A bondholder’s perspective Restructurings – myths & facts

Norway Ship & Offshore Finance Forum, 25th May 2016

2

IN ESSENCE

e.g. Havila Shipping..

…restructurings are complex situations

3

IN ESSENCE

A need to circle in a mutual

understanding and expectation on

capital structure treatment and

restructuring processes - amongst

bondholders and communicated

towards issuers

# Internal Nordic bondholder meeting

with NT in Sep-15

# Several Nordic bondholder

meetings with GIEK in Dec/Jan -

15/16

…the chain of default events and approach to bondholders expected

4

IN ESSENCE

…restructurings must include bondholders

5

IN ESSENCE

# To be included – to be a part of a solution

# Sufficient time - to assess and digest

# Engage own advisor – if necessary

# Fair treatment - balanced capital structure solutions

…the bondholder request is simple

6

MYTHS AND FACTS

# There is no public bondholders register – hence unreachable

• Most common excuse

• NT or any investment bank will find us

# Bondholders have split agendas – consensus is tough to reach

• True, but you have to – hence;

• Engage a leading group > negative control

# Bondholders are vultures

• …as debt has no upside we fight for our par value. Difference however,

• between Nordic and non-Nordics;

• Asset-backed vs unsecured;

• Distressed vs not-distressed;

# Bondholders don’t want to be insiders, at least not for long

• As short as possible yes, ideally 1-2 weeks

• Why? Restricts liquidity. Restricts entire fund manager, also equity.

“To be included – to be a part of a solution”

7

MYTHS AND FACTS

# Backdrop; companies approach stakeholders as follows;

• Firstly secured banks

• Secondly share holders; and

• at last, unsecured bondholders

• …process for banks and owners => several months

Bondholders typically get a week

# We know we need to contribute, and can respond quickly – but:

• Is the decision material well documented, substantiated and thrustworthy?

• Is the draft proposal balanced and pursuant to capital structure hierarchy?

• Scale of complexity (e.g. situation, proposal, legal) – easy to understand?

…if no or n’yes, consider giving an unsolicited offer for bondholders to have their

own advisor(s) at the company’s expense

“Sufficient time - to assess situation and alternatives”

8

MYTHS AND FACTS

# I reiterate, «if necessary»

# At the expense of the issuer

• Extra cost? A stakeholder cost like any other and often neglectable in the total

restructuring context

• Legal advise is currently covered

› next step; formally approve financial advise in NT docs, e.g. if EoD or 2/3

amendments

# Why?

• Speed up the process

• Independent, 3rd party advise

• Bondholders want to make the proper and necessary decisions - give us the

comfort to make them

# Crucial

• Company has a proper advisor (capital structure and capital market competence)

• Bondholder advisor represents independence in all (most) aspects

“Engage own advisor – if necessary”

9

MYTHS AND FACTS

# The biggest sinner: unsecured bonds squeezed between banks and equity

• Banks require no/less payable interest = considered as leakage

• New equity demand a lower EV to engage

= offer a non-cash payable, extended bond with a nominal haircut

# Unsecured creditors are treated separately

• «other» unsecured debt not affected

› Unsecured bank (typically wrap-around facilities)

› Negative accumulated losses from FX/IRS swaps

› Sale/leaseback and other charter-in commitments

# Structurally

• Holistic solutions preferred over kick-the-can

• OSV reality still too premature for banks to digest. Another round likely in a

couple of years

“Fair treatment - balanced capital structure solutions”

10

MYTHS AND FACTS

# Private situation for too long

• Excuse to exclude bondholders and offer final solutions

# Private period and cleansing

• Partially cleanse information to increase distress

• Make bondholders hostage of not being able to act

# Split and conquer

• talks and deals with individual bondholders

# The blame game

• Like brothers and sisters

# Short timeline

• Agree today or the BoD will file tomorrow

# Any other bullshit argument from the BoD

• Corporate governance

• Reaching insolvency - caretaking creditors, not shareholders

“Fair treatment - dirty tricks as negotiation tactics”

11

FUND MANAGEMENT

# Requirement for liquidity in UCITS funds, applies to several considerations:

• Daily liquidity

• Liquid positions - any security should be marketable and tradable

• Private situations - restrict trading

# Multiple portfolios and mandates

• Different interests from each mandate

› Maturity, asset class, min.rating, yield

# Owning equity - yes we can, but:

• Debt-to-equity swap rational

• to lower EV, but also to regain value lost through upside

• Typical Nordic bondholders are long-only fixed income funds

• Holding equity over time (i.e. years) is really not the model

Preferred option: Zero-coupon, sub convertible bonds w/share settlement option

# Scarcity of internal resources

• PM (+ credit analyst)

Perspectives on typical bondholder challenges

12

IN SUMMARY

# To be included – to be a part of a solution

# Sufficient time - to assess and digest

# Engage own advisor – if necessary

# Fair treatment - balanced capital structure solutions

…and bondholders will act constructive, orderly

and fair accordingly

…if you are in trouble, we want;

13

THANK YOU!