Jefferies Company, Inc. .


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1. Jefferies
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Jefferies & Company, Inc. A main speculation saving money firm – drove by a standout amongst the most intense capital markets exchanging stages in the business Principal working auxiliary of Jefferies Group, Inc. (NYSE: JEF), a holding organization with a value advertise capitalization of over $2.0 billion and more than 1,600 workers in 20 workplaces around the world

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Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates: A Global Law Firm CANADA EUROPE ASIA USA • Toronto • Brussels • Frankfurt • London • Moscow • Paris • Vienna • Beijing • Hong Kong • Singapore • Tokyo • Boston • Chicago • Houston • Los Angeles • Newark • New York • Palo Alto • San Francisco • Washington, D.C. • Wilmington AUSTRALIA • Sydney

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Speakers John Wm. Steward, Jr. Accomplice and Co-Practice Leader Corporate Restructuring Skadden, Arps, Slate, Meagher & Flom LLP William Q. Derrough Managing Director & Group Co-Head Recapitalization & Restructuring Jefferies & Company, Inc . N. Lynn Hiestand Partner Corporate Restructuring and Cross-Border Transactions Skadden, Arps, Slate, Meagher & Flom (UK) LLP

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Definition of Distressed Debt Bank obligation, private situations or open obligation of organizations that: have defaulted on their obligation commitments; have started indebtedness or rearrangement procedures; are in such monetary trouble that their obligation is exchanging more than 1000 premise focuses above practically identical US Treasury securities; OR have obligation exchanging beneath 70%

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Scope of Investments Distressed Debt Investors (DDIs) contribute crosswise over upset substances\' capital structure: Bank and security obligation (e.g., ordinarily characterized as "bothered obligation") Trade claims Equity Investment portions over an element\'s capital structure might be utilized to fence hazard and to encourage change of control exchanges

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Sector Analysis DDIs contribute crosswise over industry divisions Risk examination incorporates pervasiveness of defaults inside industry segment

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Defaults by Sector Source: Moody\'s; Fitch; Standard & Poor\'s; Deloitte & Touche LLP, Distressed Debt Marketplace: Opportunities & Challenges as the Economy Improves, Turnaround Management Association (March 12, 2004)

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Defaults by Volume Source: Moody\'s; Deloitte & Touche LLP, Distressed Debt Marketplace: Opportunities & Challenges as the Economy Improves, Turnaround Management Association (March 12, 2004)

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Company Analysis DDIs likewise direct due determination to investigate organization chance: Depressed or declining markets/deals Shrinking edges Operating misfortunes/unexpected misfortunes Cash crunch Covenant infringement Aging records receivable/payable Accounting anomalies Management activities

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Japan Banking Crisis Russia, CIS, and Czech Republic Europe Others? US REITS 1970s 1975 1989 1993 1997 1998 2002 2004 US Savings & Loan Crisis; Canada & Mexico Argentina; India; Philippines; Taiwan; China Asian Financial Crisis; Mexico Latin America Historically Significant Global Defaults

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Developed, effective market Currently growing Early phases of improvement Undeveloped Stages of Global Development in the Distressed Debt Market

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Cerberus Capital Management Major Distressed Debt Investors ("DDIs") Private value speculators and flexible investments are the real players in the business Mutual assets are more up to date members Soros Fund Management Elliott Associates

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Vibrant US Distressed Debt Market Source: http://www.loanpricing.com

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Vibrant US Distressed Debt Market Source: Edward I. Altman, Defaults & Returns on High Yield Bonds: The Year 2002 in Review & the Market Outlook, NYU Salomon Center Stern School of Business, Feb. 2004

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Forecasts for the US Market Source: Edward I. Altman, Defaults & Returns on High Yield Bonds: The Year 2002 in Review & the Market Outlook, NYU Salomon Center Stern School of Business, Feb. 2004

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Distressed Debt is Cyclical Source: Edward I. Altman, Defaults & Returns on High Yield Bonds: The Year 2002 in Review & the Market Outlook, NYU Salomon Center Stern School of Business, Feb. 2004

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Possibilities for Growth Exist in the US Source: McKinsey Quarterly, 2003 No. 1

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Opportunities Exist in Other World Markets With a few exemptions (prominently, the UK), these business sectors are profoundly undeveloped in contrast with the US advertise Inaccurate or inaccessible information give the best snag to market examination outside the US therefore, non-performing credit showcase information gives best pointer of forward patterns in the universal troubled obligation advertise This information may likewise be more important outside of the US since non-US organizations ordinarily utilize bank obligation as their essential type of financing (because of less created open obligation markets)

