普华永道中国企业改造工具库10.docx

普华永道中国企业改造工具库10.docx

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普华永道中国企业改造工具库10

PRINCIPLESFORDEBTALLOCATION

（SUSTAINABLEVSUNSUSTAINABLE）

Contents

Page

Introduction3

Calculationofsustainabledebt3

Step1–Determineoutstandingdebtatrestructuringdate4

Step2–Analysenatureandvalueofexistingcreditorobligations4

-Financialcreditors

-Secureddebt4

-Debtsecuredovernoncoreassets5

-Unsecureddebt6

-Interesttreatment7

-Non-financialcreditors

-Tradecreditors/suppliers8

-Employeeliabilities8

-Liabilitiesduetostateagencies/authorities9

-Contingentliabilities9

-Guarantees9

TreatmentofSurplusAssets10

TreatmentofUnsustainableDebt10

Introduction

Calculationandallocationofsustainabledebtbetweencreditorsisamajorcomponentofsustainabledebtrestructuring.Inrestructuringregimesinwhichtherestructuringtermsaredeterminedbasedoncreditorvotingthisisusuallytheareawheremostnegotiationoccursbothbetweentheenterpriseanditscreditorsandwithinthecreditorgroupitself.

Thedetailedmethodologyoutlinedbelowsetsoutastandardsetofguidelinesforapplication,intendedtominimisetheareaswhereindividualstakeholdernegotiationsarerequiredandmaketherestructuringprocessasefficientandreadilyreplicableaspossible.

CalculationofSustainableDebt

∙SustainableDebtrepresentstheamountofdebtthatcanbeservicedonagreedtermsandrepaidduringtheagreedRepaymentPeriodfromtheenterprisesbusinessoperations.

∙Itiscalculatedbasedontheforecast“FreeCashFlow”overtheRepaymentPeriod.

∙TheRepaymentPeriodthatwillbedeterminedwithintherestructuringguidelinesmustbe“reasonable.”

∙FreeCashFlow,whichisderivedfromthefinancialprojections,istheamountofcashexpectedtobeavailableaftermeetingtheoperatingcostsofthebusinessandapplicabletaxes.Itistheamountavailabletofundpaymentofinterestandrepaymentofprincipaldebt（aswellasnewinternallyfundedcapitalinvestmentandshareholderdividends）.

∙Asprincipalandinterestarebothpaidincash,acashflowbasisisrequired（notprofitwhichincludesnoncashitems）todeterminethesustainabledebtcalculation.

∙Similarlyliabilitytoassetratios（whichareusefulasgeneraltargetbenchmarks）shouldnotbeusedbecauseitdoesnotreflectthecashdebtservicingcapacity.

∙Ifthedebtlevelpostrestructuringexceedsthesustainabledebtlevelasuccessfuloutcomewillnotbeachieved.

∙Setoutbelowisarecommendedmethodologyandsetofprinciplestobeappliedin:

1.AllocationoftotaldebtbetweenSustainableandUnsustainable.

2.AllocationofSustainableDebtbetweenindividuallendersandclassesofdebt.

∙Itisbasedonequitabletreatmentwithinandbetweenclassesofcreditorbasedonthenatureoftheexistingdebtentitlementsheld.Theseprinciplesareinaccordancewithgenerallyacceptedvoluntarysustainabledebtrestructuringmethodologiesusedinternationally:

Step1.DetermineOutstandingDebtAt“RestructuringDate”

∙A“RestructuringDate”shouldbeagreedoncethedecisionhasbeenmadetoundergoarestructuring.Thisdatewouldusuallybethemostrecentmonthenddate.

∙Outstandingdebtshouldbecalculatedforeachloan/financialcreditorasattheRestructuringDate.Thisamountshouldincludeanyunpaidinterestaccruedupuntilthisdate（baseduponordinarynonpenaltyrates）.Thisinformationshouldbeavailablefromtheduediligence（businessreview）process,updatedforanysubsequentchanges.

∙Toensureequitabletreatmentbetweenfinancialcreditorswhilsttherestructuringagreementtermsarebeingdeterminedallinterestpaymentsshouldbesuspended（orallpaidproportionatelyifcashflowallows）whilsttheRestructuringPlanispreparedandagreed.Suchanapproachiscommonlyreferredtoasa“standstillperiod”andmaybedocumented（ifnecessary）inastandstillagreement（wherethefinancialcreditorsandanyothermajorcreditorsagreenottodemandpaymentswhilsttherestructuringtermsareagreed）.ThetreatmentofinterestaccruedduringthisstandstillperiodwouldbespecifiedintheRestructuringPlan（thismayincludewrite-offorpaymentinfullorpartdependingonthespecificagreementterms）.

Step2.AnalyseNature&ValueofExistingCreditorObligations

FinancialCreditors

∙Withintheprocessofagreeingthefinancialdebtbalancesafurthercategorisationshouldbemadeapportioningdebtbyindividualcreditorandloanbetween:

ØSecured

ØUnsecured

∙Eachofthesewillbetreatedasseparateclassesofdebtwithintherestructuringprocess.

∙AscheduleshouldbepreparedsummarisingthepositionsforbothSecuredandUnsecuredcomponentsassetoutbelow.Thisinformationshouldbepreparedduringtheduediligenceprocessandupdatedasrequired.

