EUROPE

REFINANCING 2013: EUrOPEAN Result rEFINANCING OUTLOOK

Question

Result

Question

MAY 2013

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Body Copy

CONTENTS
Foreword 3 Note From The Sponsors 4 Borrower Survey 5 Lender Survey 19 Case Study: Techem 33 Case Study: Centrotherm Photovoltaics AG 35 About & Contacts 36

FOrEWOrD
FOrEWOrD

A hefty EUR 70bn of high yield issuance last year and a flurry of amend and extend deals has taken a significant chunk out of the 2014-2015 maturity wall, easing concerns over an overcrowded refi market. Inflows into high yield funds seem unstoppable, maintaining appetite for new deals. But the bank market, which is still in deleveraging mode, will contract substantially in the second half of this year as the lions share of the European CLO market switches to repaying its original investors, while the emergence of Cyprus as the next sovereign debt flashpoint serves as a reminder that the crisis remains far from resolved and retains the ability to shutter primary markets.
Debtwires 2013 Refinancing Report surveyed market respondents in both the borrower and lender communities. The findings reveal that companies have taken some big steps to improve their maturity schedules, especially private equity backed firms. Markets are in full swing as companies tackle the remaining maturity wall but next year looks set to be even busier, with debt maturities as well as refinancing to peak in 2014, the report shows. A sizeable number of borrowers are taking advantage of liquidity-addled markets to raise additional capital while dealing with their maturities. Most of the extra cash is earmarked for acquisitions but around half of the respondents are planning to make debt-funded dividend payments. This is the third Debtwire Refinancing Report, presenting detailed results of a survey of 50 representatives from the borrower community (split between private equity firms and corporates) and 50 representatives from the lender community, with their views of market conditions ahead of their refinancing plans. We hope you find it a useful resource.

Robert Schach Managing Editor Debtwire Europe robert.schach@debtwire.com

NOTE FrOm THE SPONSOrS

Despite continued volatility, the past 12 months have demonstrated a renewed resilience within European debt markets with participants now looking betteradapted to the regular swings in confidence triggered by each unfolding political crisis. Over the past year the finance community has had to negotiate the fallout from indecisive Italian elections and the collapse of Cypruss banking system, but both of these events had a less pronounced impact on debt markets than would have been likely if they had occurred in prior years.
Although companies continue to be affected by weak levels of growth, balance sheets are generally looking healthier and there is an expectation that the number of defaults will start to come down. That said, timing remains of critical importance when negotiating a refinancing and the need to avoid coinciding with a fresh bout of uncertainty should encourage firms to refinance early, so as to avoid being forced to conduct negotiations when the market is unfavourable. Private equity borrowers have so far been more pro-active in this respect, with many firms having extended their debt maturities out beyond 2017, which has helped deliver stability and improved confidence levels for this subset of borrowers. A significant proportion of banks are now well prepared for the new capital requirements of Basle III. However, many still need to raise additional capital and reduce their loan exposure and this will continue to put pressure on refinancing. While banks remain the primary source of financing, alternative capital providers are growing in prominence, with private equity in particular emerging as an important source of finance. PE firms holding large cash piles are willing to offer flexible terms in the search for a return and are increasingly also setting up new funds to better tap this expanding opportunity. Against this backdrop, and with significant volumes of European debt maturing over the next two years, Debtwires 2013 Refinancing Report provides some interesting insights into the perspective of both borrowers and lenders on timing, sources of funding as well as the key challenges and opportunities anticipated for the next 12 months.

Alex Mitchell Banking Partner Freshfields Bruckhaus Deringer alex.mitchell@freshfields.com

Klaus Kremers Senior Partner Roland Berger Strategy Consultants klaus.kremers@rolandberger.com

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METHODOLOGY
In early 2013, Debtwire canvassed the opinions of 50 representatives from the borrower community 25 corporate issuers and 25 private equity fund managers in Europe regarding their outlook for the European refinancing market. Respondents were questioned on the subjects of upcoming debt maturities, refinancing plans, market conditions and their relationship choices in a refinancing scenario. Interviews were conducted over the telephone and respondents were granted anonymity. Their responses are presented in the following pages in aggregate. Further details regarding respondents can be found in the Appendix at the end of the report.

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Nearly half of borrower respondents expect over EUR 1trn to be refinanced in next three years Corporates expected to account for majority of upcoming maturities

How much debt do you expect to come up for refinancing in the market over the next three years?

Percentage wise, how do you see the split of that debt between private equity-related debt and corporate debt?

8%

6%

20% 22% 46%

74% 24%

150bn-299.9bn

300bn-499.9bn

500bn-1 Trillion

Above 1 Trillion

26-50% PE / 50-74% Corp

0-25% PE / 75-100% Corp

51-75% PE / 25-49% Corp

Some 46% of borrowers surveyed expect more than EUR 1trn in debt to come up for refinancing over the next three years. This compares to just 33% of lenders who expect that level of debt quantum to hit the market, suggesting that borrowers seem more cognisant of the competitive challenges within the refinancing space than lenders. Over the next three years the debt maturing and coming for refinancing will be high above a trillion euros. Some of this debt will be repaid by the companies that have managed to grow their revenues, but the majority of firms will seek a maturity extension or a refinancing, said a French private equity respondent. In the last three years we have only seen an increase in accumulation of debt and no significant debt repayment, added a Polish corporate borrower. In the next three years we will see all the debt refinanced rather than repaid and this will continue unless the market improves significantly.

The vast majority of respondents believe that corporates will account for the majority of debt refinancing, with close to three-quarters expecting a 26-50% PE / 50-64% corporate split and one fifth expecting a 0-25% PE / 50-74% corporate split. Only 6% of respondents anticipate that private equity will require more refinancing than corporates.

Borrower financing expectation will also significantly depend on its business focus. With European growth expected to be very slow, companies with significant business inside and outside Europe might have the mismatch of managing a restructuring in Europe but funding growth in other regions.
Klaus Kremers, Roland Berger Strategy Consultants

In relation to recent years, it appears that most borrowers now recognise the scale of the refinancing challenge that still remains and appear to be more in line with lenders expectations.
Klaus Kremers, Roland Berger Strategy Consultants

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Financial services expected to account for bulk of refinancings

Borrowers face maturity spike in 2014

In which sector do you expect the bulk of refinancing to take place?

When does the bulk of the debt you are planning to refinance come up for maturity?

Corporate

20%

24%

16%

12%

4%

12%

8%

4%

Corporate

12%

40%

44%

4%

Private equity firm

28%

4%

12%

16%

16%

8%

4% 4% 4% 4%

Private equity firm

8%

44%

12%

4%

32%

Overall

24%

14%

14%

14%

10%

10%

6% 4%

2% 2%

Overall

10%

42%

28%

2%

18%

0%

20%

40%

60%

80%

100%

0%

20%

40%

60%

80%

100%

Percentage of respondents

Percentage of respondents

Financial Services Consumer/Retail Media

Auto/Auto Parts Industries Transport

Energy Basic Technology

Property & Construction Utilities

2013

2014

2015

2016

Beyond 2016

The Financial Services sector will account for the largest proportion of debt to be refinanced, according to nearly a quarter of respondents, while some 14% point to Auto/Auto Parts, Energy and Property & Construction respectively. Financial services owe the bulk of the debt that will be maturing in the next three years and most of this debt will be refinanced. The sector is evolving and central banks are playing a major role in safeguarding financial services so that liquidity is maintained and the market does not go into a double dip recession, suggested an Italian private equity respondent. The auto sector is expected to account for the largest proportion of debt (24%) to be refinanced by corporates, but represents a negligible share of private equity company debt (4%), respondents said. Debt levels in the auto sector will continue to rise as the car market is expected to remain weak due to high interest rates, more expensive fuel prices and an uncertain economy, suggested a Finnish corporate respondent. These companies are facing pressure from both sides, demand is declining continuously and at the same time operational and inventory cost is increasing.

