Lenders Panel Shares Insight at the TMA Southeast Regional Conference

Turnaround industry professionals from across the southeast assembled in Palm Coast, Florida, June 2-3, for the TMA Southeast Regional Conference, where they heard an eye-opening report on the asset-based lending market from a panel comprised of senior lenders and credit professionals from across the industry.

The conference is one of nine regional conferences held by TMA and its chapters this year, including seven in North American and two overseas, the TMA Europe Conference (Helsinki, Finland) and the TMA Asia-Pacific Conference (Taipei, Taiwan).

My colleague Kristina L. Anderson, managing director, Carl Marks Advisory Group LLC, attended the TMA Southeast Regional Conference. She has passed on some great insight from the session “Lenders Outlook: It Only Hurts When I Laugh.” The distinguished panelists offered the following observations on today’s asset based lending market:

• Less underwriting and more arrangements - lender groups are more frequently pre-arranged by sponsors as opposed to one lead lender underwriting the deal and selling it down
• Lead arranger hold levels are rising
• Springing covenants tied to availability are more prevalent than traditional covenant structures
• Pricing has reportedly fallen to the L+200-275 range
• Total senior debt has routinely exceeded 5x EBTIDA, with revolvers in the 2-2.5x EBITDA range
• Initial equity contribution are falling, in some cases down to 25-30 percent
• Loan balances - usage under revolvers - have been rising this year
• Increasing prevalence of FILO (first in last out) tranches, which have a higher advance rate and extra pricing, and are in some cases being used to negate the potential impact of springing covenant thresholds
• Voting rights continue to be under pressure; traditional-100 percent issues are moving to a supermajority vote
• Reporting frequency is loosening, and triggers must be tripped to get a BBC more frequently
• There is a hangover of bifurcated loan structures from the last restructuring cycle (where part of the lender group extended and part retained their earlier maturities)
• Equity cures are being built in at close and in some cases can be used to satisfy EBITDA tests
• EBITDA definitions are loosening and inconsistent across the marketplace, raising questions  as to whether, because the EBITDA definitions are becoming vague and inconsistent, the covenants that remain in today’s new deals will never actually trip 

Municipal Messes Keep TMA in the News

TMA’s involvement with cash-strapped municipalities continues to spur interest from news reporters. Recently, a Dow Jones reporter interviewed Scott Eisenberg, a managing partner at Amherst Partners from our Michigan Chapter, and Michael Imber, principal at Grant Thornton, from our New York City Chapter.

Eisenberg was among corporate turnaround professionals summoned by the state of Michigan’s incoming treasurer in December to discuss ways to train emergency financial managers. The program launched in February and Eisenberg and Imber were among the first 60 turnaround professionals certified as emergency financial managers.

In March, Michigan Governor Rick Snyder signed a law giving state-appointed financial managers the power to end employee contracts and suspend collective bargaining. Much hue and cry ensued. Still nearly 400 government and private sector workers took the second emergency manager training course in April. Bloomberg and Bloomberg Businessweek and Crain’s covered developments; less salutary were remarks on the Teamster Nation blog.

The Dow Jones reporter wanted to know what other states may follow suit, as well as how restructuring techniques in the private sector can be transferred to the public sector. Both Imber and Eisenberg discussed how turnaround professionals, in the role of chief restructuring officers, are empowered to make and implement tough decisions to achieve the maximum economic outcome. Not so in the public sector, where the maximum economic outcome may not always be the most politically expedient.

That’s fine, if a municipal, regional or state body can foot the bill for that choice, Imber said. In these times, that choice is less affordable. Eisenberg gave the example of two school districts that previously served 20,000 students, but now each serve only 8,000. It should be one district, but school officials are reluctant to make a decision that spells the end of their own jobs.

Imber says his firm has responded to about a half dozen requests for proposals (RFPs) issued by municipal agencies, illustrating another difference from how public sector agency engagements differ from those in the private sector. Imber foresees a bifurcated municipal distressed market: towns with budgets less than $100 million in revenues that could be served by small firms and large municipalities, counties and states that need broader expert services addressing tax policy, pensions, valuation, accounting and other areas, which large, full-service firms provide.

Eisenberg noted that cash-strapped states don’t face one-size-fits-all problems. Michigan’s structural problems include high unemployment, severe property tax declines, and a large elderly population. Illinois, on the other hand, is hobbled principally by underfunded pensions. He regards the Delphi bankruptcy as a loud wake-up call marking the end of an era of $70,000-$80,000 union jobs in which workers put in a day’s work and received pay for two,  considering pension and benefits.

