prof. ian giddy new york university structured finance: restructuring
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Prof. Ian GiddyNew York University
Structured Finance:Restructuring
Copyright ©2002 Ian H. Giddy Structured Finance 2
Structured Finance
Corporate financial restructuring
Structured financing techniques
Asset-backed securitization
Copyright ©2002 Ian H. Giddy Structured Finance 3
What is Corporate Restructuring?
Any substantial change in a company’s financial structure, or ownership or control, or business portfolio.
Designed to increase the value of the firm Restructuring
Improve
capitalization
Change ownership
and control
Improve
debt composition
Novartis
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Operating Restructuring
The increase in value that comes from the operating side:
Better operating margins (usually economies of scale ie lower costs)
or Future increased sales/profits from
higher growth
Novartis
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Value-Based Management
Sales
Operating margin
Notional taxes
Net Working capital
Net Fixed Capital
Goodwill
NOPAT*
Invested Capital
Cost of Capital
Economic
Profit
Source: Ciba Specialty Chemicals*Net Operating Profit After Tax
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Novartis: Financial Restructuring
Fixed
Assets
Debt
Equity
Assets LiabilitiesFixed the cash
and working capital
Fixed the capital
structureCash
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Financial Restructuring
The increase in value that comes from a purely financial effect:
Lower taxes Higher debt capacity Better use of idle cash
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Corporate Restructuring:It’s All About Value
How can corporate and financial restructuring create value?
Operating
Cash
Flows
Debt
Equity
Assets Liabilities
Fix the business
Or fix the financing
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Restructuring Checklist
Figure out what the business is worth now
Use valuation model – present value of free cash flows
Fix the business mix – divestitures Value assets to be sold
Fix the business – strategic partner or merger
Value the merged firm with synergies
Fix the financing – improve D/E structure
Revalue firm under different leverage assumptions – lowest WACC
Fix the kind of equity What can be done to make the equity more valuable to investors?
Fix the kind of debt or hybrid financing
What mix of debt is best suited to this business?
Fix management or control Value the changes new control would produce
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Getting the Financing RightStep 1: The Proportion of Equity & Debt
Debt
Equity
Achieve lowest weighted average cost of capital
May also affect the business side
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Capital Structure: East vs West
VALUE OFTHE
FIRM
DEBT
RATIO
Optimal debt ratio?
Nokia TPI
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See Saw
Business Uncertainty
Financial Risk
Operating Leverage
Financial Leverage
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Getting the Financing RightStep 2: The Kind of Equity & Debt
Debt
Equity
Short term? Long term? Baht? Dollar? Yen?
Short term? Long term? Baht? Dollar? Yen?
Bonds? Asset-backed? Convertibles? Hybrids?
Bonds? Asset-backed? Convertibles? Hybrids?
Debt/Equity Swaps? Private? Public? Strategic partner? Domestic? ADRs?
Debt/Equity Swaps? Private? Public? Strategic partner? Domestic? ADRs?
Ownership & control? Ownership & control?
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Restructuring and Structured Finance
Restructuring debt to make it cash-flow responsive
Converting debt into equity Securing asset-backed funding Securing mezzanine and subordinated
debt financing Securing equity-linked and hybrid
financing Raising new equity
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Case Studies
Evaluate the financial restructuring taking place at:
Conseco Getronics Dynegy
www.stern.nyu.edu
www.giddy.org