Both groups of borrowers have a significant chunk of debt due for refinancing in 2014, with 40% of corporate borrowers and 44% of private equity companies hitting their maturity peak next year. But while corporate borrowers face another year of peak maturities in 2015, private equity borrowers have a more manageable schedule with modest volumes in 2015 and 2016.

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Majority of respondents plan to refinance in 2H13 or 2014 Optimal refinancing conditions expected in 2014

When are you planning to refinance this debt?

When do you see the market conditions as optimal for refinancing?

Corporate

8%

28%

40%

16%

8%

Overall

12%

24%

52%

12%

Private equity firm

8%

24%

24%

12%

32%

Private equity firm

8%

44%

44%

4%

Grand Total

8%

26%

32%

14%

20%

Corporate

10%

34%

48%

8%

0%

20%

40%

60%

80%

100%

0%

20%

40%

60%

80%

100%

Percentage of respondents

Percentage of respondents

H1 2013

H2 2013

Not until 2014

Not until 2015

Beyond 2015

H1 2013

H2 2013

Not until 2014

Not until 2015

Beyond 2015

Just over a quarter (26%) of all respondents are planning to refinance this debt in 2H13, while nearly a third (32%) will wait until 2014. Corporate borrowers are in more of a rush to refi, with 28% aiming to deal with their maturity schedules in the second half of this year and 40% next year. The longer maturity profiles of the debt held by private equity firms means they are under less pressure just 24% plan to refi in 2H13 and 24% in 2014, while some 32% are not planning to tackle their maturities until beyond 2015. We were able to refinance our debt when market conditions were worse and the eurozone crisis was at its peak. Now the market is relatively stable and liquidity has improved, we will refinance our debt close to our debt maturities and I dont think we will face any difficulty this time, said a private equity respondent. I think now is a good time to refinance as bank lending has improved and interest rates are down, added a Spanish corporate respondent. We are looking to early refinancing because of two reasons we want to take advantage of the low interest rates and at the same time we want to avoid any possible setback at the last moment.

Just over one third (34%) of all respondents expect market conditions for refinancing to be optimal in 2H13 while nearly half (48%) expect conditions to be even better in 2014. The majority of corporate borrowers (52%) think conditions will be best in 2014, but private equity borrowers are split with equal numbers plumping for both 2H13 and 2014 as the ideal time to come back to the market. After the first half of 2013 I feel most of the uncertainties in the market will have been overcome and there will be renewed confidence. Appetite for lending will greatly increase so it will be the right time for refinancing, an Italian private equity respondent commented. The market is all set to leave behind the crises and by next year we will again see growth coming, suggested a corporate respondent in Poland. Companies will be in a better position to negotiate a refinancing deal. Although the market has improved a lot there is some level of restriction because of the uncertainties, which should end by next year.

The number of government elections taking place last year created extra uncertainties alongside the state of the economy. As the overall level of uncertainty reduces, more and more companies will look to refinance.
Klaus Kremers, Roland Berger Strategy Consultants

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Periodic shutting down of markets seen as biggest factor impacting refinancing

Smoothing out maturity schedules most important reason for refinancing

What impact is the sovereign debt crisis having on borrowers ability to refinance?

Why are you planning to refinance this debt?

Increased uncertainty is sparking a sell-off in the secondary markets, thereby pushing up primary market pricing and resulting in higher funding costs Bouts of uncertainty periodically shutting markets, reducing the window of opportunity to refinance

74% 4% 72% 48% 62% 18% 62% 28% 8% 2% 10% 20% 30% 40% 50% 60% 70% 80%

To meet an approaching maturity

68% 24% 66% 22%

To refinance at lower cost

Exposure to sovereign debt is limiting banks ability to roll over loans

To smooth out a maturity schedule

60% 36% 38% 16%

Sovereign rating downgrades result in corporate downgrades, increasing funding costs

To raise additional capital

Negative impact only in respect of certain lower rated credits / sectors / financing sizes 0%

To meet rating agency requirements 0%

18% 2% 10% 20% 30% 40% 50% 60% 70% 80%

Percentage of respondents

Percentage of respondents

Overall

Primary Impact

Overall

Primary Impact

Near three-quarters of respondents (74%) said that funding costs rose as a result of the sell-off in secondary, sparked by concerns over the sovereign debt crisis. But nearly half (48%) of respondents felt the primary impact of the crisis is a reduced opportunity to refinance due to bouts of uncertainty periodically shutting down markets. The impact of sovereign downgrades on corporate ratings was seen as the most important fallout by some 38% of respondents, while banks inability to rollover loans due to exposure to sovereign debt was cited by 18% of borrowers surveyed. It is because of the prevailing uncertainty that companies are often not able to get refinancing. Elections in European countries, currency fluctuations etc do not allow for easy access to refinancing capital as lenders become concerned about the macroeconomic situation and volatility, said a private equity respondent. Many European countries have a sovereign debt crisis and in these countries even those companies which are doing good business and are able to withstand the deteriorating economic conditions are not able to get refinancing because the rating of these companies are downgraded, added a Finnish corporate respondent.

Loans approaching maturity was cited as a factor in raising capital by 68% of respondents, with nearly a quarter (24%) stating that it was the primary reason for refinancing. This marks a significant shift from last year, when 44% of respondents picked it as a primary reason, highlighting that many borrowers feel under less pressure from upcoming maturities. Refinancing at lower costs was cited by nearly two thirds (66%) of borrowers, with 22% seeing it as the primary reason. Some 60% of the borrowers surveyed cited smoothing out a maturity schedule as a reason for refinancing, with a substantial 36% seeing it as the most important reason. We are not under pressure to refinance our debt. We will do it to smooth out a maturity schedule and will do it only when we approach maturity, said a UK private equity respondent. Our primary reason for early refinancing is the lower cost of refinancing. We feel that the cost will increase in the next year, a UK corporate borrower commented. An early refinancing will give us time and we can then start focusing on our business without any worries. The market is not strong enough to be overconfident and refinance at the last moment.

The sovereign debt crisis is certainly not over but the level of uncertainty and concern has reduced slightly.
Bernd Brunke, Roland Berger Strategy Consultants

Many corporate borrowers have already taken steps to tackle approaching maturities and so are now able to focus more generally on their maturity profile and opportunistically take advantage of good market conditions.
Martin Hutchings, Freshfields Bruckhaus Deringer

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M&A the standout reason for raising additional capital but dividend recaps on the rise Amend and extend becomes default option for borrowers

If answered To raise additional capital, why do you need additional financing?

How do you expect to do the refinancing?

M&A

100%

Corporate

56%

20%

20%

4%

Dividend recap

50%

Private equity firm

64%

20%

12%

4%

Expansion into emerging

25%

Overall

60%

20%

16%

4%

0%

20%

40%

60%

80%

100%

0%

20%

40%

60%

80%

100%

Percentage of respondents

Percentage of respondents

Amend and extend instead Refinance with new lenders

Refinance with a combination of both

Refinance with existing lenders

Easy financing conditions in the primary markets are emboldening borrowers. All of the respondents looking to raise fresh capital were planning to use the new money to fund M&A, up from 62% last year. Meanwhile, half of respondents were also planning to use the additional funding to perform a dividend recapitalisation, up from just 14% last year. But expansion abroad looks to be slowing only a quarter of the borrowers said they would use incremental debt to fund expansion into emerging markets, down from 57% last year. We have acquisition plans and want to raise additional capital for it, commented a director of strategy at a Finnish corporate. We do not want to overspend from our balance sheet as we want to keep money safe for our capital expenditures. Thus additional financing in the form of debt or equity is what we are looking for to finance our acquisition over the next 12 months.

