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in case of default.
Debt recovery and restructuring
Valerio Ranciaro
11
1.
Introduction
2.
3.
Claims macro-process
4.
Recoveries macro-process
5.
Restructurings
6.
22
Medium-long term
Big amounts
Small volumes per year
Process slower
Files management is customized
depending on debtor
Often a problem for different ECAs
Complex restructurings
33
1.
Introduction
2.
3.
Claims macro-process
4.
Recoveries macro-process
5.
Restructurings
6.
44
2.500m
5.500m
4.500m
2.000m
3.500m
2.500m
1.500m
1.500m
1.000m
500m
(500)m
500m
(1.500)m
0m
mln
2004
2005
2006
mln
2004
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
(2.500)m
2005
2006
17.1
19.1
Recoveries
Claims
Commercial Risk
15.2
Commercial Risk
27.2
25.7
5.6
Political Risk
55.7
21.0
11.9
Political Risk
978.2
3,168.0
5,198.9
Total
82.9
46.7
17.4
Totale
993.4
3,185.1
5,218.0
55
1.
Introduction
2.
3.
Claims macro-process
4.
Recoveries macro-process
5.
Restructurings
6.
66
Recovery Process
Commercial
Commercial
Credit
Credit Recovery
Recovery
Claim
Claim
notification
notification
Claim
Claim
Assessment
Assessment
Indemnity
Indemnity
Payment
Payment
Credit
Credit
Recovery
Recovery
Recovery
Recovery
Sharing
Sharing
between
between SACE
SACE
and
and Creditors
Creditors
Recovery
Recovery
Repayment
Repayment
Sovereign
Sovereign
Credit
Credit Recovery
Recovery
77
Claims macro-process
File
File Registration
Registration
Policyholder
notifies claim
Claim
Claim Assessment
Assessment
Cover
Cover Analysis
Analysis
Customer
Customer
Relationship
Relationship
Settlement
Settlement
(Repay
(Repay Indemnity)
Indemnity)
Pass
Pass the
the file
file
Who
Claim officer
Reserving
Reserving
Collection
Officer
Collection
Correspondent
Debtor
Creditor
88
1.
Introduction
2.
3.
Claims macro-process
4.
Recoveries macro-process
5.
Restructurings
6.
99
Recoveries macro-process
Claim
File
Open
Open aa
collection
collection file
file
Pass
Pass the
the
collection
collection file
file
Manage
Manage aa file
file
Collection
Order
Recover
Recover with
with
pre-legal
pre-legal actions
actions
Claim officer
Collection
Officer
Collection
Correspondent
Follow
Follow up
up
insolvency
insolvency
procedure
procedure
Recover
Recover with
with
legal
legal actions
actions
Manage
Manage the
the
costs
costs
Manage
Manage recoveries
recoveries
Debtor
Creditor
Produce
Produce statistics
statistics
and
and reports
reports
Repay
Repay recovery
recovery
to
to creditor
creditor
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10
1.
Introduction
2.
3.
Claims macro-process
4.
Recoveries macro-process
5.
Restructurings
6.
11
11
12
12
Phase 1
Phase 2
Assess
Assess
Financial
Financial
Models
Models
Standstill
Standstill
Assist
Assist toto
implement
implement
standstill
standstill so
so
management
management
can
focus
on
can focus on
managing
managingthe
the
business
businessand
and
solutions
solutionscan
can
be
bedeveloped
developed
Step 1
Critique
Critique
business
businessand
and
industry
industry
position
position
Identify
Identifyand
and
assist
assist
creditor
creditortoto
select
selectaa
restructuring
restructuring
solution
solution
Assess
future
Assess
future
cash
flows
Negotiate
Negotiate
selected
selected
restructure
restructure
solution
solution
Timeframe
depends
on the co operation
between all
parties
involved
Implement
Implement
restructure
restructure
and
andmonitor
monitor
performance
performance
Timeframe
depends
on requirements
of
restructuring
Step 2
Commercial Strategies and Fallback Scenarios
Negotiate/
Negotiate/
prepare
preparefor
for
fallback
fallback
scenarios
scenarios
Implement
Implement
fallback
fallback
scenarios
scenarios
13
13
14
14
1. Due Diligence
15
15
16
16
2. Standstill
17
17
The terms of any restructuring plan depend on a realistic assessment of both the
creditors legal rights and the debtors operational performance
18
18
19
19
Business Plan
FINANCIAL CONSTRAINTS
20
20
Inter-creditor Issues
Determining how the funds available for distribution to creditors are split between the
creditors sometimes gives rise to a variety of inter-creditor issues, such as:
Competition of secured and unsecured creditors.
Rights of creditors against different group borrowers.
Treatment of various classes of creditors, such as employees, trade creditors and related party debt.
21
21
Identifying commercial issues that are of significance to the creditors and developing
a consensus amongst the creditors in relation to the issues.
22
22
2.
Restructuring costs
(advisors, creditors expenses)
Operating costs
Debt service
New investments (CAPEX)
Excess cash sweep
Subordinated debt
Dividends
23
23
Commercial restructurings
Over the past few years SACE has successfully restructured some large corporate defaults. Some of the
most notable examples are
Country
Company
Date
Exposure
Mexico
USD 11.6m
Kenya
October 2003
USD 19.0m
Indonesia
October 2003
USD 23.3m
Argentina
December 2003
USD 13.6m
Argentina
February 2004
USD 9.4m
Argentina
USD 26.5m
China
October 2007
USD 29.5m
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Restructuring usually involves long periods and - sometimes - poor results in terms of
NPV.
An example:
Restructured amount USD 23,3 mln.
Indonesia
Tranche A: 11%
maturity 2014
Tranche B: 29%
maturity 2017
Tranche C: 59%
maturity 2026
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Restructuring usually involves long periods and - sometimes - poor results in terms of
NPV.
