the new definition; An enterprise is any entity engaged in an economic activity, irrespective of its legal form. Thus, the self-employed, family firms, partnerships and associations regularly engaged in an economic activity may be considered as enterprises. It is the economic activity that is the determining factor, not the legal form. No information at present on whether certain industries are excluded. SCBI have listed the following beneficiary industries; Hospitality, Professional services, Agriculture, Manufacturing and recent start-ups. Key Characteristics of the Loans: Offering; Long Term working capital and capital investment finance Reduced funding costs Extended repayment holiday/ payment flexibility Longer repayment term/longer maturities A single SME can borrow up to 4million Case Study Example 1 Family owned restaurant Requires: Loan of 30,000 to rollout deliver service and upgrade computer system. Traditional Bank: Payback must start immediately over 24 months. SBCI: Repayment holiday for 1 year then payback is arranged over the following 2 years. Case Study Example 2 Letterkenny Legal Firm Requires: Loan of 15,000 to invest in new computer system which has yearly maintenance costs. Traditional Bank: Full loan given now and payback must start immediately over 18 months. SBCI: Loan is offered over 6 years to match life of investment. Footer 20

21 Lending Funds and Private Equity Increasing number of domestic and foreign funds looking to fund Irish companies. Funds will invest through equity, mezzanine debt and senior debt. Investment is typically IRR driven however some funds are prepared to take a longer term view. Selected Providers Offering Targets/Strategies NPRF Funds: Bluebay Carlyle Cardinal Group BDO Development Capital Fund MML Senior/Mezzanine/Uni-tranche. Equity. Equity/Bridging Underwrite. Performing trading businesses. Promote M&A and growth strategies. Stressed and distressed businesses. PE Firms: Avoca / KKR QED Broadhaven Equity Capital Partners Proventus LDC Starwood Earlsfort Capital Partners Full capital stack. Will look to fund performing and stressed businesses. Preference for performing businesses is to enter the capital stack at a mezzanine and/or equity level. Preference for stressed business is to acquire debt on a loan to own basis. 21

22 Raising Funds < 1million in Ireland Microfinance, HNWI, VC funds, Enterprise Ireland Selected Providers Offering Targets/Strategies Microfinance Ireland Offer loans between 2,000 and 25,000 at 8.8% fixed APR Enterprise turnover below 2m and fewer than 10 employees TaxAssist Accountants Castlemine Farm Lilliput Loaf Company High Net Worth Individuals/ Angel Investors Angel Investors Funding and/or mentorship in return for an equity stake in the business Currently 70m is invested by HNWIs in Ireland The Business Angel Partnership have invested 71m to date average 180k Recent investments by HNWI include; Yellow Schedule OnePageCRM CurrencyFair Investment by Victor Treacy (HNWI) in Carlow Brewery Company Venture Capital funds Delta - 250m under management Kernel 173m raised to date ACT - 350m invested to date Frontline ventures Enterprise Equity Enterprise Ireland Range of funding options for SMEs including grants to; grow your business; engage in R&D; and develop your Management Team Hybird Energy Sport Authority Eventovate Game Boxfish Veronica s snacks VistaMed Treemetrics ProFlame 22

23 SME alternative finance Lender Target borrower Funding level Product types Target sectors Bibby Financial Services Ireland Businesses who have given up on their banks 60m fund set up in January 2014 Invoice Finance Invoice Discounting Export Finance Trade Finance Bad Debt Protection New Start Business Finance Manufacturing Printers Recruitment Invoice Finance Transport New Start Business Close Brothers Commercial Finance SMEs and large businesses across Ireland. C. 50k- 10m Asset finance hire purchase, leasing & refinancing Invoice finance Asset based lending Recruitment Engineering Print & packaging Transport & haulage Manufacturing Wholesale & distribution Service industries Debtors Exchange Micro-medium sized organisations Suppliers with a turnover of less than 15M Invoice Discounting Various Grenke Small and mid-sized companies Purchase price of 500 to 500,000 IT and office systems leasing Various Linked Finance Businesses > 2 years old 5,000 to 50,000 Links individuals/companies who wish to lend with business borrowers Various Tower Trade Finance Gross margin > 12% > 3 years old The products it sells must not be, perishable, or capital intensive. < 90 days cash to cash cycle Turnover > US$2.5m p.a. c. 50k Sales finance Supplier finance Various

24 Open Q&A

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