2013 M&A ADVISOR DISTRESSED INVESTING SYMPOSIUM. What s That on the Road Ahead? Insightful Outlook for 2013

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1 THE M&A ADVISOR SYMPOSIUM THE M&A ADVISOR SYMPOSIUM REPORT REPORT March M&A ADVISOR DISTRESSED INVESTING SYMPOSIUM Many dealmakers have noted a scarcity of opportunities for distressed investors, as low interest rates and excess liquidity have enabled companies to refinance rather than restructure their way out of distress. Will the coming year present more or less opportunity? Are there specific company profiles or industries that investors should focus on to identify good targets? At the 2013 M&A Advisor Distressed Investing Summit in Palm Beach, Florida, a group of industry experts weighed in on where they believe the distressed investing market will be going in the next year. Session faculty members included: Nancy Peterman - Moderator Chair of the Chicago Business Reorganization & Financial Restructuring Practice, Greenberg Traurig Durc Savini, Managing Director and Head of the Restructuring and Recapitalization Group, Peter J. Solomon Company Conor Tully, Senior Managing Director, FTI Consulting Suzanne Yoon, Principal, Transaction Development, Versa Capital Management Albert Kass, Vice President of Corporate Restructuring, Kurtzman Carson Consultants Michael Goodman, Managing Director, SSG Capital Advisors The panel shared in-depth insights ranging from how/where to look for restructuring targets to detailed examples of how transactions are being structured and won. Among the topics covered: Are we in a historical cycle or are we in a new paradigm? The impact of excess liquidity on the restructuring market Industry sectors that may yield opportunity in the coming year Creative approaches being employed by investors to secure the deal What needs to happen to jump start the restructuring market? We would like to thank the faculty members for their insightful contributions to this discussion. Their observations are set out in the following pages of this report. A Historical Cycle or a New Paradigm? Moderator Nancy Peterman set the stage by asking the panelists to weigh in on the current behavior characterizing the distressed M&A market.

2 Michael Goodman of SSG Capital Advisors offered an interesting perspective that raises the question, Are we in a cycle? Or are we in new territory? In his view, we re in the midst of what have been pretty regular cycles that have taken place for a couple hundred years. We re in a very logical place, he said, We re coming out of a recession. The banks have actually done a pretty nice job of cleaning up their portfolios so there s not a lot of distressed activity in 2012 and going into Interest rates are low, which is very logical at this point. He added, We re growing, not at a rate that a lot of people would like to see, but we re on track and where you might expect us to be. There s all this liquidity, which is again a logical outgrowth of the lower interest rates. So, what you re seeing is a pretty quiet distressed M&A market and a pretty quiet restructuring market, but it s a picture being painted for a repeat of history. On the other hand, Goodman warned investors to be on the lookout for changes in the cycle. We now live in a world that is so interconnected and so much more sensitive to other factors such as ineptitude in Congress, globalization, issues in Europe and China, global warming, drought and terrorism. Instead of a regular cycle, we may now be lurching from event to event. If that s the answer, where are we going? Another factor that may be disrupting the traditional cycle is the explosion of international investment in the U.S. Despite the recession here, it appears that globally, the U.S. still seems to be the most stable place to put your money, said Suzanne Yoon of Versa Capital Management, So, you ve got a ton of European money flooding in and everybody chasing returns, although interest rates are zero. However, predicting its long-term impact on the market is tougher. What I really can t tell is if that s the norm or if that s just the cycle, said Yoon, We re in kind of a conundrum because we have all of this capital in the U.S. with no growth. Excess Liquidity and Its Impact on Restructuring Without a doubt, excess liquidity has dramatically reduced the pipeline of restructuring opportunities for distressed investors. With so much excess capital available for refinancing, many companies that perhaps should be restructuring aren t. As Durc Savini of Peter J. Solomon Company noted, What were the driving factors or constraints in restructuring activity in 2012? I would say two words liquidity and uncertainty. Last year was a record issuance of high-yield and leverage loan volume. Most of the money went to refinancing. To a lesser extent, some went to dividend recaps and some to sponsor-to-sponsor transactions that were financed, but almost all of it was refinancing. So, that took some risk out of the cohort of companies we look to for restructuring activity. Albert Kass of Kurtzman Carson Consultants added, We saw lot of deals where the parties were prepared to file for Chapter 11 and in the 11th hour there was money available. It didn t even make 100% sense that there was money available, but the restructurings never happened; the Chapter 11 was just never filed. It was left on the shelf waiting to happen. Panelists all agreed that this environment will continue; as long as excess capital is available, interest rates remain low and investors continue to look for higher returns.

