Download - CVAs Primer
-
7/30/2019 CVAs Primer
1/22
-
7/30/2019 CVAs Primer
2/22
What is a CVA?
CVA proposalissued
Creditorsmeeting
CVA stands if unchallengedand scheme administeredin line with proposal
Month 1 Month 2 Month 3
14 days
Major creditors Members
28 day challenge period
A ro osal made b a com an to its creditors to com romise or settle its debts in some wa
It is a formal insolvency procedure governed by the Insolvency Act 1986
A very flexible tool proposals can be tailored to the exact situation (no two are ever the same).
Very rapid 14 days notice to creditors is all that is required, and the CVA becomes effective immediately
Requires the support of 75% of voting creditors (by value of debt), and is binding over all unsecuredcreditors
A members vote is also undertaken, but cannot override the wishes of creditors
1 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative, a Swiss entity. A ll rights reserved.
-
7/30/2019 CVAs Primer
3/22
The recent history of CVAs
The recent history is mixed and a number of Companies have subsequently failed since implementing a
CVA.
Stakeholder and public perception is that CVAs may not necessarily provide a better restructuring solution.
During 2009 and early 2010, there were a number of high profile CVAs, principally involving high street
retailers.
Since early 2010, the number of CVAs across the UK has fallen. The most high profile CVA in this period.
In recent times, we have seen many large retailers going into administration as a result of the challenging
trading environment on the high street, including La Senza, Game, Peacocks, Acquascutum, Past Times,
Clintons and Habitat.
n some o ese cases, we e eve a a cou ave een a v a e op on.
Since the start of 2012
we completed the successful CVAs of Bowlplex and Fitness First in the leisure sector,
, .
currently undertaking several reviews across the high street, hotel, leisure and care industry.
2012 has seen a resurgence in the CVA market.
2 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative, a Swiss entity. A ll rights reserved.
-
7/30/2019 CVAs Primer
4/22
The recent history of CVAs (cont.)
Looking back, certain have been successful whereas others have seen mixed
results
BowlplexFitnessOddbins
Speciality
Sixt UK Blacks
eta
Limitedpor s
Leisure
Failure Success
3 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative, a Swiss entity. A ll rights reserved.
-
7/30/2019 CVAs Primer
5/22
What can a CVA achieve?
Treat groups
of unsecured
creditors differently
Vary unattractiveterms
(e.g. quarterly
The continuationof a coreprofitable
. .
landlords)ease paymen s
us ness w t nthe legal entity,preserving jobsand stakeholder Assist
value operationalturnaround
where reduced
Compromise
contingent
footprint is
needed
4 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative, a Swiss entity. A ll rights reserved.
-
7/30/2019 CVAs Primer
6/22
The value of CVAs
CVAs versus formal insolvency proceedings:
r nc pa van ages o a over nso vency
CVA Insolvency
Company often pays rates and some
rent on closed stores
Landlord pays rates on closed stores
Creditors only notified upon
involved throughout process
Protect core business
Business value damaged by
insolvency
Outcome for creditors better
May compromise terms of unattractive
Recoveries for creditors lower
IP may terminate unattractive leasesleases on day 1
5 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative, a Swiss entity. A ll rights reserved.
-
7/30/2019 CVAs Primer
7/22
Stand alone CVA versus CVA via Administration
Key differences
Standalone CVA viaa m n s ra on
Likelihood of company surviving solvent restructuring ?Control returned to
Directors retain control directors once CVAapproved
Protection of moratorium against creditors (unless small co)
Trade creditors continue to be paid during process
No need to market business and assets for sale
os ve mpac
PLC possible to avoid share suspension
Lower rofessional costs
Better return to unsecured creditors than straightadministration
6 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative, a Swiss entity. A ll rights reserved.
-
7/30/2019 CVAs Primer
8/22
CVA Ingredients for success
Viable corebusiness
Stakeholdersupport
STRONG COMPANYSIDE ADVISORS WITH
5
CONVICTION TOADVOCATE THE USE
Strongmanagement
Deliver onCVA terms
team
Ability to raise funds
7 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative, a Swiss entity. A ll rights reserved.
-
7/30/2019 CVAs Primer
9/22
CVAs Lender concerns
Sustainability Lack of control
Value leakage
Cash flow
deterioration Execution risk
8 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative, a Swiss entity. A ll rights reserved.
-
7/30/2019 CVAs Primer
10/22
CVAs Landlord concerns
Lack of
communication
Landlords taking
all ain
Com anies /
Nomineesinflexible
Non -
embarrassment
What happens
ost CVA?prov s ons
9 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative, a Swiss entity. A ll rights reserved.
-
7/30/2019 CVAs Primer
11/22
-
7/30/2019 CVAs Primer
12/22
CVA Ingredients for success (cont.)
