SRZ’s Distressed Investing practice meets the complex needs of clients in every phase of distressed investing by strategically blending attorneys from our business reorganization, finance, mergers and acquisitions, real estate and tax practices. Through collaboration among multiple practice areas, we advise clients in areas that include trading issues, loan-to-own strategies, analysis of capital structure, acquisitions of control, out-of-court restructurings, bankruptcies, bankruptcy mergers and acquisitions. This interdisciplinary approach allows us to give comprehensive representation and advice to investors in all manner of distressed situations. Preeminent knowledge of the financial services industry and experience developing the structures and products that must be analyzed by a distressed investor enable us to provide an insider’s perspective.
Capital Structure Analysis
Typically, counsel with respect to a distressed investment opportunity begins with a comprehensive, interdisciplinary review of the target’s capital structure, which may have a complex array of outstanding debt and equity securities. We analyze the relative rights of the various interest holders and help identify the fulcrum security. Most analyses include a review of debt covenants and anti-layering restrictions, intercreditor and inter-lender provisions, governance provisions and provisions with respect to transferability and voting rights. Our attorneys have experience with a broad array of industries, from traditional brick-and-mortar concerns to technology and other “new economy” firms. Recognizing the global nature of commerce, we are also equipped to address cross-border tax, collateral and insolvency issues.
Out-of-Court Restructurings
In some cases, a distressed investment strategy may be handled best by an out-of-court restructuring. While bankruptcy may be the best means for restructuring a company that has significant labor, pension or environmental concerns, or requires significant contractual concessions or terminations, in other cases an out-of-court restructuring may be a less expensive, lower risk and less public alternative. Based upon our analysis of the capital structure and existing intercreditor and inter-lender relationships, attorneys with unparalleled experience in these areas can assist in determining whether an out-of-court restructuring is feasible. If it is, we can comprehensively advise clients in all aspects of the restructuring process, including corporate governance and securities law issues, amendments, consent solicitations or exchange offers (including strategies to deal with potential hold-outs), and the related tax implications.
Bankruptcy
Given the absence of liquidity to fund lengthy and expensive cases, and the demands of lenders that debtors identify and implement near-term exit strategies, there is a real emphasis on speed and efficiency in successfully navigating through a bankruptcy case. Investors who are not adequately prepared to address the issues may well find themselves on the wrong side of a valuation fight or a plan designed to “cram down” or “cram up” their claims or interests. Therefore, early participation in negotiations with the debtor is critical. In order to minimize the duration of a case, reduce costs and expenses, and satisfy the demands of senior lenders, the use of a “pre-packaged” or “pre-negotiated” bankruptcy may be desirable, as well as the use of plan support and lock-up agreements — particularly where the debtor is prepared to turn over control to the holder of the fulcrum security. We have assisted clients in successfully negotiating these transactions and implementing them through the Chapter 11 process. For those debtors that file without any such arrangements in place, debtor-in-possession financing and identifying an exit strategy is materially more complicated. In this environment, we have successfully represented investors in preserving value in restructurings and acquisitions, including through the use of (among other alternatives) credit bids and rights offerings.
M&A in Bankruptcy
We have represented many sophisticated private equity, hedge fund and other institutional investors in all aspects of their distressed M&A activities, including 363 sales, whether as a “stalking horse bidder,” as an auction participant, or by way of sponsored or stand-alone reorganization plans. In the current environment, where liquidity is scarce, we have guided investors in crafting and implementing alternative investment and financing approaches, including credit bid strategies and the utilization of existing debt securities to confirm a plan. We provide practical solutions to the complicated corporate governance issues resulting from an increasingly diverse post-transaction shareholder base, and also provide creative tax structures seeking to minimize a target’s cancellation of indebtedness income and to preserve net operating losses. Our interdisciplinary approach enables us to offer a team of experienced professionals to assist clients in formulating and executing a focused and effective plan for dealing with the unique structuring, diligence and documentation issues that arise in distressed M&A transactions.
Trading
Effective and timely implementation of an investment strategy must include taking ownership of the underlying loans or securities and being able to exercise the attendant rights and remedies, including the right to vote and to give direction to the agent or trustee. Our attorneys have the broad range of experience and expertise necessary to assist clients in negotiating and documenting distressed or par trades informed by our knowledge of applicable law (including the ability to rely on so-called “big boy” letters). Given the complexity and size of the financing transactions completed over the last several years and now undergoing restructurings, representations may require collaboration with one or more like-minded holders in order to achieve our clients’ investment objectives. We can assist in defining those working relationships, as an informal, ad hoc committee or otherwise, and advise on navigating Section 13D issues, as well as those arising under Bankruptcy Rule 2019, in the wake of the Bankruptcy Court’s decision in Northwest Airlines.
Distressed Real Estate
We have significant experience representing investors, including private equity real estate funds and REITs, and developers in the acquisition and development of distressed real estate, whether single-asset or multi-property, developed or undeveloped, and commercial or residential, and with the related capital markets transactions, from subordinated financings and intercreditor arrangements to equity financings. Our clients have included domestic and international buyers and sellers, and our experience includes joint venture, LLC and partnership transactions. We also have a successful track record representing clients in troubled financing deals and bankruptcy situations. We have represented secured and unsecured creditors, loan servicers, special servicers, acquirers and other interested parties in workouts, debt and equity restructurings and recapitalizations, mortgage foreclosures, deeds in lieu of foreclosure, defaulted-loan litigation, receiverships, Chapter 11 cases, cramdowns, and distressed debt and property dispositions. Our attorneys are cognizant of the “time-sensitive” nature of most real estate deals and work diligently to overcome the most difficult challenges, while pursuing the most promising opportunities in a timely fashion.
Representative Experience