Amend and extend has become the preferred route for borrowers needing to refi with some 60% of respondents planning to go down this route. Just 20% expect to refinance with a combination of both new and existing lenders, down from 73% last year. Sixteen percent of borrowers expect to refinance with existing lenders while only 4% expect to raise the necessary capital with new lenders. We are not looking to refinance for any acquisitions or business expansion, we just want to refinance our debt and do not want to raise any additional capital so we would prefer to amend and extend, said a Spanish corporate respondent. New lenders are very sceptical and do not easily provide refinancing. Using current relationships and obtaining refinancing from the existing lenders is usually the best option as a new lender will take much longer for approval and there is no guarantee that it will happen, added a director at an Italian private equity firm.

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Senior secured and unsecured bond structures and pari passu bank and bond structure to lead refinancing
What bank/bond structure do you think will be most popular for refinancings over the next 12 months?

Banks and bond market key refinancing routes

Who will be providing the refinancing?

Banks Corporate 40% 36% 24% The Bond Markets

96% 48% 82% 22% 58% 20% 58% 10% 12%

Private equity firm

36%

40%

24%

Private equity

Non-bank lenders / Alternative capital providers Overall 38% 38% 24% The Stock Markets

0%

20%

40%

60%

80%

100%

0%

20%

40%

60%

80%

100%

Percentage of respondents

Percentage of respondents

Senior secured and unsecured bond structure All bond structure with super senior RCF

Pari passu bank and bond structure

Overall

Primary

For planned refinancings over the next 12 months, senior secured and unsecured bond structures are expected to be most popular alongside pari passu bank and bond structures, with 38% of respondents selecting each option. All bond structures with a super senior RCF are making inroads though roughly a quarter (24%) of borrowers chose this option, up from just 11% last year. Senior secured and unsecured bond structures provide flexibility and are done at low cost. There is strong market demand for both senior secured credit facilities and senior unsecured notes allowing businesses to lock in very favourable rates, a UK private equity respondent said. There is a lot of demand for senior secured bond structures, which is natural considering the volatile market means investors are looking for a secure mode of investments. But even unsecured bonds are gaining prominence among a specific class of investors who have higher appetite for risk and are looking for higher returns, a corporate respondent added.

Banks are expected to remain the key providers of capital, with 96% of respondents selecting them as a refinancing route and 48% anticipating that they will be the primary providers. But bonds are gaining in importance with 82% of respondents choosing them as a refinancing option as well (up from 60% in last years survey), and 22% tipping them as the primary route (up from 16%). I think 2013 will be a boom year for the corporate bond market, suggested a partner at a UK private equity firm. Momentum is very high with some deals heavily oversubscribed motivating companies to issue bonds for refinancing.

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More respondents expect lenders to roll into new debt Shift towards bond market continues

What % of existing lenders do you expect to roll into new debt?

How do you expect your funding mix to change between loans and bonds?

Corporate Bondholders 26% 54% 16% 4%

44%

32%

24%

Private equity firm

40%

32%

28%

Loan providers

4%

44%

20%

30%

2% Overall 42% 32% 26%

0%

20%

40%

60%

80%

100%

0%

20%

40%

60%

80%

100%

Percentage of respondents

Percentage of respondents

Below 15% 61% 75%

16% 30% Above 75%

31% 50%

51% 60%

Increased proportion from the bond market Increased proportion from the bank market

No change anticipated

Some 53% of respondents expect more than half of loan providers to roll over during refinancing, while 20% of those surveyed expect more than half of bondholders to do the same. This is slightly up on last year, when 46% of respondents expected more than half of loan providers to roll over and 18% thought that more than half of bondholders would switch into new bonds in a refinancing. Now there is not much difference between bank lending and the bond market. Issuing bonds is the easiest route for refinancing as there are many investors looking for investment opportunities which are secure and liquid too, suggested a head of finance at a Luxembourg-based corporate. Bank lending is holding steady for highly regarded and highly rated companies, but with companies which are in distress and have lower ratings the bond market is helping them to raise capital.

Borrowers expect the bond market to play a more important role in providing funding, with 42% of those surveyed anticipating that they will increasingly source capital in the bond market. In contrast only 26% expect an increased proportion from the bank market while just under a third (32%) anticipated no change in allocation. There is high demand for investment grade bonds and when a highly regarded company issues bonds it receives huge interest from lenders. Even junk and non investment grade bonds are now attractive to lenders, a Spanish corporate respondent commented. All of the factors that helped in improving bond market performance in the past two years remain firmly in place, which will keep the bond market active in funding, added a partner at a UK private equity firm.

Many European corporates have increasingly sought to diversify their funding sources by tapping the bond market so as not to be overly reliant on bank financing. In the US, corporates are funded 70% in the capital markets. Whilst European corporates have some way to go to reach these levels, there has been a shift in focus over the last 5 years.
Martin Hutchings, Freshfields Bruckhaus Deringer

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Bank debt followed by senior secured bonds most popular instruments in 2013

Covenant pressures and dodging sovereign risk volatility biggest challenges when refinancing

What percentage of debt do you expect to be refinanced with the following instruments during 2013?
17% 2% Senior secured bonds (%) 2% Mezzanine debt (%) Equity (%) Unsecured bonds (%) PIK debt (%) Private placements (%) 0% 31% 6% 33% 17% 36% 7% 7% 50% 50% 63% 14% 37% 43% 56% 23% 27%

What are the biggest challenges you encounter when negotiating a refinancing?
72% 22% 68% 24% 68% 24% 64% 10% 62% 18% 20% 2% 0% 10% 20% 30% 40% 50% 60% 70% 80%

Bank debt (%)

33% 45% 45% 50%

Covenant pressures Timing to avoid sovereign risk volatility Timing to achieve optimum market conditions Timing to avoid competing deals Obtaining appropriate rating Potential to tap into US markets 70% 80%

6% 10% 20% 30%

40%

50%

60%

Percentage of respondents

Percentage of respondents

1 19

20 29

30 39

40 49

50 & Above

Overall

Primary

Some 23% of respondents expect to use bank debt to refinance more than half of their debt in 2013, while another 27% anticipate using bank debt for refinancing between 40% and 49% of their debt. Senior secured bonds are the next most popular option, with almost half of the respondents (45%) planning to use the instruments to refinance between 30% and 49% of their debt and another 45% to refi between 20% and 29% of their debt.

Covenant pressures moved to the top of the list of challenges faced by borrowers when negotiating a refinancing from second place last year, with close to three-quarters (72%) of respondents citing it as a challenge and 22% as the main obstacle. Timing to avoid sovereign risk volatility jumped to second place from third last year with 68% of respondents picking it and 24% tipping it as the primary challenge. Timing to achieve optimum market conditions, the most widely selected challenge last year, slipped to third place with 40% picking it as a challenge, and 24% considering it the main difficulty, down from 38% the prior year. The sovereign debt crisis in Europe weighs heavily on companies negotiating a refinancing, suggested a Spanish corporate respondent. Because of the crisis banks can be reluctant to extend credit to refinance debt even when its investment grade. How far the current market will sustain optimal conditions is not known. Considering the volatile history of the European economy in the last four years and frequent changes in the banking system I think it is very difficult to get the right timing for refinancing, suggested a German private equity borrower.

