insuring the balance sheet dact treasury beurs noordwijk november 5 th, 2009
TRANSCRIPT
3
Setting the scene
• Take over of Vedior
• EUR 2.7 bn 5 year syndicated facility• 1 covenant: leverage below 3.5
• 31 banks
• Sharp decline in EBITDA due to downturn, future uncertain• LTM EBITDA 2008Q3: EUR 1,000 mio
• LTM EBITDA 2009Q3: EUR 500 mio
• Conservative leverage policy• Internal policy: Leverage below 2
• Zero risks on breach syndicated facility
4
What were we looking for?
• Secure solution• No umbrella for sunny days
• At least 12 moths, preferably up to 18-24 months
• Cost effective solution• Should be significantly less expensive than a covenant breach
• Standby solution / option on solution• Possibility of ever needing it was and is very small
• For receivables: avoiding operational hassle and transfer of credit risk
5
Options considered• Cash flow improvements
• Dividend 2008 skipped
• VAT relief in the Netherlands
• Return of EUR 175 mio in Corporate Income Tax
• Temporary relief of covenant• Very hard to achieve at reasonable costs and conditions
• Selling assets• Other than small divestments and receivables no significant assets on our balance sheet
• Equity issue• Expensive
• Very hard to get on “standby” basis
• Permanent solution for temporary problem
• Subordinated (convertible) debt• Very hard to get on “standby” basis
• Expensive
6
Receivables solution
• Things to consider
• What made it easier and harder for Randstad?
• Off balance under IFRS
7
Things to consider (I)
• Do you want to inform the clients?• At time of selling
• When overdue for a certain amount of time
• Do you want the money to be paid into your bank accounts?• Pledge of accounts
• Percentage risk coverage• 100% makes it very straightforward (also for IFRS) but also more expensive
• Higher percentage increases available amount
8
Things to consider (II)
•Dilution• Disputes, discounts etc
•Right versus obligation to sell (once in active phase)
• How do you control counterparty limits/eligable debtors?• Especialy when a credit insurer is involved/needed
• Termination clauses
9
What made it easier for Randstad?• Single country and single currency strategy
• Belgium has friendly legislation on this subject
• NL, GE, and UK also
• Diversified portfolio with very limited concentration risk
• Standardized procedure • Use of shared service center
• Selling entity has very strong balance sheet• Commingling risk
• Dilution risk
• Solid banking partners with long relations• Trust factor
10
What made it harder for Randstad?• Commitment for longer period
• Right to sell / obligation to buy
• Standby mode• Pricing for extremely unsure situation
• Preference for dealing with only one counterparty
• Selling including VAT• Especially with credit-insurers
11
Off balance under IFRS
• Transfer of significantly all risks and rewards• Credit risk
• Late payment risk
• Claw backs• Objective formulas
• Company has right to terminate
• Dilution
• Changes in IFRS are expected• Control based vs risk/rewards based?
12
Questions
• Please feel free to ask
BUT
• Please respect that have agreed with our banks that we will not discuss pricing levels
• Please respect that we are not at liberty to disclose all elements of the agreement
13
Lessons learned
• Allow sufficient time• Especially when off balance is desired
• Involve internal and external parties early in the process• Accounting, legal, tax, (local) operations, credit mgt dept, auditors, legal advisors
• Selling receivables (off balance) is not just a variation of borrowing with collateral
• Make sure that when a word or definition is used everybody understands the same thing
• Be aware that it is very hard to cater for all situations and exceptions in the contract