Restructuring Conference

Distressed Debt Investing attended the Wharton Restructuring Conference this past Friday in Philadelphia. As usual the conference featured an outstanding lineup of leading distressed investing world players including hedge fund managers, bankruptcy attorneys and restructuring advisors. We note that the conference is an exceptional value at $125, a fraction of the cost of most non-sell-side industry events. We will do a series of posts over the coming week with the highlights of the conference.

http://whartonrestructuringconference.org/index.html

The morning keynote speaker was Bennett Rosenthal, Senior Partner, Ares Management LLC.

His bio from the conference website:

“Bennett Rosenthal is a Senior Partner in the Ares Private Equity Group and sits on the Executive Committee of Ares Management. Mr. Rosenthal is the Chairman of Ares Capital Corporation. Mr. Rosenthal joined Ares in 1998 from Merrill Lynch & Co. where he served as a Managing Director in the Global Leveraged Finance Group and was responsible for originating, structuring, and negotiating many leveraged loan and high yield financings. Mr. Rosenthal was also a senior member of Merrill Lynch’s Leveraged Transaction Commitment Committee. His transaction experience is both acquisition and non-acquisition related across a broad range of industries including retail, telecommunications, media, healthcare, financial services and consumer products. “

Mr. Bennett gave an overview of Ares, described their investment strategies and shared his thoughts on the various markets in which they transact. Below are some of his thoughts in bullet format.

• Ares is a $33 billion LA based firm
• They have 3 groups: Private Equity, Liquid/Capital Markets, Private Debt
• 20 industry analysts, which provides them significant depth in every sector, this also helps generate private transactions
• Recent volatility of emotions has made it difficult to invest
• The early ’09 “bottom” was misleading because it was a small window of time that was hard to take advantage of; very few transactions
• Still see a great opportunity for liquid markets to generate excess returns, but it won’t be a beta driven rally like 2009
• Going forward it will be about credit selection
• In the leveraged loan market 30% of loans trade below 90% of par, excess return will come from refis and covenant repricings
• CLOs are back but w/ less leverage
• Seeing good opps in the 2^nd lien market
• HY spreads of +600 still offer “great opportunities”
• Senior secured credit at L+300 is great value
• The largest opportunity is senior secured bonds of refinanced leveraged loans at double digit yields
• $1 Trillion of maturities in the next 4 yrs
• Last year the “loan to own” investors were paid to wait, this is no longer the case
• LBOs – they are getting propped 6x deals again
• Ares has a business development corp (“BDC”) – there they are moving down into mezzanine loans from senior secured
• PE biz has four pillars: Rescue, Distressed for control, LBO, Growth equity
• They view distressed for control as an auction w/ few bidders
• Not a turnaround firm, they don’t want to replace management
• “Mission in life” is finding good companies w/ bad balance sheets
• They always try to buy the fulcrum security and get a seat at the table
• Simmons was a signature transaction for them, perfect example of how restructuring advisors can drive a transaction
• He noted the advantage of having deep pockets at the trough. Most other buyers—financial and strategic—are too scared or too tight on cash to buy things
• Always look for the security that trades at the multiple they believe the business is worth and then have the cash to pay off the people above them

Stay tuned later in the week for part 2 of the Wharton Restructuring Conference