With European economies continuing struggle to drive growth there will be a lot of pressure negotiating covenants as lenders look to keep as tight a control as possible in such uncertain times.
Klaus Kremers, Roland Berger Strategy Consultants

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Sovereign debt crisis is key macro trend influencing refinancing Borrowers plan step-up in operational changes to their business during refinancing

What macro trends are affecting your plans to refinance?

Alongside the refinancing of the business, are you planning to make any operational changes to the business?

Sovereign debt crisis 28% Prolonged period of below normal growth 70% 26% 66% 30% Reduced bank liquidity ahead of Basle 3 48% 14% 24% 2% 0% 20% 40% 60% 80%

90% Private equity firm 92% 8%

Concerns of a double-dip

Corporate

76%

24%

Overall

84%

16%

Currency issues

100%

0%

20%

40%

60%

80%

100%

Percentage of respondents

Percentage of respondents

Overall

Primary Impact

Yes

No

The sovereign debt crisis is the key macro trend affecting refinancing, with 90% of respondents seeing it as having an impact and 28% citing it as the primary influencing factor. Fears over a prolonged period of below normal growth have increased, with 70% of respondents selecting it and 26% expecting it to have biggest impact, up from 52% and 18% respectively last year. Similarly, concerns over a double-dip in Europe are rising, with 66% of respondents seeing it as a deterrent to refinancing and 30% as the main one, up from 44% and 0% respectively last year. The sovereign debt crisis is the biggest enemy for refinancing. There is still huge amount of sovereign debt held by European countries which automatically puts strain on the ability of the banks to provide lending, suggested a UK-based private equity respondent. Concerns of another recession loom large and this is affecting refinancing as we are either required to give strong guarantees or required to pay higher prices, added a Polish corporate borrower.

Both corporate and private equity firms are planning to operationally restructure when refinancing, with just over three-quarters (76%) of corporate respondents and (92%) of private equity borrowers planning to make operational changes to their businesses alongside their plans to tackle their maturities. It marks a significant shift among private equity companies, where just 24% had planned to restructure operationally concurrently with refinancing last year. The trends have changed and so has demand, a Spanish corporate respondent commented. We will restructure our business and will focus on the core areas. We are planning to divest some assets in the domestic market and take on new products in foreign markets, added a German corporate borrower.

There has been a significant shift towards combining operational and strategic improvements alongside financial restructuring in a much more holistic approach. This is key to give the borrower the best chance of successfully refinancing with the best possible conditions.
Nick Parker, Roland Berger Strategy Consultants

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Move towards paying down CLOs to have moderate impact on refinancing

Drop in active CLOs likely to push up amend and extend requests

Do you expect refinancing to become more difficult in the second half of 2013 when a number of CLOs switch repayment cash into pay down instead of reinvesting in new deals?

What impact will the drop in active CLOs during 2013 have on the market?

Corporate

36%

44%

20%

Corporate

44%

32%

16%

8%

Private equity firm

28%

64%

8%

Private equity firm

20%

24%

36%

20%

Overall

32%

54%

14%

Overall

32%

28%

26%

14%

0%

20%

40%

60%

80%

100%

0%

20%

40%

60%

80%

100%

Percentage of respondents

Percentage of respondents

No impact

Slightly more difficult

Significantly more difficult

Increased amend and extend requests Increased refinancing via high yield bonds

Increased refinancing via alternative capital providers Increased refinancing with banks

The majority (54%) of respondents expect the switching of many CLOs towards paying down their liabilities to make refinancing slightly more difficult in 2H13. The concerns are more pronounced among private equity borrowers, where 64% anticipate tougher conditions as a result of disappearing CLO liquidity. With the likelihood of a material reduction in CLO investments in the second half of 2013 there will be a significant funding gap between the refinancing needs of speculative grade companies and available capital from traditional high yield bond and leveraged loan funding sources, noted a UK-based private equity respondent. The funding gap will likely be most acute in the leveraged loan market given the diminishing capacity of CLO investments.

There is limited consensus among borrowers on the impact of the expected reduction in active CLOs, with just under a third (32%) of respondents suggesting it will lead to increased amend and extend requests, some 28% believing that it will drive refinancing via alternative capital providers and 26% stating that it will lead to increased refinancing through high yield bonds. Alternative capital providers will now become the primary source of refinancing, suggested a Spanish corporate borrower. As the primary lenders are unable to meet their commitments towards refinancing, alternative capital providers will take the lead and refinancing through these routes will greatly increase during this year.

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Reduction in active CLOs to have moderate impact on liquidity this year More pronounced impact on liquidity in 2014

How much CLO liquidity do you expect will disappear in 2013?

How much CLO liquidity do you expect will disappear in 2014?

Corporate

36%

8%

24%

16%

16%

Corporate

32%

12%

12%

16%

28%

Private equity firm

32%

12%

32%

8%

16%

Private equity firm

32%

8%

28%

12%

20%

Overall

34%

10%

28%

12%

16%

Overall

32%

10%

20%

14%

24%

0%

20%

40%

60%

80%

100%

0%

20%

40%

60%

80%

100%

Percentage of respondents

Percentage of respondents

Less than 5bn

5bn-10bn

10bn-20bn

20bn-30bn

30bn plus

Less than 5bn

5bn-10bn

10bn-20bn

20bn-30bn

30bn plus

Just over a third (34%) of respondents think that the reduction in active CLOs will reduce liquidity by less than EUR 5bn. Ten percent of respondents think that the trend will reduce liquidity by EUR 5bn-10bn, while 28% think that it will shrink by EUR 10bn-20bn and a further 28% think that liquidity will reduce by more than EUR 20bn.

Borrowers expect more of an impact in 2014, with 38% expecting the reduction in active CLOs to reduce liquidity by more than EUR 20bn and almost a quarter by more than EUR 30bn next year.

BOrrOWEr SUrVEY

No major CLO comeback anticipated in 2013

PE funds have money for deployment in 2013

Do you expect CLOs to make a comeback in Europe in 2013?

What level of funds have you raised that you will need to deploy during 2013?

Corporate

12%

4% 4%

48%

32%

500million plus

8%

300million-400million Private equity firm 8% 8% 4% 44% 28% 8% 200million-300million

20%

40%

Overall

10%

6% 4%

46%

30%

4%

100million-200million

32%

0%

20%

40%

60%

80%

100%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Percentage of respondents

Percentage of respondents

Raise more than 5bn in 2013 Not until 2014

Raise more than 1bn in 2013 Not until 2015

Raise 0-1bn in 2013 The asset class will disappear

A minority of respondents anticipate a comeback for CLOs in 2013. Almost half do not expect new CLOs to come to the market until next year, and another 30% think it wont happen until the following year. However, just 4% of respondents expect the asset class to disappear completely, while some 16% expect CLOs to raise a EUR 1bn plus this year. CLOs will certainly come back in 2013 or in early 2014, suggested a Polish corporate borrower, Because of CLO constraints the market is already in very bad shape and there is a strong argument for removing some restrictions and bringing down the regulations to improve the market and keep a balance between debt and refinancing.

Some 40% of private equity respondents indicate that they have raised EUR 200m-300m that they will need to deploy during 2013. Just under a third (32%) need to deploy EUR 100m-200m this year, while a fifth of the private equity respondents will be looking to invest EUR 300m-500m. We have raised funds but not big ones. We now have a focus on small companies and thus have raised funds accordingly, noted an Italian private equity investor.

17

BOrrOWEr SUrVEY
Turnover in leveraged loan universe expected to decrease

Secondary buyouts have dried up during 2012. Do you expect turnover in the leveraged loan universe, a key driver of deal flow historically, to resume in 2013?