3 Safe Lending Still the Norm In the realm of cycles, the question always lurks, Is the money dumb enough yet? Or, are lenders making loans on riskier ventures than they should? Is it happening enough to impact the financial market? At this point, the panelists felt that lenders are still being pretty conservative in their lending. Said Savini, We re too close to what happened a couple of years ago and with interest rates so low, you re going to see a slow time at least through this year. Michael Goodman concurred. You are seeing all these new lenders and all this liquidity, and you re seeing the invokes starting to be pushed as it relates to covenants, he said, Banks who wouldn t touch lending against fixed assets are now doing that a little bit more. Leveraged multiples are creeping up, but to me, it s not at the point where it s irresponsible yet. Predicting the Uptick in Restructuring Activity Another aspect of predicting when restructuring activity levels will rise is understanding the cycle related to lending, defaults and restructuring. Yoon noted that restructuring activity takes place in a three- to five-year cycle after a peak in lending. In 2009, nobody was lending. The banks started lending in 2010 and we started to see a significant pick up in 2011 and 2012, she said, We actually were really busy doing recaps this past year versus exiting deals. My sense, based on what s going on, is that there s not going to be a big downturn in Nonetheless, panelists agreed that at some point, more companies will be forced into restructuring, likely when refinancing becomes too expensive or is no longer available. This may be triggered if and when the Federal Reserve Bank raises interest rates. Interest rates need to go up. That will flush out the weaker borrowers who won t be able to handle their debt payments anymore, said Conor Tully of FTI Consulting, Or, we may have another event, where we may go back into a recessionary period. He believes this may happen at the end of 2013, resulting in more assets changing hands, new acquisitions, and consolidations within industries. Savini pointed out that the restructuring pipeline is growing. We re building inventory, it s unquestionable. You look at the pull from a leverage statistics and at the price multiples that are being paid and you can see a direct echo of what happened from 2004 to 2007, he said, We re not quite there yet. None of us can tell you what the trigger s going to be, but certainly we re building that inventory. One measurement that Savini tracks is downturns. Last year, 2012, was the first year that downgrades have actually outpaced upgrades since the recession, he said, So, we had three consecutive years where you had more upgrades than downgrades. It s changed, and why is that? Because the composition of debt being issued is increasingly riskier, call it B+ or lower rated paper. When you look at the cohort of debt as B- or lower rate and consider how much of that is trading somewhere in distress land, that s the inventory of things we have to work on. It s pretty considerable. Where to Look for Distressed Investing Opportunities Panelists were of mixed minds as to where restructuring opportunities may be found. While certain industries were specified, they also advised investors to look across all industries to identify specific characteristics of troubled companies.

