Insolvency Blog - Financial Restructuring

The Chancellor said today in his Budget Speech, with reference to small businesses: "The improved time to pay scheme has helped businesses spread £5bn worth of tax payments over a timetable they can afford. Between them, these businesses employ over 1.4m people. The extra time has also helped businesses pay more of the tax owed. This double benefit has convinced me that the scheme should be extended for the whole of the next Parliament."   There's an assumption there that Labour will be in power after the general election! We'll just have to wait and see what happens if...

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We all know how to find a good service provider - personal recommendation. But what if you want help now and don't know who to ask? One piece of good advice is to be wary of paying someone up front to find an investor for you - see Corporate Insolvency - Ecademy for an independent consultant's view. Any good professional will discuss your business with you first without charge and look to establish whether a business angel is likely to invest. I certainly would, and I would be delighted to help you find an investor if that's...

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The European High Yield Association has announced refinements to its proposals to the Treasury on insolvency law reform. Its original submission in April 2007 identified perceived shortcomings of the Enterprise Act reforms: ". . . the administration procedure has not been widely used in distressed situations and, more generally, statutory processes have been avoided. We believe this occurs for the following reasons: despite the best efforts of those in government and elsewhere, administrations and Company Voluntary Arrangements (CVAs) are still perceived in the UK as reflecting corporate failure rather than rescue, which depresses confidence in the business and enterprise value; the ability of...

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The Chancellor has announced (notably without using the n-word) that Northern Rock is to be nationalised. What does this mean? The shares pass into public ownership The government has at last called the bluff of the hedge fund shareholders Ron Sandler becomes Executive Chairman Focus should now be brought to restructuring the business to create - in several months' time - something saleable It will be difficult for the government to avoid the charge of dither and delay. As reported in our previous post, the Treasury Select Committee has made clear that early decisive action was the missing ingredient in...

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The Treasury's proposals to provide funding for private sector bids for Northern Rock (announced here) look something like this: billions of £s of the Rock's assets (mortgage loans etc) would be sold to a special purpose vehicle; the SPV would issue bonds, secured on the assets and guaranteed by the Treasury (ie the taxpayer), raising say, £30bn; the money raised from the bonds would be paid to Northern Rock (to buy the assets moved into the SPV); Northern Rock would repay the loans it has had from the Bank of England. Staightforward so far - the...

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Headlines and commentary abound, but the real thing (181 pages) is here (pdf) or  here (html). It stretches from mention of previous bank runs (Overend, Gurney & Co., 1866;  City of Glasgow Bank, 1878), Barings' liquidity crisis and the liquidation of BCCI to a detailed analysis of the development of the Northern Rock crisis in August and September 2007. The conclusions (quick link here) highlight firmly the responsibility of Northern Rock's directors for the reckless business model - borrowing short and lending long - which collapsed with the credit crunch, for failing to ensure that the bank remained liquid as well as...

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The New York Times DealBook blog reports a Boston Globe article interviewing private equity firms TA Associates and Thomas H. Lee Partners (thanks again to Bob Eisenbach for flagging this here). The article reinforces the view we expressed in an earlier post that lax credit standards could magnify default rates in an economic downturn. A private equity investor borrowed at 2.25 per cent over LIBOR. When the target investment defaults, the investor can "toggle" its loan repayments into "payments in kind", borrowing more from the lender (at a 0.5 per cent interest premium) to make loan repayments. No real penalty for loan...

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The credit that is fuelling leveraged buyouts and other private equity deals may become tomorrow's problem, according to a recent post by Bob Eisenbach. The US Bankruptcy lawyer draws on articles in the Financial Times and the Guardian (courtesy of a New York Times blog). Sub-prime mortgage lenders are suffering in the US just now and commentators are drawing parallels to suggest that lax credit standards in the corporate arena could magnify default rates in an economic downturn. The problems will be exacerbated by investors who have chased returns and moved towards more illiquid hedge and buyout funds. Do you...

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LONDON (Reuters) - Some retailers, hit by poor Christmas trading, may struggle to pay their December rent bills, forcing them into insolvency or a debt restructuring in the New Year. . . ...

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