Distressed debt: Clever ways to do the dumbest things
“We have a large team of distressed analysts and they are all incredibly busy,” says Iain Burnett, “but not in the mainstream area of the over-stretched LBO gone wrong. Success in this market is all about the illiquid, private deal flow and we have a sales and sourcing team spending all day talking to hundreds of banks across Europe.”
Burnett, who is executive director and head distressed debt analyst at Morgan Stanley, relates a deal his firm did recently in the bank debt of Ploucquet Holdings, a 150-year-old family-owned German textile firm. It had taken on bank debt to fund a capital expenditure programme that had not performed to plan. “We got calls from a couple of bilateral lenders – this company didn’t even have syndicated loans, let alone LBO financing – to price the debt and then take them out, which we did.” Buying the debt at a discount to par did nothing to resolve the company’s distress, so Morgan Stanley engaged with management, devised a restructuring plan and proposed to other lenders that they either join it or sell out. Most chose to sell out rather than commit new money to a restructured company after having to forgive part of their old loans.