4 Having looked closely again at the composition to debt out there by industry sector and by rating, it s clear that most risk resides in three sectors media and entertainment, technology, and healthcare, said Savini, If you look at these entire sectors, the average rating of debt issue, debt outstanding, whether they re on credit watch for downgrade, and take into consideration all of these things, you ll see that these sectors over-express in terms of high risk. As a result, these companies may be forced to sell non-core assets or ultimately go through a sale of the company in its entirety. Panelists cited energy, healthcare, and for-profit education as sectors for opportunity. Industry-agnostic opportunities may be found where companies are facing issues such as technological obsolescence or are dealing with significant labor contracts. In the area of labor contracts, Hostess, whose financial problems came to a head as a result of failed labor negotiations, provided an excellent example. As Savini noted, The bread s not getting obsolete, but you ve got some problems on the labor side. Panelists agreed that opportunities were most likely to be found in the middle-market, where public and private companies were divesting assets for a variety of reasons that are always present, regardless of where we are in the financial cycle. I see the activity coming from the middle market, said Yoon, Not necessarily from banks forcing people out the door, but from divestitures of public companies with subsidiaries that are puttering along that they need to get out of. Or it may be the typical non-cyclical distress that we always see bad management, family feuds and so forth. Added Goodman, Certainly, at every point in every cycle, there will be industries that are distressed, and there are also unique circumstances that drive a special situation transaction, regardless of what the economy looks like. But they in themselves don t make a wave and I just don t see the wave coming in 2013 or A lot still has to happen for the big wave to come. Finding Opportunities in Today s Market Investors can find opportunities in the restructuring market, but the panelists stressed the importance of careful planning to identify attractive targets. To succeed, investors need to be able to navigate the U.S. bankruptcy process well, understand the motivations of their competition, and develop creative strategies to structure and win the deal. Kass noted the prevalence of three approaches to structuring. What we re seeing is the 363 sale case, as in the GM model where you are quickly taking the good piece of the company and selling it to some new entity. The restructuring really comes about the pot of money that s after it, he said, For the investors, it s really about getting that good piece sold and out of the restructuring as soon as possible. Kass also noted that a decent amount of debtor in possession (DIP) financing, with dates included, was taking place. In other words, by 30 days you have to have your plan in place and 60 days you have to have this done, he said, Whether it s an interest rate bump or they can pull the financing all together, it really does make for a fast-track Chapter 11. He is also seeing a lot of exchange offers with a pre-pack option. This is basically asking the debt holders to swap debt for equity, he said, But if you don t get enough of that percentage up front, you re also asking them

5 to vote on a pre-packaged Chapter 11. This approach, in his opinion, gets everybody moving towards the end, even before they start the filing. He s seeing a lot faster Chapter 11 filings taking place. How Chapter 11 Bankruptcy is Changing Panelists concurred on the accelerating pace of Chapter 11 filings, and the transformation taking place in the Chapter 11 process. Nowadays, the impetus is on getting the process negotiated, organized and pre-packed beforehand. Part of that is because there are more investors in the market, and they ve gotten smarter about it, said Yoon, Chapter 11 is a very expensive process, so if you can have it pre-packed and organized before hand, especially for a buyer, that s definitely the way to go. The panelists generally expect this trend to continue, although they noted that some tradeoffs are being made namely in the ability to actually solve the troubled company s problems as the bankruptcy process was initially intended. Said Savini, I think back to a deal in which we had an ad hoc group of bondholders who were very excited about essentially credit bidding their bonds and moving the company in and out of bankruptcy very, very quickly. They just said, Look, we don t need this. Let s just go ahead; we ll own this thing. There was an enormous amount of complexity in unwinding the good businesses from the bad businesses, dealing with labor contracts, and mitigating costs for their go-forward business, he said. However, bankruptcy is there because there are companies that are a mess and have issues that need to be attended to. Bankruptcy is the best forum for them, Savini adds, But, frankly, if the investors would have had their way, and they were all very sophisticated guys, this company would have been in and out of bankruptcy in six months and would have been back 12 months later. As a whole, however, panelists felt that the Chapter 11 process will continue to be compressed, requiring buyers and sellers to re-think the way they view and manage the process. Is the Strategy of Fix it in Chapter 11 Dead? Tully thinks so. Look at GM. GM was essentially a 28-day asset sale, but I don t think it was done on a whim. Obviously, people knew this was going to happen. There was a lot of discussion, negotiation, and analysis of the business on the front end, but it was all planned and executed in a very short time frame, he said, My personal view is that the traditional, Fix it in bankruptcy Chapter 11 thinking is dead. It s now really about quick 363 sales. Success, according to the panelists, means careful planning. We spend a lot of time with clients nowadays looking at a distressed investment opportunity and how to avoid bankruptcy, said Peterman, We look at if you were to file, and ask What s the cost and what s the actual benefit? If you don t have a lot of leases to shed or such, maybe you don t get a bang for your buck in terms of the bankruptcy process. She added, More importantly, for the distressed investor, if you go into bankruptcy, it s going to be a public auction process. Maybe there s a way to do it out of court to actually avoid that and as an investor know you ve won the deal. So we have gone through receiverships, a lot of UCC foreclosure sales, assignments for the benefits of creditors and all sorts of things like that. In Peterman s opinion, all of these different trends in restructuring are really ways for distressed investors to figure out how to be in the best position to actually win the deal. Because there aren t many deals out there. If

