So, you want to work in an advisory role in an investment bank? You've probably thought about M&A, but have you thought about restructuring? If M&A bankers are the builders above ground, restructuring bankers are all about the foundations. They make sure that a company's debt structure is manageable, and negotiate changes when it's not.
We spoke to Simon Lalande, an assistant director on Rothschild's debt advisory and restructuring team, about what his job involves.
“We provide financial advice to companies in financial distress or to the creditors who’ve lent them money. We help them find a solution to their issues and financial difficulties, typically by rightsizing their balance sheet so that they can emerge in a strong position and continue to trade.”
What does it mean for a company to be in financial distress?
“It means it’s running out of liquidity. In turn, this usually means one of two things. That it’s either having problems finding enough cash to pay its suppliers, or that it’s borrowed too much and taken on too much debt which it can’t sustain the repayments on.
The solutions are different in each case.
If you have a liquidity situation where you can’t pay the interest on your outstanding debt, or you have a debt instrument coming to maturity and you can’t afford to pay it back, then reaching a solution requires negotiating with the creditors who are owed the money. Beneath the debt, there’s usually a perfectly viable business with good enterprise value.
On the other hand, if the company has an operational issue – if it owes money to the trade partners who supply it with raw materials, for example, then emergency funding might be required. That funding usually comes from new equity or debt issuance.”
What have you been working on this week?
“I’ve got a few live deals at the moment. I’m unable to discuss most of them as the information is sensitive, but I’ve been working on structuring a counter-proposal on a term sheet we received from some banks. A term sheet is a proposal put forward by a company’s creditors on a potential way forward. It suggests a way of changing the repayment terms on the debt in a way that will keep the creditors happy and allow the company to keep trading. Our job is to look at what’s on offer and to decide whether it’s sufficient.”
“Generally, I work on two or three deals at a time. That’s really the maximum that can be done and they’re usually on different cycles. Restructuring transactions usually last around 12 months and move through different phases of negotiation and implementation.”
What's the most interesting thing about your role?
“For me, it’s the fact that while corporate finance is usually about value maximizing, in restructuring it’s about loss minimization. You’re looking through a different end of a telescope.”
Which skills do you have that make you a better restructuring banker than an M&A banker?
“Legal knowledge is important if you work in restructuring. I spend around a third of my time with lawyers and will occasionally be in court. Many of our deals are resolved in a court process – you need to comfortable with that and able to have really hard line negotiations when there’s a risk that everyone loses out.
There are also technical aspects to my role. The restructurer’s job is to match the assets on the balance sheet to the cash flows generated by the business, and to ensure that the debt attached to the business is appropriate and can be serviced. To do this accurately, you need a perspective on both the debt and the equity sides of the business so that you can see how they work together.”
What was your route into restructuring?
“I joined Rothschild as an intern in M&A in 2009. That was the peak of the financial crisis and I was in the financial institutions group (FIG) M&A team. Back then, restructuring was very active and I found it quite interesting and asked to be moved into the restructuring group full time.”
What’s coming next in restructuring? Is this an area on the cusp of a boom?
“I don’t know if boom is the right word, but there’s definitely going to be something in the UK as interest rates start rising post-Brexit. Anything that leads to less money in the consumer’s pocket results in a tightening of the belt that impacts the rest of the economy.
Is this coming in the next six months? Probably not. Interest rates are still incredibly low, but as inflation starts coming through and rates rise you might see financial distress from consumers trickling down to corporates in the next few years’ time. “