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Nonperforming Loans: Asia (total) Source: McKinsey Quarterly, 2002 No. 1

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Nonperforming Loans: Asia (rate of aggregate) Source: From Cyclical Recovery to Long Run Growth, World Bank, Oct. 2003

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Secondary Market: Asia Source: McKinsey Quarterly 2002 No. 1

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Nonperforming Loans: Europe Source: McKinsey Quarterly 2002, No. 1

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USD EUR Secondary Market: Europe Estimated Bank Debt Trading Volume in Europe and the Middle East (US$ billions) Source: Loan Pricing Corporation. Change in revealing cash in 2002

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Exceptions to Undeveloped International Markets United Kingdom Market has developed in the previous 5 years Europe\'s link and telecom industry Debt more available as organizations raising capital through corporate securities as opposed to bank obligation in light of the fact that these organizations don\'t have the ordinary resources banks are capable or willing to acknowledge as security For instance, Apollo Advisor put resources into the traded on an open market obligations of German link organization Kabel Hessen GmbH

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Value of the Market to Corporate Restructuring Provides hazard cash-flow to the commercial center Offers liquidity Strengthens saving money framework Important as nations get ready for stricter prerequisites under Basel II and a few nations plan to open their fringes to worldwide rivalry under concurrences with the World Trade Organization Provides a gathering of speculators willing to take inventive recuperations as opposed to customary banks

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Value of the Market to Corporate Restructuring Provides aptitude to the methodology Experienced speculators include an incentive by rebuilding obligation or enhancing administration of the operations Provides fair-minded outcasts Resolves clashed connections, for instance where a bank is the leaser, shareholder and is running the bothered organization May be in a superior position to bargain guarantee

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Many Types of Entities Cannot Work Out Debt Themselves Many have requirements which restrain capacity to hold awful obligation, including: Covenant limitations Regulation Risk profiles Should probably discount obligation/offer at a rebate than hazard taking a value stake in a rebuilt element

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Types of Entities Typically Subject to Bad Debt Constraints Insurance organizations Certain venture firms/stores Commercial or potentially open banks Collateralized obligation commitments (CDOs)

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Why Markets Have Flourished in North America & the UK Predictable results Permissive exchanging under Chapter 11 in US Currently not managed under Securities Laws Experienced experts Fair process Significant comes back to DDIs Developed monetary markets Both in upset securities and in post-rebuilt securities

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Distressed Indices Performance Historically troubled obligation returns are adversely corresponded with the share trading system Source: Edward I. Altman, Defaults & Returns on High Yield Bonds: The Year 2002 in Review & the Market Outlook, NYU Salomon Center Stern School of Business, Feb. 2004; CSFB/Tremont

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Historical High Yield Spread to Treasury > Spread corresponds to default hazard in market Source: Thomson Financial

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Post Chapter 11 Equity Post-insolvency values that exchange over-the-counter have a tendency to be exaggerated in the arrangement of redesign (1=Plan Price) (1=IPO Price) Source: Jefferies

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Drawbacks of DDIs Short speculation skyline of a few DDIs Contentious and forceful voting demographics Confidentiality and insider issues Constantly evolving bunch

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Obstacles to Emerging Distressed Debt Markets Reorganization/Insolvency Law Europe: Reorganization/bankruptcy law concentrates on liquidation Senior moneylenders regularly control the procedure No steady revamping/indebtedness administration crosswise over Europe Lesser-Developed Countries Undeveloped rearrangement/bankruptcy law: minimal point of reference makes results eccentric for speculators Outside impacts on legal/authoritative process: political weight Enforcement of judgments frequently troublesome

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Obstacles to Emerging Distressed Debt Markets Regulatory Impediments Unaccommodating/conflicting assessment structure For instance, in Germany, the duty law contains arrangements horrible to upset obligation speculators. Facilitate, the administration ceaselessly changes the assessment law influencing troubled obligation financial specialists, making it hard to structure bargains Inefficient government endorsement handle For instance in China, Huarong AMC\'s initially bothered obligation deal took very nearly 3 years to finish in view of government postponements

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Obstacles to Emerging Distressed Debt Markets Transparency Europe In a few nations banks control the larger part of corporate obligation so estimating and exchange data are hard to acquire Asia Difficult to get data from the AMCs, especially where mass advances are sold Necessary on the grounds that AMCs are liable to extraordinary political and social weights to support certain borrowers

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Obstacles to Emerging Distressed Debt Markets Limited Players Fe

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