After the longest bull market in history, we are now suddenly experiencing disruptions unlike anything most of us have ever seen before, with the ongoing economic impact of the novel coronavirus and the impact of the policies intended to deal with that, as well as global supply chain disruptions, years of under-investment in natural resources, and the inflation that results from these and other phenomena. The resulting economic chaos is exposing a significant number of companies to a heightened risk of financial distress. In this course we will take a ‘value investing’ approach to analyzing such special situations to assess the degree of financial distress in individual businesses, the extent of the investment opportunity, and what type of analysis and steps might be required to ensure an acceptable return on investment for the activist, value investor in a distressed situation.
In the Distressed Investing and Advisory program, you will be exposed to a conceptually challenging curriculum, exploring both the theoretical basis and practical application of the major elements of investing in distressed situations. This will include the fundamentals of value investing, including being able to estimate the fundamental, intrinsic, value of the underlying business using discounted cash flow valuation. Once the business value is assessed, the debt capacity must be examined, which will build upon the company cash flow analysis to estimate whether, when and on which debt securities the business is expected to default. We will examine the content of the typical ‘cap table’ which provides a ‘snapshot’ of the financial situation and perform a ‘waterfall’ analysis to assess where the value will ‘fall’ in the capital structure in order to understand which security might be most or least interesting as an investment option based upon the difference between current market price and intrinsic value.
Once we’ve identified the potential investment opportunity we will then develop the investment thesis for a given security. This will require an assessment of the likely restructuring and turnaround proposals, such as amendments to extend maturity, debt for equity exchange offers, or seeking protection in the legal insolvency/restructuring regime. There will be some discussion of the legal environment (including a base understanding of the US Chapter 11 and similar regimes in other countries), as well as an examination of the game theoretic behaviors which will impact both the restructuring of the business and the deal-making across the capital structure. Finally, as negotiation is an essential skill of the distressed investor, we will also highlight the important ‘soft skills’ associated with earning an exceptional return on investment in special situations.
|Day 1||09:00 – 18:00|
|Day 2||09:00 – 18:00|
|Day 3||09:00 – 18:00|
How you will benefit
- Explore the theory and practical application of investing in distressed situations
- Develop a thorough understanding of the fundamentals of value investing
- Estimate the fundamental value of a business using discounted cash flow valuation
- Examine debt capacity and its implications for investors
- Learn to use the content of the typical capitalization table
- Gain the skills to perform a ‘waterfall’ analysis
- Identify potential investment opportunities
- Practice with building an investment thesis
- Assess restructuring and turnaround proposals
- Discuss the legal environment in distressed situations
- Explore the game theory behind investing and restructuring in distressed situations
- Improve your negotiation skills to earn an exceptional return on investment in special situations
During this program we will work through a series of conceptual and numeric examples, conducted as group work and discussed in plenary session, enabling you to deepen, and exhibit, your understanding of the fundamental concepts. These cases will also enable you to practice the steps in investment analysis process being taught in this program. The process and the conceptual basis for this approach to value investing in distressed situations will be explained and elaborated on Day 1, and the refinement and application of the process will be further illustrated, and practiced in the case studies and class discussions of the remaining two days.
- The game theory behind investing and restructuring in distressed situations
- The conceptual foundations of value investing in a distressed environment (the approach and mindset of Oaktree’s Howard Marks provides the framework)
- Distressed investment historical performance
- Understanding the legal environment and its implications for restructuring alternatives.
- Introduction to the process of estimating the value available for distribution
- Introduction to the process of estimating where in the capital structure the cash flow and value will cascade (aka, estimating the value ‘waterfall’)
- Identifying the fulcrum security
- Examples of the extent to which investors and companies will go to protect their investments
- Deepening our analysis of the distressed situation
- Understanding the valuation complexities in situations of distress
- Understanding the need for restricting on the Right-hand side of the balance sheet (aka liability management)
- Understanding the need for restricting on the Left-hand side of the balance sheet (aka business turnaround management)
- Identifying the pathways for restructuring of both sides of the balance sheet
- Considering business turnaround strategies and their impact on value available for distribution
- Bringing the pieces together
- The ‘human side’ of distressed investing and advisory
- Negotiating an investment and rights offering to restructure a distressed company
- Assessing an exchange offer
This course will be relevant for anyone interested in managing, investing in, or providing advisory services to firms in distressed situations. This will include the managers of these companies as well as those working in hedge funds, private equity, or direct investment. It will also be of interest to those who entrust their money to distressed investors and who wish to be familiar with the process employed to be better able to assess alternative investors and their strategies and performance. The techniques and concepts we discuss will also be directly relevant for those working in advisory roles serving companies facing restructuring or who are engaged by investors who are considering investment in distressed companies.