Restructuring Insights - UK An Acuris Company Restructuring Data - Europe 27 May 2020 Restructuring Insights - UK Restructuring Insights - UK An Acuris Company Debtwire Europe CONTENTS AUTHORS Introduction 3 Joshua Friedman Restructuring Data Analysis 5 Global Head of Restructuring Data Creditor/Investor Analysis 19 +1 (212) 574 7867 [email protected] UK Restructurings: Marketplace & Current Issues 25 Timelines and Tables 28 Shab Mahmood Contacts 35 Restructuring Analyst Disclaimer 36 +44 203 741 1323 [email protected] Juan Mariño, CFA Restructuring Analyst +44 203 741 1364 [email protected] Donald Ndubuokwu Restructuring Analyst [email protected] 2 Restructuring Insights - UK An Acuris Company Introduction: Restructuring Data - Europe As part of the roll-out of Debtwire’s Restructuring Data - Europe, this inaugural Restructuring Insights Report serves as a preview of the power, breadth and depth of the data that will be available to subscribers. Debtwire’s global team of legal, financial, credit and data professionals has been producing analysis and data reports on a variety of restructuring topics and in jurisdictions across the globe. In a natural evolution of that data-driven direction, we have compiled and enhanced the data underlying those reports and combined it with Debtwire’s exclusive editorial coverage and financial research to create a searchable Restructuring Database, which will allow subscribers to craft bespoke data-driven answers to a wide variety of research questions and to enhance business development. With the expansion to cover Europe, the Restructuring Data platform now includes bankruptcy and restructuring situations in North America (US Chapter 11s, Chapter 7s and Chapter 15s), Asia-Pacific (NCLT processes in India) and Europe. In total, the Restructuring Data platform encompasses approximately 1,000 US bankruptcy cases, close to 400 NLCT cases, and almost 200 restructuring situations across Europe. At launch, the Restructuring Data platform covers a significant part of the European marketplace: specifically, the UK, France, Germany, Italy, the Nordics and Greece. Restructuring and Insolvency processes covered range from Schemes of Arrangement and out-of-court situations, Administrations and CVAs in the UK, Concordato Preventivo in Italy, Safeguards in France, and many more. The database captures a wealth of data related to EU restructuring and insolvency matters broadly starting 1 January 2016 and in the main, funded debt obligations exceeding GBR/EUR 150m.* As reflected in this report, each restructuring situation will include: • Pre- and Post- Restructuring Capital Structures; • Involved Creditors and Disclosed Holdings (e.g. debt holders, admin agents and indenture trustees, bidders, group members, etc.); • Restructuring documentation (e.g., Lock-Up Agreements, Organisational Charts, Skeleton Arguments and Financials); and • Retained Advisors and Relationships. In this report, we apply the same lenses to the UK restructuring landscape from January 2016 through April 2020, analysing the newly initiated restructuring and bankruptcy situations as well as those completed—whether successfully or unsuccessfully—during that time period.* Click here to explore the entire Restructuring Data platform (access required). NOTE: We have also tracked a number of situations below the debt threshold or prior to 2016 to provide a more robust picture of the distressed European market. Similarly, the data analysed in this report includes certain key restructurings below the debt threshold and six restructurings before 2016: Adelie Foods, Codere Finance, DTEK Finance, MF Global UK, Phones4u, and Yuksel Insaat. In addition, we have 3 analysed the data on a “case” basis, not company basis. So, for example, if a company uses a CVA and a Scheme of Arrangement to restructure, there would be separate cases for each included in the analysis. Restructuring Insights - UK An Acuris Company General Introduction Analysing restructuring-level data is an ideal starting point to understand the financial landscape — providing a 10,000-foot view of the distressed marketplace for strategic planning and asset allocation (financial or otherwise). The restructuring level data illustrates: • The size of the companies involved and the duration of their restructurings; • The trending distressed sectors (or what sectors are cooling off); • Relationships between advisors, creditors and market participants to assist with opportunity identification and opportunity development; and • Which restructuring and exit strategies are more popular and utilised in which sector, by which advisors and by which creditor. Debtwire’s EU Restructuring Insights report provides a high-level overview of restructuring and insolvency situations across the EU, digging deep into the data to highlight key trends and takeaways. This inaugural edition examines the UK Restructuring market with a focus on five restructuring and bankruptcy processes from 1 January 2016 onwards: Administration, Company