The public sector will have to endure the “gut-wrenching” change experienced in the private sector, he said, and learn to do more with less.

Read the article.

Retiring Bankruptcy Judge Seeks Adequate Compensation

At the TMA Board of Trustees meeting held during the recent 2011 TMA Spring Conference in Chicago, Jack Butler presented a letter he recently received from the Hon. George C. Paine, II, Chief Judge of the U.S. Bankruptcy Court for the Middle District of Tennessee.

In his letter, Judge Paine, who will be retiring at the end of 2011, explains that compensation for bankruptcy judges has remained the same (about $160,000) for over 20 years because of linkage to Congressional salaries. The Judge then notes that, as a result, bankruptcy judges are paid less than other court and government employees who have substantially less responsibility. He also points out the disparity between judicial salaries and the compensation of attorneys in private practice.

Judge Paine warns of the potential consequences to corporate restructuring resulting from the disincentive that inadequate pay creates for capable and experienced bankruptcy attorneys to choose to serve in judicial capacities. He says, “this inequity can only lead to less qualified candidates applying for judgeships rather than highly qualified individuals seeking the position as the capstone to a successful commercial legal career.”

Judge Paine has raised serious concerns regarding the long-term impact of inadequate compensation upon the willingness of highly qualified candidates to serve on the bankruptcy bench. His letter contains a number of examples where federal employees with specialized skills are paid at levels intended to attract strong talent.

We who work in the restructuring industry are challenged by the Judge’s letter to act together “to push for increased judicial salaries so that judgeships become the capstone of successful careers, not stepping stones or gravestones.” It is important that we speak up to educate Congress on the importance of adequate compensation for bankruptcy judges.

Auto Overhaul Czar Drives Home Results

Steven Rattner, who shepherded the Obama Administration’s overhaul of the automotive industry, explained the rationale behind the “controlled bankruptcy” of General Motors and Chrysler and the economic benefits it produced during his keynote speech at the opening of the 2011 TMA Spring Conference on Thursday.

The situation was dire on Columbus Day 2008, when General Motors’ Rick Waggoner revealed the bleeding company faced a potential shutdown. Rattner, tapped for his experience on Wall Street and within a political context, said he approached the situation as a private-equity exercise and saw his team as the custodian of government money.

Referring repeatedly to his new book, Overhaul, he said the team had to determine whether the companies were viable and had “backable” management, and faced a race against time to get both companies through a Section 363 sale. While the results were controversial to many in our industry, he emphasized that the plan withstood judicial scrutiny all the way to the U.S. Supreme Court,

Moreover, the U.S. government stands to receive $72 billion of its $82 billion investment in GM and Chrysler. The alternative would have been far worse than a $10 billion loss; if the companies collapsed, millions would become unemployed — in an instant.

Though the economy remains sluggish, the companies are on the road to health. GM’s structural costs are $23 billion, compared to $33 billion two years ago, and the company earned a $4.7 billion profit in 2010, compared to a $31 billion loss in 2008, he said.

Rattner said the experience drove home the role of “shared sacrifice’’ in a crisis, the importance of TARP funds — a mechanism that allowed government funds to be deployed without the blessing of Congress — and a good management team. He referred to Ford’s decision to install a new CEO, Alan Mulally, and “hock everything” to raise funds to ride through the recession without government help. Rattner’s takeaway?

“The jockey is as important as the horse.”

Headed to ABI

This week I, along with many other of fellow TMA members, are headed to the American Bankruptcy Institute's (ABI) 29th Annual Spring Meeting at the Gaylord National Hotel and Convention Center in National Harbor, Md. A number of our members also will be speaking at the conference.

On Saturday morning (April 2), 8:00 a.m. - 9:30 a.m., TMA President Mark Indelicato, will participate in a panel entitled "Business Reorganization, Court Administration and Alternative Dispute Resolution." Mark will provide his insights into business reorganization and the use of alternative dispute resolution in connection with bankruptcy reorganization plans.

Also on Saturday, 9:30 a.m. - 11:00 a.m., Bill Lenhart, 2010 TMA Audit Committee chair and long time director, will participate in a panel entitled "Chapter 11 Creditors’ Committees and Examiners: Are They Effective?" Bill will join three other panelists providing their insight into the role of Chapter 11 committees and examiners and the role they play in aiding the reorganization process.

These panels are part of a number of joint efforts between TMA and ABI to improve our program offerings to members during these challenging times. We very much appreciated ABI hosting us and we look forward to reciprocating by hosting an ABI-sponsored panel at the 2011 TMA Annual Convention this October in San Diego.

