Summary

Our experience working on restructurings across Europe and Asia has given us an appreciation for the value of preparedness. Businesses encountering financial difficulties — whether arising from turbulent financial markets, an unforeseen crisis, increasing or burdensome regulation or competitive pressure — often find their survival may depend on how well prepared they were for the unique pressures a restructuring event brings.

For companies wishing to reduce financial leverage or refinance debt, liquidity remains constrained in certain sectors and alternative capital providers, many of whom are looking at Israel more closely as a place to invest, may employ investment techniques that are unfamiliar. Being prepared will allow companies coming under pressure additional breathing room should threats of a restructuring loom. Even companies in relatively good financial health may find it worthwhile to consider the issues that their less-fortunate competitors may encounter.

While each jurisdiction has its own unique set of legal, financial and accounting rules, we have found a set of common principles that we believe will be of interest to companies based in Israel should the business and financial climate continue to toughen.

This briefing sets out a checklist based on these principles that we believe will be of use to senior management of Israeli companies who believe a restructuring of some kind may be a possibility or for those who merely wish to reassure themselves and their stakeholders that they have considered the contingencies.

Restructuring checklist

Diligence your own business

Debt renegotiations, even short of a restructuring, may take many months. Be aware of key timelines and milestones, both in the terms of your debt but also in your commercial arrangements with customers, suppliers and distributors and, where applicable, position with regulators. Approaching discussions with creditors and counterparties early generally puts you on the front foot. Approaching them late or when key commercial considerations for your business remain uncertain can be disastrous.

Diligence the market

When are your upcoming maturities? Will your existing lenders refinance? On what terms? Advisers can help you assess the wider market to ensure you are getting the best possible pricing. They can also help introduce you to new lenders and/or alternative debt products.

Know where your assets are

Increasingly the location and structure of key assets and contractual rights, particularly in relation to intellectual property and other intangibles, can drive significant value and create bargaining leverage, often unintended and frequently in ways creditors may not appreciate fully. Forward planning can create structural benefits, shorten timetables and reduce overall costs.

Diligence your stakeholders

The attitude and agenda of local banks and bondholders compared to international banks and financial investors, for example, will almost assuredly be different in ways that will matter in any period of financial stress or distress. Understanding these different stakeholder dynamics is a key area where advisers can add value.

Understand changing stakeholder dynamics

You may have a long relationship with an established bank. They are predictable and safe. Suddenly, they sell your debt to a hedge or distressed fund with an unknown agenda. What are you able to do? Do you know enough about how financial investors from other jurisdictions behave? Which hedge funds or ‘value investors’ are active in Israel? What legal rights and remedies does your debt include that may work for or against your interests if your stakeholders change.

Get advisered up

A relatively small number of advisers are involved in the great majority of major restructurings and debt negotiations. Getting advice early can have two benefits. First, it will put you on the front foot. Second, if you hire them, nobody else can.

Understand the cost to your banks of doing business

With Basel III and other increasingly complex regulation, commercial banks are intensely focused on their regulatory cost of capital and the nature of the loans and other investments that they hold. Understanding the regulations and shaping your needs towards products that your bank may prefer for regulatory capital purposes can put you on the front foot as negotiations begin.

Understand the options available

Multi-jurisdictional businesses often have at their disposal a number of different mechanisms for financial and operational turnaround. The key is identifying those mechanisms, selecting the optimal solution and exploiting its full potential. And having an implementation strategy based on this approach can be a powerful tool to encourage creditors to reach a consensual deal that works for you.

Comment

While undoubtedly there will be particular aspects of any Israeli restructuring that are unique to Israel — whether arising from the dynamics of bondholders, extraneous pressure from the work of the Concentration Committee, or political factors influencing where businesses may divest or relocate operations — we anticipate the lesson of preparedness will continue to be one worth observing.