corporate restructing
Corporate restructuring
MENTION the name Schefenacker to the London bankers, lawyers and advisers who specialise in turning around insolvent companies, and you are likely to be greeted with knowing smiles. Schefenacker, which makes mirrors for carmakers such as BMW and Mercedes, almost went bust late last year. In April it emerged from a tortuous restructuring, during which it moved its headquarters from Germany to Britain to take advantage of the flexible insolvency laws there. Along the way, its debt burden was cut by 47% and its founder had to give up three-quarters of his shares to creditors.
These things happen in business. But the reason for the gleam in the eyes of the London specialists is Schefenacker's bill for legal and advisory work: well over €40m ($59m). Compared with the £121m ($242m) that British Energy paid between 2003 and 2005 to its advisers when it got into trouble, this might seem small change. But Schefenacker, with total debts of €429m, was a tiddler next to British Energy. The nuclear-power company's restructuring involved £16.2 billion-worth of liabilities (£1.2 billion of debt and £15 billion for storing, reprocessing and disposing of spent nuclear fuel and for decommissioning power stations).
Expect more Schefenackers, courtesy of the credit crunch. As America's subprime-mortgage crisis has taken hold, credit conditions have suddenly tightened. In addition, rich economies look set to slow down—perhaps uncomfortably abruptly. The rate of corporate bankruptcies therefore looks sure to rise; and to stave off insolvency, many companies will have to reach agreement with their creditors on a restructuring of their debts.
Since mid-September an index of the cost of protection against defaults by low-rated American companies has soared (see chart 1). Moody's, a rating agency, predicts that the proportion of low-rated companies that default on their borrowing will rise from 1% to 4.2% within a year. And BDOStoy Hayward, an accounting firm,
MENTION the name Schefenacker to the London bankers, lawyers and advisers who specialise in turning around insolvent companies, and you are likely to be greeted with knowing smiles. Schefenacker, which makes mirrors for carmakers such as BMW and Mercedes, almost went bust late last year. In April it emerged from a tortuous restructuring, during which it moved its headquarters from Germany to Britain to take advantage of the flexible insolvency laws there. Along the way, its debt burden was cut by 47% and its founder had to give up three-quarters of his shares to creditors.
These things happen in business. But the reason for the gleam in the eyes of the London specialists is Schefenacker's bill for legal and advisory work: well over €40m ($59m). Compared with the £121m ($242m) that British Energy paid between 2003 and 2005 to its advisers when it got into trouble, this might seem small change. But Schefenacker, with total debts of €429m, was a tiddler next to British Energy. The nuclear-power company's restructuring involved £16.2 billion-worth of liabilities (£1.2 billion of debt and £15 billion for storing, reprocessing and disposing of spent nuclear fuel and for decommissioning power stations).
Expect more Schefenackers, courtesy of the credit crunch. As America's subprime-mortgage crisis has taken hold, credit conditions have suddenly tightened. In addition, rich economies look set to slow down—perhaps uncomfortably abruptly. The rate of corporate bankruptcies therefore looks sure to rise; and to stave off insolvency, many companies will have to reach agreement with their creditors on a restructuring of their debts.
Since mid-September an index of the cost of protection against defaults by low-rated American companies has soared (see chart 1). Moody's, a rating agency, predicts that the proportion of low-rated companies that default on their borrowing will rise from 1% to 4.2% within a year. And BDOStoy Hayward, an accounting firm,