SecuredDebt

∙Thenatureofthesecurityheldshouldbespecified.Inadditionthevalidityofthesecurityshouldbeconfirmedaswellastheexistenceofthephysicalassetspledged.

∙Pledgedassetssubjecttosecurityshouldbeseparatedinto“core”（requiredinthebusinesstobeoperatedgoingforward）and“noncore”（surplustotherequirementsofthebusinessgoingforward）.Theidentificationofnon-coreassetsisincludedasastepinpreparingtheBusinessPlan.Treatmentofnon-coresecuredassetsisdiscussedbelow.

∙Marketvaluationsshouldbeobtainedforallcorepledgedassets（thoseassetsrequiredgoingforwardinthebusiness）.

∙Thesevaluationsshouldbeprovidedbasedonthecurrentrealisablepricesiftheassetwastobesold（liquidationsellingpriceofindividualassets-notgoingconcernvalueassumingbusinesscontinuation）.

∙Foreachcreditorcalculatethetotalrealisablevalueoftheirsecurityoverthecoreassets.ThisamountrepresentstheSecurityValueforthepurposeofrestructuring.

∙SecureddebtuptotheamountoftheSecurityValueisgivenfirstpriorityinallocatingSustainableDebt.

∙Existingholdersofsecuritywillcontinuetoholdtheirsecurityoverthepledgedcoreassetssubjecttothetermsoftherestructuring（specifictermswilldependontherestructuringcircumstances）.

∙IftheSecurityValueishigherthantheSustainableDebtarestructuringwillnotnormallyoccur,becauseitwouldbeabetteroutcomeforthebankstosellthesecuredassetsnow（asthecashtheseassetsareexpectedtogenerateinthefutureisalesseramount）.Ifhoweveritisdeterminedarestructuringwillproceed,theSustainableDebtshouldbeallocatedtotheholdersoftheRestructuredSecuredDebtonapro-ratabasis,basedontheSecurityValueheld.Thismayrequirea“pooling”ofsecuritybetweenthesecreditors.

∙AnyremainingexcessofthesecuredloanamountsabovetheSecurityValueamountwillbeaddedtoUnsecuredDebtandtreatedinthesamewayasexistingUnsecuredDebt（discussedbelow）.

DebtSecuredOverNonCoreAssets

∙Noncoresecuredassetsshouldalsobeappraisedtodeterminearealisablevalue.Followingconfirmationtheseassetsarenotrequiredinthebusinessgoingforward,anduponimplementationoftherestructuringplantheSecuredCreditorsmayeither:

ØTakepossessionofandselltheassets,applyingtheproceedsagainstitsloans;

ØAllowtheenterprisetoselltheassets,aspartofitsRestructuringPlanandpaytheproceedstothebankforapplicationagainstthespecificsecuredloans.

∙WhichoftheseoptionsisappliedwillbespecifiedintheRestructuringPlanandwilltakeintoaccountthepreferencesofthebank.

∙Theestimatedoractualshortfall（asappropriatedependingontimingofsaleandfinalisationofthePlan）betweenthevalueappraised/realisedandthesecuredloanamountshallbeaddedtotheUnsecuredDebtbalance,whichisdiscussedbelow.

UnsecuredDebt

∙UnsecuredDebtistobetreatedasaseparateclassofdebt.

∙AsnotedabovetheshortfallinsecuredamountsbetweentheSecurityValueandtheoriginalsecuredloanamountistobetreatedasUnsecuredDebtforthepurposeofallocationtoSustainableDebt.

∙Accordingly,UnsecuredDebtcomprisesoriginalunsecuredloanamountsplustheshortfallinrealisable/appraisedvaluesforsecuredloans.

∙UnsecuredDebtranksinprioritybehindtheSecurityValueofsecureddebt.

∙UnsecuredDebtisallocatedintoSustainableDebtafterdeductingfromtheSustainableDebttheSecurityValueofSecuredDebttomakeuptheremainingavailablebalance.ThereforetheamountofUnsecuredDebttobetreatedasSustainableDebt（representingReinstatedUnsecuredDebt）isbasedonthefollowingcalculation:

ØReinstatedUnsecuredDebtallocatedtoSustainableDebt=TotalSustainableDebt–SecurityValue（representingReinstatedSecuredDebt）.

∙ReinstatedUnsecuredDebtwillbeallocatedbetweencreditors/loansonaproratabasisbasedonthetotalloans.

∙AnyremainingUnsecuredDebtthatdoesnotbecomeReinstatedUnsecuredDebtrepresentsUnsustainableDebtandwillnotbecarriedforwardasdebtoftheenterprise.ThetreatmentofUnsustainableDebtisdiscussedbelow.

∙Theseallocationprinciplesareillustratedintheexamplebelow:

SecuredDebt（loanamount）100m

UnsecuredDebt（loanamount）80m

TotalDebt180m

SustainableDebt（basedonprojections）130m

SecurityValue（appraisedrealisablevalue）60m

ReinstatedSecuredDebt60m

.basedonsecurityvalue）

ResidualSecuredDebtAllocated40m

ToUnsecured（100m–60m）

（originalsecureddebt–securityvaluereinstated）

RevisedUnsecuredDebt（80m+40m）120m

（originalsecureddebtplussecureddebtshortfall

comparedtosecurityvalue）

Reinsta