We hope you are able to join us!

Top 10 Conference Networking Tips

TMA’s upcoming Spring Conference in Chicago (April 27-29 at the JW Marriott Chicago) is one of our association’s largest national events and will include many networking receptions and countless other opportunities to develop or enhance business relationships (visit turnaround.org to register or to download the conference brochure).

TMA Arizona Chapter Public Relations committee members Kathleen Taddie and Jeremy Goodman have put together the following helpful article on making the most out of your conference experience.

A primary reason to attend conferences is to network. Yet, many attendees leave conferences with a binder and CD—but no meaningful contacts. Even if you don't enjoy socializing, the benefits of networking at conferences are immense. Conferences are an opportunity to meet people who can give you new ideas, make introductions for you, send you referrals and even become clients.

Below are some tips to help you get the most out of your next conference experience.

1. Strategize. Before you step foot into a conference, you should have already thought about the individuals that you want to meet, the speakers you want to hear, and the information you are hoping to learn. By planning ahead, you will take away from a conference precisely what you were seeking rather than whatever you happen to stumble upon.
2. Socialize. Do not be afraid to talk to the people in close proximity to you as you walk into a seminar. Even a simple “hello” has the potential to turn into windows of opportunity later during the week of the conference or even months down the road.
3. Listen. Many people are far more interested in talking about themselves than they are in having a truly informative conversation. So, listen, and then ask critical questions to help them to migrate from small talk into more effective and mutually beneficial conversation.
4. Power Down. As heartbreaking as turning off your BlackBerry may be, it is crucial to give it a break while you are on breaks at the conference. When your face is buried in your Smartphone it sends a message to the people around you that you are unapproachable. While on breaks, speak with others; there is plenty of time to check your emails back in your room.
5. Follow Up. Every once in a while you will meet some very interesting people at a conference. The chances that you are going to run into them at the coffee shop after the conference are slim to none. So make sure to follow up when you meet someone who genuinely sparks your interest. If you do not make the effort to follow up with them, chances are they are not going to make the effort to follow up with you either. It can be as simple as sending them an email. If you do not follow up with someone then it may have been pointless getting to know them in the first place.
6. Don’t Get Star Struck. Everyone enjoys meeting famous speakers and important people. Do not spend all of your time trying to get close to the speakers. Chances are that the people with whom you are going to create the most mutually beneficial relationships are other conference attendees. Make sure that your business card ends up in the hands of the other attendees, and not stacked among the hundreds of other business cards that the celebrity speakers will receive during the conference.
7. Get To The Point. Conferences move quickly, and so do the attendees. Make sure to skip some of the small talk and get to your point quickly. If you are new to the game and feel intimidated or worried, practice in the mirror. This, along with prior research into a particular person’s business, will lead to far more valuable conversations.
8. Take Notes. It may sound like an overplayed study tip from school, but the reality is that we simply cannot remember everything that we hear during a conference. So pick up a pen or your iPad and jot down the things that seem important.
9. The Early Bird Gets The Worm. Get to events early. Not only does this show that you are punctual, but it shows you are truly interested, and you can meet people as they arrive—which is considerably more fun that working your way into a crowded room. If you arrive later you will have to overcome the obstacle of inviting yourself into conversations, instead of being involved in them from the beginning.
10. No, really, STRATEGIZE! A great networking conference starts with planning ahead. If you know people who are attending the event, contact them, make an introduction by phone or email, and make plans in advance to meet with them at a set place and time at the conference. If you do not know who is attending, contact the sponsors for an attendee list.

Conferences can be wonderful learning and networking opportunities if you are able to make the most of them.

Kathleen Taddie is president of Kathleen A. Taddie Consulting LLC, and Chair of the TMA Arizona Chapter Public Relations Committee. She can be reached at 602-920-4573 or ktaddie@cox.net. Jeremy Goodman is a banking and bankruptcy attorney at Goodman Law PLLC, and a member of the TMA Arizona Chapter Public Relations Committee. He can be reached at 602-476-1114 or jeremy@goodmanlawpllc.com. 

Should States be Allowed to File for Bankruptcy?

Nearly 70 percent of respondents to a recent TMA poll think struggling states should not have the ability to solve fiscal problems aggravated by the recent recession through bankruptcy. But 32 percent are in favor, arguing that it would address troublesome union contracts and debt levels. Where do you stand on the issue?

View the full story covering the TMA poll in The Wall Street Journal's Bankruptcy Beat blog.