32%

68%

Yes

No

Just over two-thirds (68%) of respondents do not think that turnover in the leverage loan universe will resume in 2013, while just under a third (32%) think that secondary buyouts will pick up again.

LENDEr SUrVEY
LENDEr SUrVEY

METHODOLOGY
In early 2013, Debtwire canvassed the opinions of 50 representatives from the lending community in Europe regarding their outlook for the European refinancing market. Respondents were questioned on their expectations regarding the amount of debt coming to market for refinancing and which sectors and countries will be most impacted. In some instances, and in order to present results for comparison, respondents were asked the same questions as those from the borrower survey. The interviews were conducted over the telephone and respondents were granted anonymity. Their aggregate responses are presented over the following pages. Further details regarding respondents can be found in the Appendix at the end of the report.

19

LENDEr SUrVEY
A third of lender respondents expect over EUR 1trn to be refinanced in next three years Private equity steals a march on corporates in tackling debt maturities

How much debt do you expect to come up for refinancing in the market over the next three years?

Percentage wise, how do you see the split of that debt between private equity-related debt and corporate debt?

9% 6% 33% 2013 8% 77% 15%

26% 2012 23% 55% 22%

26%

0%

20%

40%

60%

80%

100%

Percentage of respondents

<150bn Above 1 Trillion

150bn-299.9bn

300bn-499.9bn

500bn-1 Trillion

0-25% PE / 75-100% Corp 76-100% / 0-24% Corp

26-50% PE / 50-74% Corp

51-75% PE / 25-49% Corp

Some 33% of lenders surveyed expect more than EUR 1trn in debt to come up for refinancing over the next three years. That compares to 46% of the borrowers surveyed, suggesting that lenders are more relaxed over the maturity wall. In the next three years we have a huge maturity wall and much of the debt maturing will come for refinancing because in the current environment and given the capital position of companies, firms generally arent in a position to pay down the debt, suggested a commercial banker.

More than three quarters (77%) of the respondents expect 26-50% of the refinancing to come from private equity deals and 50-74% to come from corporates. This down from 55% last year, suggesting that some private equity owned firms have tackled their debt maturities in the interim. Corporates continue to face challenges and many companies are still in distress because of the lack of demand. They are not able to meet their debt obligations and at the same time tight lending conditions are a big hurdle. Private equity players are in a better position and have built huge cash reserves and are in fact buying assets, an investment banker noted. The rate of corporate debt maturing is higher than the rate of private equity debt in the next three years. Firstly, because private equity firms have already taken debt extensions and their new debt will now mostly mature after 2017. Secondly, private equity firms have already cleared debt and they are not facing as much tension now like the corporates, a prop desk trader added.

Lenders continue to be more negative over the challenges facing the refinancing wall compared to borrowers and are much more sensitive to the specific sectors and geographies.
Klaus Kremers, Roland Berger Strategy Consultants

Private equity firms have been very focused on managing their business debt maturities over the last few years through amend and extend transactions and bank/bond refinancings. Corporate debt maturities will be a key focal point for the market in the next 12 months.
Alex Mitchell, Freshfields Bruckhaus Deringer

LENDEr SUrVEY

Refinancing peak expected in 2013

Financial Services and Property/Construction to account for bulk of refinancings

When do you expect the majority of refinancings to take place?

In which sector do you expect the bulk of refinancing to take place?

2% 2% 2% 2013 24% 24% 18% 14% 8% 4% 2%

2%

12%

14% 40%

2% 2012 30% 15% 6% 11% 11% 2% 12% 9% 2%

32%

0%

20%

40%

60%

80%

100%

Percentage of respondents

They already have

H1 2013

H2 2013

Not until 2014

Not until 2015

Financial Services Energy Chemicals and Materials

Property & Construction Media Transport

Auto / Auto parts Technology Basic Industries

Consumer / Retail Infrastructure

Lenders expectations of when the bulk of refinancing gets done are running ahead of borrowers plans. Some 46% of lender respondents think that the majority of refinancing will take place in 2013, whereas just 34% of borrowers plan to tackle their maturities this year. Similarly just 2% of lenders think the refi peak will be in 2015 and none thereafter, whereas 14% of borrowers aim to refi in 2015 and 20% the following year or later. Companies will try to squeeze as much refinancing as possible into 2013 itself, suggested a fund of funds manager. For companies looking for refinancing, now is the right time because interest rates are very low and credit conditions have improved. I think the majority of the refinancing will happen in 2014 as we saw a significant number of maturities extended in 2012 the majority by two years, a Swiss respondent commented. It will be hard to extend these maturities again so we will instead see refinancings happening.

Financial Services and Property & Construction are the two sectors expected to account for the bulk of upcoming refinancing, with both sectors tipped by 24% of respondents each. This was broadly in line with last year. The crisis is still looming large for Europes struggling construction and real estate companies as they face a race to refinance a huge amount of debt by the end of the year. Weak consumer confidence and poor property demand continues to strain the sector, a prop desk trader commented. Autos, selected by just 6% of respondents last year, jumped to third place with 18% of the lenders surveyed citing it as the sector that they expect to provide most of the refinancing. The automotive industry globally needs some serious refinancing because the crisis has worsened the problem for companies who are struggling with production overcapacity. There is an imminent need for restructuring to survive, added a corporate banker.

21

LENDEr SUrVEY
Germany to account for lions share of refinancing Closing of markets seen as biggest factor impacting refinancing

In which country do you expect the bulk of refinancing to take place?

What impact is the sovereign debt crisis having on borrowers ability to refinance?

Bouts of uncertainty periodically shutting markets, reducing the window of opportunity to refinance 2013 38% 24% 16% 12% 10%

86% 40% 70% 18% 68% 28% 64% 14% 6%

Exposure to sovereign debt is limiting banks ability to roll over loans

Sovereign rating downgrades result in corporate downgrades, increasing funding costs Increased uncertainty is sparking a sell-off in the secondary markets, thereby pushing up primary market pricing and resulting in higher funding costs Negative impact only in respect of certain lower rated credits / sectors / financing sizes 0% 20% 40% 60% 80% 100% 0%

2012

32%

38%

10%

6%

8%

6%

10%

20%

30%

40%

50%

60%

70%

80%

90% 100%

Percentage of respondents

Percentage of respondents

Germany

UK

Spain

France

Italy

Ireland

Overall

Primary

Germany will account for the largest share of refinancing, according to 38% of respondents, (up from 32% last year). Just under a quarter (24%) expect the UK to represent the largest number of refinancings, well down from the 38% last year. Some 16% think that Spain will account for the biggest volume of debt coming up for refinancing while 12% point to France. Refinancing largely depends on the capacity of the domestic market and overall sentiment, and the current capacity and sentiment in Germany is very positive and this will increase refinancing, an investment banker commented. Just because a country has the highest amount of debt maturing does not mean the bulk of refinancing will happen there. Considering the economic environment I think German businesses will be able to refinance the most even though companies in some other countries are holding higher debt with closer maturities, agreed a prop desk trader.

For lenders the most damaging impact of the sovereign crisis on refinancing is seen as the periodic shutting of markets, with 86% of respondents citing it as having an impact and 40% selecting it as the most important effect. Because of sovereign debt crises any foundation laid for economic recovery is weak, suggested a prop desk trader in the Netherlands. There is always uncertainty which shuts the market and decreases the chances of refinancing.