Proposal comparison
JJB Focus Discover Suits Fitness Miss
Stand alone CVA noadministration
Earl and extensive creditorengagement (landlords)
New management notcoloured by previous failings ?
roac ve managemen o
process company & advisors
New money on acceptance ofCVA (new equity or financial
Agreement for monthly rents
Company retains responsibilityfor rates on closed stores
Approved by creditors andmembers
KPMG involved
11 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative, a Swiss entity. A ll rights reserved.
-
7/30/2019 CVAs Primer
13/22
CVAs The reality (cont.)
The use of CVAs is beginning The idea that this CVA thing
the landlord occupier
relationship
Land Securities
May 2010
CEO, Kingfisher
23 March 2011
We have concluded this isnt
Landlords save more than,
CVAs
on JJB CVA
23 February 2011
22 March 2011
12 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative, a Swiss entity. A ll rights reserved.
-
7/30/2019 CVAs Primer
14/22
Fitness First
13 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative, a Swiss entity. A ll rights reserved.
-
7/30/2019 CVAs Primer
15/22
Facts and figures
Founded in 1993 under the slogan affordable fitness
Largest global player with 1.2 million customers worldwide
wne y nves men un s nce
Senior debt of 600 million
Approximately 150 UK clubs
Majority of UK leases guaranteed by UK parent of global business
14 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative, a Swiss entity. A ll rights reserved.
-
7/30/2019 CVAs Primer
16/22
Key sector and company issues
Cost and marginpressure
Capitalrequirements
CompetitionDiscretionary
spend
High operational
gearing with rent,
utilities, equipment
Significant levels of
ongoing capex
required to maintain
Advent of the budget
operator model
offering no-frills
Falling domestic
incomes
Health and fitnesseases an s a
costs largely fixed so
very sensitive to
revenue falls
an mprove e
asset portfolio in
light of low customer
switchin costs
ac es or ow
pricesclub membership
typically considered
a luxury
Substantial debt servicing requirement
Distress!
15 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative, a Swiss entity. A ll rights reserved.
-
7/30/2019 CVAs Primer
17/22
Restructuring headlines
The CVA
Platform allowin orderl exit from 67 ms to be transferred to other o erators over a six
month period at 55% of rent
Exit on similar terms from 14 sites sublet to other operators and from 8 dark sites
e uc on o ren y on a an u o s es or ree years w a ren re as ng on ex o
the CVA
Conversion of all lease property payments to monthly terms
Compromise of parent company guarantees for compromised leases (Powerhouserespected)
Establishment of 2 anti-embarrassment funds each containin a minimum in excess of the
Prescribed Part maximum
The scheme of arrangement
rans er o s ares y ex ng equ y o er or neg g e cons era on
Write off of senior debt in return for 75% equity
In ection of 100 million facilit on favourable terms for remainin 25%
16 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative, a Swiss entity. A ll rights reserved.
-
7/30/2019 CVAs Primer
18/22
More facts and figures
Approval by 97.6% of creditors in total
Landlord vote alone was 75% including 60% of compromised landlords
Deals currently on the table for approximately 35 of the transfer sites
Standard member direct debit monthly attrition rate increased by only 0.2%
Challenge period expired
17 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative, a Swiss entity. A ll rights reserved.
-
7/30/2019 CVAs Primer
19/22
CVAs The reality
There are some tensions. Corporates and landlords often have competing interests
and IPs working to find ways to satisfy these
Landlords have publicly expressed concerns but the level of support for CVAs
remains high A CVA is not a silver bullet and will not, on its own, prevent subsequent business
failure
CVAs remain a key tool for effective business restructuring
companies on the increase as part of wider restructuring or for tax reasons
A properly executed CVA has the potential to deliver a better outcome for alls a e o ers nc u ng en ers an a pre pac
18 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative, a Swiss entity. A ll rights reserved.
-
7/30/2019 CVAs Primer
20/22
-
7/30/2019 CVAs Primer
21/22
Disclaimer
The information contained in this document is of a general nature and is not intended
to address the circumstances of any particular individual or entity.
Although we endeavour to provide accurate and timely information, there can be no
guarantee that such information is accurate as of the date it is provided or that it will.
appropriate professional advice after a thorough examination of the particular
situation.
serv ces prov e y are su ec o e nego a on, agreemen an
signing of a specific contract
20 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative, a Swiss entity. A ll rights reserved.
-
7/30/2019 CVAs Primer
22/22
2012 KPMG LLP, a UK limited liability partnership,
is a subsidiary of KPMG Europe LLP and a member
firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative, a
Swiss entity. All rights reserved.
The KPMG name, logo and cutting through
complexity are registered trademarks or trademarks
of KPMG International Cooperative (KPMG
.