Private Equity: Restructuring Assets and Liabilities

Prof. Ian Giddy, New York University

About the Course

This two-day course offers an insight into the asset restructuring and funding changes needed to survive and thrive in a challenging credit market. The course leader, Prof. Ian Giddy, will demonstrate how any company can benefit from private, active ownership, management incentives and the discipline of debt financing. Working on actual LBO deals and case studies, participants will learn how companies can adapt to the credit crisis and emerge stronger. The course offers details on how to best use sources of leveraged finance, including subordinated and equity-linked mezzanine instruments, applicable to emerging markets as well as the hard-hit developed countries.

Participants will Learn

  • Intervention by the private equity owner: integrating corporate goals into finance
  • How to implement the "five key disciplines of corporate finance"
  • How to manage your company's gearing, credit quality, and liquidity
  • Financial restructuring: how to use subordinated, mezzanine and equity-linked financing instruments
  • Business restructuring: when growth through acquisitions pays off - and when asset sales make sense
  • Ownership transition -- when and how to exit a business.

Materials and Resources

Workshop participants will be provided with a package of materials and web links, useful for developing restructuring and financing proposals. These include pertinent articles, case studies based on actual deals, and sample spreadsheets.

Pre-Course Reading

Course Outline



Day 1   

    Tough Times: Employing the Disciplines of Private Finance

    • Private equity today: the analytic task of evaluating portfolio companies
    • Identify areas where they can do best and discarding other areas
    • Case study: Goldfield Corporation. What problem? What solution?
    • Restructuring debt, equity and assets to create corporate value
      • Look at  the fundamental characteristics of the business before looking at the finance
      • What are the strong and weak points of the company?
      • The five principles of corporate financial restructuring: investments, acquisitions, financing, payback and risk management
      • Managers’ vs. shareholders’ vs. lenders' interests: the agency problem
    • Strategy and finance: capital funding choices for corporations
    • Matching corporate finance to funding choices
    • The leverage flowchart
    • Case study: Taca Aviation. Acquisitions or asset sales? Lease finance, corporate debt or deleverage?
    • Restructuring incentives: making management equity sweat – and making it rich
    • Interactive: what are we doing right? What will we do differently?

    Managing Financial Risk

    • Can the company’s CFO predict currencies, rates or commodity prices?
    • Is the company a business – or a bet?
      • Dealing with commodity price risk: Susan Oil & Gas (Belize)
      • Dealing with currency risk: Oligarch Foods (Russia)
    • Case study: Houston Natural Gas Exploration. Should management accept Jana’s recommendation to forego acquisitions and do a share buyback?

    Restructuring the Business

    • Acquisitions: creating corporate value -- or destroying it?
    • How a well-run company evaluates acquisitions
    • Examples: ISS and Berkshire
    • M&A synergies: revenues, costs or control? (A flowchart)
    • Asset sales and corporate divestitures: when and why?
    • Case study: The New York Times. Using sale-leaseback to sell your headquarters building
    • Selling a business division: opportunities, methods and valuation
    • Case study: John Deere breakup. Should this company sell its finance division?
    Private Equity
    Financial Risk
    Business Restructuring

    Case studies
    Goldfield 2009
    Taca Financing
    Susan Oil
    Oligarch Foods
    Houston Exploration

    Strategic Finance
    Making Capital Structure Support Strategy
    What Public Companies Can Learn from Private Equity

    Corporate Hedging


    Day 2

      Restructuring the Finance

      • Too little cash -- and too much
      • The logic of private equity and leveraged buyouts
        • Too much leverage – and too little
        • “Equity is a cushion; debt is a sword”
        • Case study: Nukem Security Services. How can one employ leverage to effect a management buyout of this company?
        • Debt capacity analysis
      • Deleveraging: cost-benefit evaluation
      • Case study: Asia Aluminium. A debt repurchase proposal
      • The leverage flowchart
      • Debt-for-equity swaps and exchange offers
      • Case study: Tradeshow Planning. How did this company restructure its debt and return to financial health?
      • Managing credit and liquidity in a "credit crunch"
      • Role of Mezzanine Finance: where does it fit into a company's financing structure and restructuring solutions?
        • Explanation of mezzanine and equity-linked financing instruments
        • Subordinated debt, convertibles and warrants
        • Case study: deCode Genetics. A life sciences company faces a refinancing crisis
      • Performance-linked participation debt: an alternative form of mezzanine
        • Setting targets and linking payout to performance
        • Discussion of appropriate linkage: turnover, cash flow or profit?
      • The Mezzanine Matrix (the when and why of subordinated and equity-linked finance)
      • Building Materials case study. Recession-related mezzanine management 
      Restructuring the Control
      • Ownership dispute, transition and exit: financial choices
      • The option of equity investors' recapitalization
      • Case study: Sanjay Cement. How do we fix the control and regain value?
      • Giving up control: at what price? What is the company worth?
      • What are the exit options?
      • Case study: Restructuring Ownership of American Apparel
      • Conclusion: when to buy; when to restructure; and when it’s time to sell

        Restructuring Finance
        Restructuring Ownership and Exit

        Case studies
        Asia Aluminium
        Tradeshow Plannning
        DeCode Genetics
        Sanjay Cement
        American Apparel

        Lenders Squeeze Borrowers
        The Predators


        Additional Resources

        Lessons from Private Equity Any Company Can Use by Hugh Macarthur and Orit Gadiesh
        Distressed Investment Banking - To the Abyss and Back by Henry F. Owsley
        Distress Investing: Principles and Technique by Martin J. Whitman

        Introduction to cost of capital
        Mezzanine Finance Explained
        Distressed Exchanges

        Useful Links (leveraged loan analysis) (corporate bond spreads) (corporate data and industry ratios)

        About the Instructor
        Dr. Ian Giddy, born in South Africa, has taught finance at NYU, Columbia, Wharton, Chicago and in over 45 countries worldwide for the past three decades. He was Director of International Fixed Income Research at Drexel Burnham Lambert from 1986 to 1989. The author of more than fifty articles on international finance, he has served at the International Monetary Fund and the U.S. Treasury and has been a consultant with numerous corporations and financial institutions in North and South America, Europe, Asia, the Middle East and Africa. As a lecturer, banker and consultant he has been involved in the growth of the structured finance market and private equity in the USA, Europe and Asia. He currently serves as the independent Risk Manager for Credit Renaissance Partners, an investment group. He is the author or co-author of The International Money Market, The Handbook of International Finance, Cases in International Finance, Global Financial Markets, Asset Securitization in Asia and The Hudson River Watertrail Guide, as well as many short articles on finance and conservation biology. He and his wife are the founders of Cloudbridge, a nature reserve in Costa Rica.
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        Copyright 2009 Ian Giddy. All rights reserved.