Despite the current benign credit environment, market uncertainty can return quickly and unexpectedly. Preparation and flexibility remain key to executing a successful refinancing strategy.
Alex Mitchell, Freshfields Bruckhaus Deringer

With current lack of growth in European economies, it is not too surprising that expectations are for Germany to account for the largest share of refinancing, but this will also be very much sector specific.
Nils Von Kuhlwein, Roland Berger Strategy Consultants

LENDEr SUrVEY

Amend and extend will be most common option for refinancing

Banks still the key route to refinancing but private equity makes inroads

How do you expect borrowers to refinance?

Who will be providing the refinancing?

10%

The Bond Markets

96% 20% 84% 50% 68% 22% 58% 8% 34%

12%

Banks

Private equity 54% Non-bank lenders / Alternative capital providers

24%

The Stock Markets

0%

20%

40%

60%

80%

100%

Percentage of respondents

Refinance with new lenders Refinance with a combination of both

Refinance with existing lenders Amend and extend instead

Overall

Primary

Over half (54%) of lenders surveyed think that amend and extend arrangements will be the most common option for borrowers facing refinancing while just under a quarter (24%) think that refinancing with a combination of existing and new lenders will be the most utilised route. Amend and extend is currently the favoured option for borrowers, a respondent in Finland suggested. They do not have to spend a long time negotiating and it is the most favourable mode of refinancing.

Banks are still expected to be the primary source of capital when refinancing, according to half (50%) of respondents. Overall some 96% of the respondents expect bonds to play a role, followed by 84% for banks, 68% for private equity and 58% for alternative capital providers. Banks are still the largest lenders and they are the primary source of refinancing for many companies. Interest rates have come down and banks are now more open while their lending conditions have also eased a bit, an investment banker commented. Private equity leapfrogged bonds into second place as likely primary provider of refinancing, with 22% of respondents picking private equity ahead of 20% selecting bonds. Private equity is emerging as the leading source of capital as they are now holding huge cash piles and are very active in refinancing businesses, suggested a prop desk trader.

Amend and extend transactions have proven to be a very efficient and relatively inexpensive way for borrowers to manage their debt maturities, while maintaining the benefit of their existing lender relationships. We expect them to remain a key financing tool in the future.
Alex Mitchell, Freshfields Bruckhaus Deringer

The key issue with amend and extend is that it is much easier not to address potential root causes of underperformance. Combining with operational and strategic reviews as part of a holistic restructuring is the only way to ensure long term competitiveness.
Klaus Kremers, Roland Berger Strategy Consultants

Private equity firms, credit funds and other alternative capital providers have very significant amounts of capital available and are taking increasingly large direct lending positions. They have an advantage over banks in the current regulatory environment and we expect them to be a key source of funding for refinancings in the coming years.
Alex Mitchell, Freshfields Bruckhaus Deringer

23

LENDEr SUrVEY
Banks set to continue driving refinancing Loans remain most popular debt instrument when refinancing

Between all those that you mentioned, what will be the likely split?

What percentage of debt do you expect to be refinanced with the following instruments during 2013?
30% 50% 54% 63% 71% 50% 100% Equity

Banks 4% The Bond Markets

13% 25%

28% 35% 33% 33%

Bank debt 2% Senior secured bonds 7% PIK debt 8% 17% Private placements Mezzanine debt 37% 36% Unsecured bonds 50% 7% 10%

23%

20% 16% 13%

27%

25% 25% 21%

11% Private equity 7% Non-bank lenders / Alternative capital providers

20% 18% 18% 22% 25%

32%

19% 33%

4% 4% 7% 7% 0% 10% 20% 30%

43%

The Stock Markets

40%

50%

60%

0%

20%

40%

60%

80%

100%

Percentage of respondents

Percentage of respondents

1 19

20 29

30 39

40 49

50 & Above

1 19

20 29

30 39

40 49

50 & Above

Some 35% of respondents expect banks to account for more than 50% of new debt during refinancing in 2013, while a quarter (25%) anticipate that banks will provide 40% and 49% of the capital. Eleven percent of respondents see the bond markets accounting for more than 50% of the new debt in a refinancing, and some 7% think private equity will provide 50% or above of the new capital. Bonds are still regarded as one of the most viable sources of refinancing with more favourable terms and accessibility, suggested a prop desk trader. Private equity is also emerging as a big refinancing source as PE firms are showing considerable interest and are being flexible because this is an opportunity for them to strike valuable deals.

A fifth of respondents expect bank debt to account for more than 50% of debt refinancing in 2013, while 27% anticipate that bank debt will be used for between 40% and 49% of the debt being refinanced. Seven percent of respondents see senior secured bonds being used to refinance more than 50% of debt while 41% anticipate that senior secured bonds will be used to refinance between 30% and 49% of the debt due for refinancing.

LENDEr SUrVEY

Senior secured and unsecured bond structures to dominate

Timing to achieve optimum market conditions biggest challenge but dodging sovereign risk volatility increasingly important
What are the biggest challenges you encounter when negotiating a refinancing?
72% 24% 64% 24% 64% 24% 64% 12% 58% 14% 38% 2% 0% 10% 20% 30% 40% 50% 60% 70% 80%

What bank/bond structure do you think will be most popular for refinancings over the next 12 months?

Timing to achieve optimum market conditions 26% Timing to avoid sovereign risk volatility Covenant pressures 46% Obtaining appropriate rating Timing to avoid competing deals Potential to tap into US markets

28%

Percentage of respondents

Pari passu bank and bond structure

All bond structure with super senior RCF

Overall

Primary

Senior secured and unsecured bond structure

Senior secured and unsecured bond structures are expected to be the most popular when refinancing during the next 12 months, according to 46% of respondents. All bond structures with super senior RCF are the next most likely to be used, tipped by 28%, followed by pari passu bank and bond arrangements, chosen by 26% of lenders surveyed. Secured loans are highly regarded by lenders as they provide security and are very liquid, a director at a mezzanine fund noted. Bank bond structures are not liquid and have strict terms and are therefore difficult for the companies to issue. Senior secured bond structures have gained prominence and proven to be a successful element for refinancing.

Timing to achieve optimum market conditions remains the biggest challenge when negotiating a refinancing, cited by 72% of respondents as a factor and by 24% as the primary challenge. Timing to avoid sovereign risk volatility moves up into joint second place with covenant pressures, with 64% seeing them as issues and 24% as the primary challenge. Avoiding sovereign risk volatility will significantly benefit issuers when refinancing and it will also help companies in improving their credit rating, a mezzanine fund manager commented. However, avoiding sovereign risk is not easy and can put significant pressure on companies and their ability to refinance.

25

LENDEr SUrVEY
Default rates expected to fall this year Refinancing in the US an attractive option for many

How do you expect default rates to develop over the next 12 months?

What volume of debt will European issuers refinance in the US market in 2013?

6% 24% 24% 40% 50%

26%

30%

Decrease

Remain the same

Increase

20bn plus

10bn-20bn

5bn-10bn

1bn-5bn

Half of the lenders surveyed anticipate a decline in default rates over the next 12 months, while just under a quarter (24%) expect default rates to increase and the remainder for them to remain the same. Default rates will come down, suggested a commercial banker. Although the amount of debt coming for maturity will be as high as a trillion euros, generally companies are in a healthy position with good balance sheets. Thus companies will be able to refinance and avoid defaults even if they are not able to pay down their debt. I think default rates will come down as the market has generally emerged from uncertainty and compared to earlier companies will be able to get refinancing and extend maturities, added a prop desk trader.

Forty percent of lenders surveyed expect more than EUR 20bn of European debt to be refinanced in the US market in 2013. Just under a third (30%) of respondents think the number will be closer to EUR 10bn20bn while just under a quarter (24%) anticipate that the figure will be in the region of EUR 5bn-10bn. European issuers are keener on refinancing debt in the US than in Europe due to the improving state of the economy in the US, noted a prop desk trader. The situation in the US is not as grim as it is in Europe and that is driving European issuers to refinance debt in the US.