Voluntary Arrangements (CVA), Out-of-Court Restructurings, In-Court Liquidations, and Schemes of Arrangement. Following a slow start to the year, the restructuring and insolvency market is expected to be particularly active with an increase in the number of defaults and debt restructurings, as COVID-19, gyrations in the global oil market, depression levels of unemployment and severely reduced business and human activity have greatly affected the capital markets, many businesses and society. Looking at the data over the last four-plus years, the Retail sector dominated with 35% of restructuring situations, followed by Food & Beverage (11%) and Oil & Gas (9%). These are the same three sectors that have dominated the 2020 US bankruptcy market, with O&G and Retail also serving as the primary drivers since 2016. In comparison, the EU (excluding the UK), has seen a preponderance of Transportation industry restructurings (24%), alongside Retail and Oil & Gas situations, with 14% and 10%, respectively. In terms of case strategies, having a pre-arranged plan was the dominant restructuring strategy used by distressed companies, particularly with Schemes of Arrangement, reflecting the time and planning the process allows prior to and at court. Sale processes were the next most frequent strategy, partially reflecting the rise and establishment of Accelerated M&A (i.e. AMA) as a strategy deployed to preserve going concern values, repayment and recoveries. On the advisory front, Houlihan Lokey and Rothschild led the rankings with the most mandates, followed closely by KPMG—ranging between 29 and 26. Allen & Overy had the most mandates on the legal side, the only law firm topping 20, followed by Clifford Chance and Linklaters, Kirkland & Ellis and Latham & Watkins. In terms of creditors, HSBC was involved in the most UK restructurings (including Steinhoff, Abengoa Concessions, and Carillion), followed by UK-based banks Barclays, and RBS. 4 Restructuring Insights - UK An Acuris Company Restructuring Data Analysis Restructuring Insights - UK An Acuris Company TIMELINE – RESTRUCTURING PROCESSES (FROM 2016) 14 12 2 10 2 1 1 8 1 1 5 6 3 3 1 2 5 3 4 3 1 1 3 2 3 1 2 2 2 2 4 2 2 4 3 3 1 3 2 2 2 2 2 1 1 1 1 1 1 1 1 0 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Administration CVA Liquidation Out-of-Court Scheme of Arrangement KEY TAKEAWAYS UK RESTRUCTURINGS – PROCEEDING TYPE (FROM 2016) • In the timeline under review, 2Q 2018 represented the peak with a total of 13 situations, four more than the Scheme of Administration next most active quarters: Q1 2019 and Q1 2018. Arrangement 26% 39% • Schemes of Arrangement led in both number of situations and debt restructured, as it accounts for ~40% of the UK restructuring market, while Administrations and CVAs followed with 26% and 22%, respectively. • In 2020, we have seen eight UK restructurings of note CVA commenced, including Premier Oil’s Scottish Scheme of 22% Out-of-Court Liquidation Arrangement and NMC Health’s Administration. 11% 2% Source: Debtwire’s Restructuring Database 6 Restructuring Insights - UK An Acuris Company UK RESTRUCTURINGS – SECTOR SPLIT 35 30 7 1 25 20 14 15 10 2 12 5 5 5 4 7 3 2 2 2 2 1 1 3 1 1 1 1 2 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 Administration CVA Liquidation Out-of-Court Scheme of Arrangement Source: Debtwire’s Restructuring Database 7 Restructuring Insights - UK An Acuris Company SCHEMES OF ARRANGEMENT: COMI CHANGES, FORUM SHOPPING AND FOREIGN FILINGS IN GENERAL Schemes have undergone a meteoric rise to become one of the most common debt restructuring tools. They allow a statutory majority of creditors to vary the rights of an entire class and ‘cram down’ dissenting creditors, subject to Court oversight. Schemes expanded from being a core UK mechanism to increasingly being used by foreign borrowers, engendering what’s known as a shift in the centre of main interests (‘COMI’). The COMI shift results from companies ‘forum shopping’ in advance of their restructuring by identifying an optimal jurisdiction and, sometimes, transferring assets to that jurisdiction. The EU restructuring directive may limit such forum shopping in the future. Courts will only accept jurisdiction to sanction a Scheme in respect of a foreign-incorporated company if it is satisfied that there is a ‘sufficient connection’ with the relevant country. It is now well established that a company will have such a ‘sufficient connection’ if: (a) it has substantial assets in the UK; (b) its COMI is in the UK; or (c) its liabilities subject to the scheme are governed by relevant law and jurisdiction. As the table below shows, Schemes are popular among companies domiciled outside the UK due to the speed, flexibility and commercial attitude of the court. Eastern Europe—particularly Ukraine—has been a frequent user of Schemes, with Metinvest and DTEK each using three Schemes, including certain moratorium Schemes. Spanish companies have also used Schemes a couple of times for significant debt restructurings (Codere and Lecta).