6 they re going to spend the time, they want to know they ll come out with that deal, she said. Peterman also noted that debt trading is taking place in abundance, making for a very dynamic deal environment. I had a case where we actually represented the agent. We had a 110-member bank group. We had a steering committee where probably 80% to 90% of the debt was consolidated, she said, I think our steering committee changed seven to eight times during the course of the case through debt trading, until we finally got to all hedge funds. Then, we did a debt for equity swap and took the assets. Tully noted other areas of opportunity beyond taking a 100% position of buying a company out of a 363 sale, like the amount of money that has been invested in distressed securities. When those bonds and investments start to go bad, I think we ll see more and more of these lend-to-own through bond structures, where someone might do a rights offering, he said. Tully also noted that he has seen a lot more instances where it s not about the buyer taking a control position and buying a massive company for a cash check. Instead, they re using the bankruptcy to effectuate a transaction, where they end up owning the equity through their bond investments and putting up a little additional money in terms of a rights offering, he said, Really it s an M&A transaction as well, it s just not in the vein that we re really talking about today. I could see a lot of that towards the end of Executive Summary Excess liquidity and low interest rates have allowed many companies to avoid restructuring events, and this has resulted in a slow pipeline with many distressed investors competing for the same assets. Restructuring deal flow is not likely to change dramatically until interest rates go up and capital becomes more expensive. To add further complexity to the situation, distressed M&A is now getting the attention of a wider audience of buyers who are more willing to take on greater risk in pursuit of growth opportunities. Both U.S. and international investors, who formerly avoided distressed targets, are now actively pursuing them. Buyers are also becoming more sophisticated in their approach to structuring and securing distressed deals, creating a more competitive bidding environment for all investors. The panelists see opportunities for restructuring activity in the middle market where access to capital is still out of reach. Industries to watch include energy, for-profit and not-for-profit education, media and entertainment, technology, healthcare, general defense contracting, general commodities such as metals. Panelists also cited companies dealing with significant labor contracts as potential opportunities for restructuring. Finally, as a result of non-cyclical events such as companies deciding to sell off assets for strategic reasons, change in management, family-ownership issues, etc., opportunities will continue to be available. The bottom line, however, is that good deals are tougher to come by, and this trend is likely to continue through this year and into the next.

7 To Watch Extended Interviews with the Faculty Members Click On The Photos Below Michael Goodman, Managing Director, SSG Capital Advisors Nancy Peterman - Moderator Chair of the Chicago Business Reorganization & Financial Restructuring Practice, Greenberg Traurig Durc Savini, Managing Director and Head of the Restructuring and Recapitalization Group, Peter J. Solomon Company Conor Tully, Senior Managing Director, FTI Consulting Suzanne Yoon, Principal, Transaction Development, Versa Capital Management To view the Session Click on the Photo Below