However, due to more complex financing structures out of court solutions are becoming more difficult which could temper any expected reduction in default rates.
Klaus Kremers, Roland Berger Strategy Consultants

LENDEr SUrVEY

Private placements expected to account for 15-20% of US refinancing

Banks planning to raise further capital and cut lending to boost ratios

What percentage of this will be in the form of private placements?

What preparations does your institution still need to make to meet the new regulatory capital requirements under Basle III?

16%

14%

36%

48%

21%

36%

29%

Decrease

Remain the same

Increase

None, we are already prepared Plan to raise more capital

Plan to both raise further capital and reduce loan exposure Plan to reduce lending further

Just under half (48%) of lender respondents expect that between 15-20% of the debt refinanced in the US will be done through private placements. Some 36% think that private placements will account for 10-15% of these refinancings while 16% think that the proportion will be in the 20-25% range.

Thirty-six percent of respondents from banks say that they do not need to make any further preparations in anticipation of the new capital requirements of Basle III. But 29% say that they will both raise additional capital and reduce their loan exposure while 21% plan only to raise more capital and 15% just to reduce lending. We are already prepared for the new regulatory requirements under Basle III and it is the right time for us to be opportunistic, said an investment banker. The market is improving and we have taken adequate steps so that we are not restricted because of the new regulatory requirements. Like any other bank we are looking to reduce our loan exposure, noted a German commercial banker. However, we do not have plans to curb lending as investment opportunities in some segments of the market are still attractive.

The regulatory impact on capital costs for the banks will mean that certain products will either become more expensive for borrowers, be offered by fewer banks, or only be offered where there is sufficient ancillary work available (and therefore returns for the banks) to justify it.
Martin Hutchings, Freshfields Bruckhaus Deringer

27

LENDEr SUrVEY
ABL facilities to replace revolvers as Basle III bites

How much do you plan to cut lending by in 2013?

14%

86%

Yes

No

The vast majority (86%) of respondents expect asset-backed lending to replace revolving credit facilities in 2013 as a result of more favourable treatment under Basle III. Though asset backed lending is more favoured this is only true among banks and other regulated financial institutions, noted a UK investment banker. Private financiers are very much interested in the leveraged market.

LENDEr SUrVEY

29

APPENDIX
BORROWER SURVEY RESPONDENTS INFORmATION

Are you a corporate or private equity investor?

In which European sub-region are you primarily based?

4% 6% 6%

4%

28%

50%

50%

8%

10%

22% 12%

Private equity firm

Corporate

UK & Ireland Iberia

Germanic Benelux

Nordic CEE

France SEE

Italy

APPENDIX

LENDER SURVEY RESPONDENTS INFORmATION

In which market are you primarily involved:

50%

50%

The leveraged market

The corporate market

31

For your most complex matters, you need the best legal minds to solve your problems. Freshfields leads the way on Europes most intricate financings for borrowers and sponsors, funds and arrangers. We advised on Techems and Storks bank/bond refinancings, and on Center Parcs first-of-a-kind 1.2bn refinancing. We have the experience and creativity to get your deal through. Freshfields will make sure you get the best possible outcome were with you every step of the way.

freshfields.com

Freshfields Bruckhaus Deringer LLP

CASE STUDY: TECHEm

CASE STUDY: TECHEm
Techem is a leading global provider of energy billing and energy management services, principally owned by Macquarie. The initial acquisition had been financed by traditional senior and mezzanine bank debt and, whilst the business was well able to service the ongoing obligations, the upcoming maturities in 2015 required a refinancing. The company needed to refinance 1.3bn of existing debt and required ongoing capex/acquisition and working capital revolving credit facilities, and judged that the market appetite for a refinancing justified the decision to seek a refinancing in 2012. Given the nature of the business of the group and its long term financing needs, the management wanted to put in place a financing which reflected the need for flexibility in building out and developing its metering business, and which was designed around the cashflows of the business. The group also wanted to design a debt package with staggered maturities and the ability to independently refinance individual elements of the debt package to broaden its refinancing options going forward. This led the company and its advisers to design a mixed debt package with a blend of products including: 550,000,000 senior facilities agreement maturing in 2017; 410,000,000 senior secured notes due in 2019; 325,000,000 senior subordinated notes due in 2020. This mix of debt types and maturities facilitates opportunistic refinancings by the group and the ability to switch debt products in the future in order to meet its maturity obligations. It also avoids exposure to any one debt product and enables the company to ensure that it is already achieving the best pricing. This flexibility was also reflected in other terms of the capital structure, in particular: The limitations on debt incurrence in both the bank and bond debt was limited to achieving a particular leverage position but with a free ability as to the type and nature of the debt (subject to certain ceilings on the economic terms) thereafter; The ability to refinance the facilities and the notes by means of new facilities, new notes or other debt instruments is not fettered other than in respect of certain of the economic requirements; The intercreditor agreement and security package was designed to accommodate full or partial refinancings and various different types of debt including, in the event that an all bond structure is put in place, allowing the structure and the ICA to flip to an all bond style ICA without bondholder consent and without needing a new security structure (an evergreen feature); The hedging is not tied to any one particular product but provided on a generic basis in order to enable the hedging to apply to refinanced debt going forward. This fluid capital structure permits refinancing of the various classes of debt from a number of sources and minimises execution risk of refinancing the current structure by avoiding the need for further consents or amendments to the capital documents (in particular with respect to the ICA). In addition, the bond covenants provide flexibility going forward for the purpose of the payment of dividends if certain leverage requirements are met. The transaction also saw the development of certain features addressing the rights of the bank and bond investors in the capital structure where: Enforcement voting is on a euro for euro basis; but If the relevant event of default is continuing under the facilities agreement but not the notes, then the relevant instructing group will consist of the lenders under the facilities agreement only; and There are certain prohibitions on amendments in respect of the terms of the bonds where they would be stricter than the terms of the facilities agreement. These arrangements enshrine the pari passu treatment of the senior secured debt but preserve the differential terms of the bank debt versus the bond debt.

33

COMPANY PROFILE
Roland Berger Strategy Consultants, founded in 1967, is one of the worlds leading strategy consultancies. With 2,700 employees working in 51 ofces in 36 countries worldwide, we generate the majority of our business internationally. Roland Berger is an independent partnership owned by about 250 Partners. Its global Competence Centres specialise in specic industries or functional issues. We handpick interdisciplinary teams from these Competence Centres to devise tailor-made solutions. At Roland Berger, we develop customised, creative strategies together with our clients. Providing support in the implementation phase is particularly important to us, because thats how we create real value for our clients. Our approach is based on the entrepreneurial character and individuality of our consultants Its character that creates impact.

CONSULTING SERVICES
We provide top management and investors / creditors with outstanding restructuring concepts, having performed more than 2,100 cases: strategic, operational and nancial restructuring is where we truly excel. In addition, we support the entire implementation process and ensure that necessary actions are taken quickly. Further topics include structural realignment, liquidity management, insolvency issues, business planning and interim management. For corporate excellence projects, we offer advice in strategic positioning, portfolio management, transformation, PMI, process reengineering, cost reduction and working capital optimisation. Key organisational topics include headquarters organisation, HR management, change management, shared services, corporate governance, overhead optimisation and reviewing management structures and processes. This process is always heavily supported by our industry experts. Our key restructuring focus areas
STRATEGIC RESTRUCTURING OPERATIONAL RESTRUCTURING FINANCIAL RESTRUCTURING

Supported by
> > > > > > Cash management Business planning Interim management / CRO Stakeholder negotiation Restructuring targeting Implementation support, including measure management > Due diligence > Investments / divestments

Integrated in business plan

REFERENCES
Fundamentally restructuring companies, consulting on mergers, acquisitions and nancing issues, developing strategic concepts and implementing comprehensive programmes as well as optimising organisations and processes these projects set the basis for a companys future. Our Corporate Performance Competence Centre taps the expertise of Roland Berger Strategy Consultants to support our clients in tackling these key business issues. This expertise is built on over 40 years of relevant project work and studies with clients from all industries.