An example:
Restructured amount USD 23,3 mln.
Indonesia
Tranche A: 11%
maturity 2014
Tranche B: 29%
maturity 2017
Tranche C: 59%
maturity 2026
NPV = 33 /$
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27
27
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28
Indonesia
APP Indonesia is the largest corporate defaulter in
the Emerging Markets history.
In 2003 USD 5 billions were restructured!
Total outstanding debts (including those not
restructured) are equal to USD 14 billions.
Indonesia Exposure
SACE
EKF
EKN
KB
EULER HERMES
CESCE
COFACE
Finnvera
Total
29
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One of the post-restructuring alternatives consists in the sale of the debt on the
distressed loans secondary market
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30
1.
Introduction
2.
3.
Claims macro-process
4.
Recoveries macro-process
5.
Restructurings
6.
31
31
Telecom Argentina
-case study-
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USD 58,4
80%
USD 21,8
Policy B
Guaranteed amount
SACE cover
Outstanding principal
USD 8,4
90%
USD 4,6
USD 22,7
USD 26,5
USD 244
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33
History of a default
April 2002 Telecom Argentina (TA) announces the suspension of the
debt service because of the Argentinean economical crisis
November 2002 1 restructuring proposal: not accepted
February 2003 2 restructuring proposal: not accepted
December 2003 3 restructuring proposal of all the financial unsecured
indebtness, via the filing of an APE (Acuerdo Preventivo
Extrajudicial, binding if approved by 66,6% of the creditors). This
proposal was not acceptable as well: negotiations continued.
May 2004 Final restructuring proposal: APE.
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Creditors received, for every 1.058 unit of nominal value of the debt (amount
determined including capitalized interests):
OPTION A (100% nominal value) - 10 years "step up" notes (after 15/10/2008
interest increases from 5,53% to 8%); or
OPTION B (94,5% nominal value) - 7 years "step up notes (9% until 15/10/2005,
10% until 15/10/2008; 11% until 2011); or
OPTION C (cash tender) cash consideration for an amount between 80,34%
and 69,94% of 1.058 units, to be determined with a "modified dutch
auction".
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35
NPV analysis
NPV
12%
13,50%
15%
Option A
82,5
77,2
72,5
Option B
96,5
92,3
88,4
Option C
79,7
78,9
78,3
Option B in spite of the 5,5% principal forgiveness had an higher NPV thanks to
the higher interest rate.
Option C, even if in cash, had a lower NPV because the payment was going to be
made at the closing of the APE (Dec. 2004).
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36
NPV analysis
NPV
12%
13,50%
15%
Option A
82,5
77,2
72,5
Option B
96,5
92,3
88,4
Option C
79,7
78,9
78,3
Option B in spite of the 5,5% principal forgiveness had an higher NPV thanks to
the higher interest rate.
Option C, even if in cash, had a lower NPV because the payment was going to be
made at the closing of the APE (Dec. 2004).
SACE elected to receive Option B consideration
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Option B
Best case scenario
No prorationing
Expected scenario
Prorationing on Option C
12%
NPV
13,50%
15%
96,5
92,3
88,4
90,2
87,3
84,6
89,5
86,5
83,6
According to this scenario, the final one, 37,5% of the credits which elected to
receive Option B consideration were prorated into Option C.
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Policy A
Outstanding principal
USD 21,8
Allocated Option B
USD 13,6
Allocated Option C
USD 8,2
Paid Option C
USD 6,9 + i
Policy B
Outstanding principal
USD 4,6
Allocated Option B
USD 2,9
Allocated Option C
USD 1,7
Paid Option C
USD 1,4 + i
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How to contact us
HEADQUARTER
Roma
Piazza Poli, 37/42 00187 Roma
Tel. +39 06 67361
Fax +39 06 6736225
REGIONAL OFFICES
Milano
Via A.de Togni, 2 - 20123 Milano
Tel. +39 02 434499701,Fax +39 02 434499749
Modena
Via Elsa Morante, 71 - 41100 Modena
Tel. +39 059 331201, Fax +39 059 820832
Torino
c/o ICE - Via Bogino 13 - 10100 Torino
Tel. +39 011 836128 - Fax +39 011 836425
Venezia-Mestre
Viale Ancona 26 - 30172 Venezia - Mestre
Tel. +39 041 2905111 - Fax +39 041 2905103
REPRESENTATIVE OVERSEAS
Moscow
Krasnopresnenskaja Naberejnaja, 12
123610 Moscow Office n.1202
Tel 007 4952582155 Fax 007 4952582156
Hong Kong
40/f Suite 4001 Wanchai, Hong Kong
Central Plaza 18, Harbour Road
Tel. +852 3620 2323 Fax +852 36210227
Johannesburg
c/o ICE 42, Chester Road
2193 Parkwood Johannesburg
P.O. Box 1261 2121 Parklands
Tel: +27 118808383 Fax: +27 118809040/8809041
So Paulo
c/o ICE - Avenida Paulista, 1971
3 - 4 andar
So Paulo SP
Brasile 01311 - 300
Tel: +55 11 21487250 Fax: + 55 1132664051
www.sace.it
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Contacts
Valerio Ranciaro
Head of Claims and
Corporate Recoveries
Tel. +39 06.6736266
v.ranciaro@sace.it
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Disclaimer
This presentation has been prepared solely for information purposes and should not be
used or considered as an offer to sell or a solicitation of an offer to buy any
insurance/financial instrument mentioned in it.
The information contained herein has been obtained from sources believed to be reliable or
has been prepared on the basis of a number of assumptions which may prove to be
incorrect and, accordingly, SACE does not represent or warrant that the information is
accurate and complete.
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