Download Present - RULG-Ukrainian Legal Group, PA

CEE – Corporate Debt Restructuring – Challenges
and Opportunities
Willibald Plesser, Co-Head CEE/CIS
4th CIS Local Counsel Forum Kiev, 26 June 2009
Freshfields Bruckhaus Deringer LLP
Our locations worldwide
Our international restructuring and insolvency group
 Leading international law firm with a multi-disciplinary practice:

excellence across the board and strength in key jurisdictions
 The clear market leader in global restructuring and insolvency:

we have acted on most of the high profile restructurings in recent years

top tiers for restructuring and insolvency, corporate, employment, pensions and benefits and tax in
leading legal directories (Legal 500, Chambers)
 Significant European and Asian expertise on workouts and restructurings:

we are currently acting on the most high-profile restructurings in Europe. We were also extremely
active in the last Asian financial crisis
Banking and
Restructuring Team of
the Year
Legal Adviser of the
Year
Restructuring Team and
Deal of the Year
(Eurotunnel)
Banking and
Restructuring Team of
the Year
Legal Business Awards
Institute for Turnaround
Awards
International Financial Law
Review Awards
The Lawyer Awards
2008
2008
2007
2006
Past – a bit of history
Present – the impact of the crisis
Future – challenges & opportunities
1989-2009
 1989 – collapse of the iron curtain
 “New” banking expands eastwards – Austria leads the charge
1989-2009
 1990s recession in CEE – new bank entrants hold strong
 1998 – Russian crisis
 2000  Stabilisation
 EU-15 banks enter in large numbers
 Three large Austrian banks dominate: Raiffeisen, Erste, Bank Austria
 2002-2003
 Move towards retail markets
 2006-2007
 Increasing sophistication of products
Past – a bit of history
Present – the impact of the crisis
Future – challenges & opportunities
GDP forecasts in % for 2009 – changed permanently over past
few months
5
4
USA
Euroarea
3
CEE
2
1
0
-1
-2
-3
March 2009
January 2009
December
November
October
September
August
July
June
May
April
-4
Key CEE dependencies
 FDI
 Exports
CEE – The Ugly - Europe’s sub-prime?
 Economic situation in CEE has deteriorated rapidly over the past few
months.
 Risk exposure to CEE loans is concentrated (85%) in a small number of
Western banks, from a handful of countries: Austria (70 % of GDP),
Belgium, France, Germany, Italy, Sweden (30 % of GDP)
 Write-downs
 CEE banks started taking write-downs last year
 Most losses in the form of indirect lending = via bank subsidiaries (roughly
60% of total losses in the case of Austrian banks)
 Most of local lending by subsidiaries done in local currencies, but some
banks have material fx exposure in the region (eg Raiffeisen 50% of UA
loans in US$, significant portion of HU loans in CHF)
CEE – The Not So Ugly – CEE leverage modest compared to
Western Europe
Total Banking Assets in % of GDP
1000%
900%
800%
700%
600%
500%
400%
300%
200%
100%
Western Europe
Source: Raiffeisen
CE
SEE
Ukraine
Russia
Albania
Kosovo
Bosnia
Romania
Croatia
Bulgaria
Slovenia
Poland
Czech
Republic
Hungary
Slovakia
Belgium
France
Italy
Austria
Germany
Greece
Portugal
Spain
Ireland
United
Kingdom
Netherlands
0%
CIS
CEE – The Not So Ugly – Total CEE banking assets small
compared to Western Europe
Total Banking Assets in EUR bn
9.000
8.000
7.000
6.000
5.000
4.000
3.000
2.000
1.000
Western Europe
Source: Raiffeisen
CE
SEE
Ukraine
Russia
Albania
Kosovo
Bosnia
Romania
Croatia
Bulgaria
Slovenia
Poland
Czech
Republic
Hungary
Slovakia
Belgium
France
Italy
Austria
Germany
Greece
Portugal
Spain
Ireland
United
Kingdom
Netherlands
0
CIS
CEE – a diverse lot
5 Years CEE CDS Spreads
other countries
only Ukraine
1200
6000
Russia 5Y
Poland 5Y
Slovakia 5Y
Hungary 5Y
Slovenia 5Y
Czech Republic 5Y
Bulgaria 5Y
Serbia 5Y
Croatia 5Y
Romania 5Y
Ukraine 5Y
1000
800
600
5000
Group 1
(UA)
4000
3000
400
2000
200
1000
Source: Raiffeisen
25.03.2009
11.03.2009
25.02.2009
11.02.2009
28.01.2009
14.01.2009
31.12.2008
17.12.2008
03.12.2008
19.11.2008
05.11.2008
22.10.2008
08.10.2008
24.09.2008
10.09.2008
27.08.2008
13.08.2008
30.07.2008
16.07.2008
0
02.07.2008
0
Group 2 (RS,
RO, RU, BG,
HU, HR)
Group 3 (PL,
CZ, SK, SL)
Current legal / regulatory themes in CEE
 Preparation for bad bank structures in the region
 Regulatory harmonization/avoidance of discriminatory measures
by local governments
 Restructuring-related issues (enforceability, foreclosure, etc.), but
focus is not on preservation as a going concern
 Forced M&A in many manufacturing industry segments
 Later: Market consolidation/voluntary M&A in many areas (incl.
banking)
Impact of crisis on CEE corporate sector
 Worst problems for companies are:
 reduced orders
 worsening payment behaviour
 financing difficulties
Corporate response to crisis
 "Quick hit" measures dominate
 Most strategic measures have been neglected so far – opportunities for
us
Past – a bit of history
Present – the impact of the crisis
Future – challenges & opportunities
Challenges
 Insolvency laws
 focused on insolvency process itself, less on rehabilitation as a goingconcern
 means that banks are very keen to avoid insolvency at all costs
 survival of distressed corporate entities is rare
 often trade beyond the point of no return
 Number of jurisdictions, differences in national regimes
 Often many jurisdictions involved even for mid-market companies with crossborder operations
 Despite harmonization with EU law, widely different insolvency regimes
throughout the region
 Cultural attitudes toward restructurings also differ from country to country
Overview of restructuring solutions
Need for committee (or
unanimous) consensus
Existing headroom
availability?
cross default
provisions
Equity prefer “new deals” –
see it as a “lender problem”
New Equity/
Shareholder
Loans
New Money
Pre-packaged sale
via administration/
receivership
Reputational
impact for
bank?
Treating symptoms
rather than
the problem
Feasible?
Enforce
Security
Some Solutions
Court-sanction
agreement
with creditors
Unwanted leverage to
unsecured creditors
Out of Court
All-Parties
Restructuring
Insolvency /
other statutory
routes
May require
unanimity across
all stakeholders
Expensive,
cumbersome
and very public
Debt Sale
Very public,
negative PR
Crystallises
provision/loss
Freefall insolvency
Worst return for creditors
Conclusion
 Focus on value preservation: create awareness of consensual options
beyond waivers / amendments / enforcement / court insolvency process
 2009 will bring more aggressive balance sheet restructurings across
sectors in the region
 Debris floating to the surface – many years to work it out
 The more drastic the measures, the more focus on the legal docs
 Each situation is different
 People with cash and patience are the kings
 Plenty of exciting opportunities
Contact information
Willibald Plesser
Co_Head CEE/CIS
T +43 1 515 15 206
E willibald.plesser@
freshfields.com
© Freshfields Bruckhaus Deringer LLP 2009
This material is for general information only and is not intended to provide legal
advice.