CONTACT
Klaus Kremers SENIOR PARTNER
Tel: Mob: +44 (0)20 3075 1100 +44 (0)79 6767 4871 +49 (160) 744 3420 Fax: +44 (0)20 7224 4110 klaus.kremers@rolandberger.com

www.rolandberger.com

CASE STUDY: CENTrOTHErm PHOTOVOLTAICS AG

CASE STUDY: CENTrOTHErm PHOTOVOLTAICS AG
Experience with the new insolvency law in Germany One of the most prominent ESUG cases to date concerns a global leading technology and equipment provider covering the entire photovoltaic value chain. The provider went public in 2007 and has since expanded rapidly, driven mainly by market growth and acquisitions. In 2011, the company generated revenues of EUR 700m, with 95% of its sales outside of Germany and with Asia as its most important region. The company had approximately 2,000 employees. In 2012, the market for photovoltaic equipment shrank by approximately 70%. The sudden turmoil in the market triggered a severe drop in the company's profits and a high cash burn rate by the beginning of Q2/2012. In light of developments in the photovoltaic industry as a whole, major banks responded to the company's situation by suspending its credit lines. The company also faced high risks and financing needs resulting from ongoing large-scale projects. Finally, at the beginning of Q3/2012, the company's trade credit insurance policies were cancelled. At this point, the board concluded that, even though the company still had EUR 80m in cash at its disposal, it was not possible to obtain the financing needed to take the requisite restructuring actions and survive the crisis that was affecting the entire photovoltaic industry. The company filed for insolvency in combination with protective shield proceedings and self-administration (Eigenverwaltung). Its request was granted by the district court, giving the company a three-month window in which to further drive restructuring and develop an insolvency plan showing how creditor claims could best be satisfied. The district court named a trustee to supervise self-administration, which was the option adopted by the company's board and stakeholders. In the three months that followed, the company developed a restructuring concept and a bankruptcy plan. The cornerstones of the plan were to continue operations, focus on the company's core business and remain as a public company. The plan also envisaged a deferral of payments, a cut in shares and a debt-to-equity swap. Creditors would own 80% of the business, and the company would be obliged to sell shares on the best possible terms and settle creditors' claims out of the proceeds. The plan was approved by the creditors at the beginning of 2013. Within the allotted time frame, management was able to stabilize business operations. No orders were cancelled due to financial collapse. Furthermore, the company was able to negotiate with potential new clients and to actually generate order income. Employees felt reassured by the safety net procedure It helped them believe in the future of the company. In addition, the company received debtor-in-possession financing. Restructuring actions were implemented as planned, which improved the company's liquidity situation. The success factors in an insolvency under the new ESUG law are: 1. Make sure that management is both experienced and autonomous 2. Involve creditors early on when applying for self-administration 3. Prepare the certificate required by Section 270b of the German Statute on Insolvency (InsO) early on and quickly get it agreed/approved Contacts: Klaus Kremers, Senior Partner Roland Berger Strategy Consultants klaus.kremers@rolandberger.com Jan von Schuckmann, CEO Centrotherm Photovoltaics AG jan.schuckmann@centrotherm.de

35

AbOUT & CONTACTS

FRESHFIELDS BRUCKHAUS DERINGER LLP
Alex Mitchell Banking Partner +44 20 7716 4812 alex.mitchell@freshfields.com Sean Lacey Banking Partner +4420 7716 4673 sean.lacey@freshfields.com Geoff ODea Banking Partner +44 20 7427 3484 geoff.odea@freshfields.com Michael Steele Banking Partner +44 20 7716 4392 michael.steele@freshfields.com Martin Hutchings Banking Partner +44 20 7427 3594 martin.hutchings@freshfields.com Sean Pierce Banking Partner +44 20 7832 7682 sean.pierce@freshfields.com Christopher Davis Banking Partner +44 20 7785 2496 christopher.davis@freshfields.com Simone Bono High Yield Partner +44 20 7832 7269 simone.bono@freshfields.com Denise Ryan High Yield Partner +44 20 7785 2767 denise.ryan@freshfields.com David Trott Global Head of Finance +44 20 7832 7058 david.trott@freshfields.com Ken Baird Head of Restructuring and Insolvency +44 20 7832 7168 ken.baird@freshfields.com Neil Falconer Head of Banking +44 20 7832 7065 neil.falconer@freshfields.com

AbOUT & CONTACTS

ROLAND BERGER STRATEGY CONSULTANTS

Roland Berger Strategy Consultants, founded in 1967, is one of the worlds leading strategy consultancies. With roughly 2,700 employees working in 51 offices in 36 countries worldwide, we have successful operations in all major international markets. The strategy consultancy is an independent partnership exclusively owned by about 250 Partners.

Klaus Kremers Partner, London / Berlin +44 20 3075 1100 klaus.kremers@rolandberger.com Rene Seyger Partner, Amsterdam +31 20 7960 620 rene_seyger@nl.rolandberger.com Bernd Brunke Partner, Berlin +49 30 399 27 3527 bernd_brunke@de.rolandberger.com Uwe Johnen Partner, Berlin +49 30 39927 3520 uwe_johnen@de.rolandberger.com Max Falckenberg Partner, Dsseldorf +49 211 43 892 301 max_falckenberg@de.rolandberger.com

Nils Von Kuhlwein Partner, Dsseldorf +49 211 43 892 122 nils_von_kuhlwein@de.rolandberger.com Sascha Haghani Partner, Frankfurt +49 69 29924 6444 sascha_haghani@de.rolandberger.com Jorge Delclaux Partner, Madrid +34 91 564 7361 jorge_delclaux@es.rolandberger.com Roberto Crapelli Partner, Milan +39 2 2950 1235 roberto_crapelli@it.rolandberger.com Uwe Kumm Partner, Moscow +7 495 287 92 46 uwe_kumm@de.rolandberger.com

Gerd Sievers Partner, Munich +49 89 9230 8543 gerd.sievers@de.rolandberger.com Emmanuel Bonnaud Partner, Paris +33 1 53670 983 emmanuel_bonnaud@fr.rolandberger.com Jan Beckemann Partner, Stockholm +46 8 410438 91 jan_beckeman@se.rolandberger.com Rupert Petry Partner, Vienna +43 1 53602 100 rupert_petry@at.rolandberger.com Beatrix Morat Partner, Zurich +41 43 336 8630 beatrix_morath@ch.rolandberger.com

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DEBTWIRE
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For more information regarding this report please contact: Ben Thorne Publisher, Remark ben.thorne@mergermarket.com Tel: +44 20 7010 6341

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This publication contains general information and is not intended to be comprehensive nor to provide financial, investment, legal, tax or other professional advice or services. This publication is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any investment or other decision or action that may affect you or your business. Before taking any such decision you should consult a suitably qualified professional adviser. Whilst reasonable effort has been made to ensure the accuracy of the information contained in this publication, this cannot be guaranteed, and neither Debtwire, Freshfields Bruckhaus Deringer, Roland Berger nor any affiliate thereof or other related entity shall have any liability to any person or entity which relies on the information contained in this publication. Any such reliance is solely at the users risk.