8 Faculty Profiles Nancy A. Peterman is Chair of the Greenberg Traurig s Chicago Business Reorganization & Financial Restructuring Practice. Nancy is a member of the Executive Committee and the Board of Directors of the American Bankruptcy Institute and former chair of the Chicago Bar Association s Bankruptcy & Reorganization Committee. Nancy assisted in drafting the healthcare bankruptcy provisions of the 2005 amendments to the Bankruptcy Code. A frequent speaker and author, Nancy was co-editor in chief of Wiley Bankruptcy Law Update, assistant editor for West s Norton Bankruptcy Law and Practice treatise, and an assistant editor and a contributing author for the American Bankruptcy Institute s Health Care Insolvency Manual. Nancy is a Fellow in the American College of Bankruptcy, listed in Chambers USA Guide, Legal 500, Best Lawyers in America, and is a Board Certified Business Bankruptcy Lawyer by the American Board of Certification. She earned her law and undergraduate degrees from the University of Michigan. She focuses her practice on corporate restructurings, bankruptcy and creditors rights law, and has a wide range of experience representing debtors, purchasers of assets, committees and secured creditors. Durc Savini is a Managing Director and Head of the Restructuring and Recapitalization Group at Peter J. Solmon Company. A veteran banker in the restructuring advisory business, Durc A. Savini joined PJSC in During the course of his distinguished 20-year career at Miller Buckfire, Dresdner Kleinwort Wasserstein, its predecessor Wasserstein Perrella, Bear Stearns and CIBC Wood Gundy Securities, Inc., Mr. Savini led restructurings, mergers, acquisitions and debt and equity raising transactions on behalf of a wide variety of clients. At Miller Buckfire, he led that firm s industryleading auto supplier advisory effort and chaired the firm s Valuation and Commitment Committees. Mr. Savini s restructuring clients have included Lear Corporation, Sunbeam Corporation, Dana Corporation, Polaroid, Burlington Industries, Dura Automotive Systems, Clayton Dubilier & Rice, JL French Automotive Castings, Meridian Technologies, Oxford Automotive, Avado Brands, Cambridge Industries, Allied Holdings, CenterPoint Energy, IMPATH, Inc., and Favorite Brands International, among others. Mr. Savini received his M.B.A. degree with concentrations in finance and accounting from the University of Chicago Graduate School of Business and a B.A. degree in Economics from Columbia University. Suzanne Yoon is a Principal, Transaction Development at the Versa Capital Management. Ms. Yoon has 14 years of experience in special situations corporate finance, capital markets and restructuring advisory services. Most recently, she was Senior Vice President of CIT s National Restructuring Group and previously, she co-founded LaSalle Business Credit and ABN/AMRO s Corporate Restructuring Group. She is currently a Director of Versa s portfolio company American Laser Skincare. Ms. Yoon s career has included positions with Ernst and Young s Restructuring Advisory Group and distressed loan portfolio management at LaSalle Bank N.A. She was formerly the co-chair of the American Bankruptcy Institute s Finance Committee and is an active member of the Turnaround Management Association and International Women s Insolvency and Restructuring Confederation. She holds a BBA in Economics from University of Iowa.

9 Albert Kass is Vice President at Kurtzman Carson Consultants. Albert drives the strategic development and implementation of KCC s corporate restructuring services, maximizing the scope and value of the company s suite of Chapter 11 service offerings. Prior to his role as Vice President, he served as a Senior Consultant utilizing his extensive bankruptcy experience in the day-to-day case management of KCC s most complex engagements. Previously, Albert represented debtors and official committees in Chapter 11 restructuring engagements as an associate in the Restructuring Group of Kirkland & Ellis LLP. While at the firm s New York office, he worked on cases including Calpine Corporation, Collins & Aikman Corporation, Solutia, Inc. and Wellman Inc. Admitted to practice law in New York and New Jersey, Albert earned his Juris Doctor from Fordham University School of Law. While serving as an editor of the Fordham Urban Law Journal, he was awarded the Archibald R. Murray Public Service Award. Albert received his Masters in Public Administration from the New York University Robert F. Wagner Graduate School and holds a Bachelor of Arts in History from the University of Michigan. Michael S. Goodman is a Founding Partner and Managing Director of SSG Capital Advisors. Mike is a nationally recognized leader in the restructuring industry with over 15 years of experience in special situations transactions. He has completed over 100 client engagements involving restructuring, private placements and sale transactions on behalf of companies facing operational and financial challenges and/or bankruptcy proceedings. Prior to founding SSG, he served as a Vice President in the Special Situations Group of Berwind Financial. Past clients include publicly traded and privately held middle market and lower middle market companies across almost every industry sector. Mike is an expert source and frequently speaks on topics ranging from the state of the capital markets to alternatives available to companies in transition. His insightful articles have appeared in leading business publications including the Dow Jones Daily Bankruptcy Review, Philadelphia Business Journal and Financier Worldwide. Mike is a member of the Turnaround Management Association and serves on the Board of Directors of the Philadelphia chapter. He earned his B.A. at University of Michigan.

10 This symposium report is presented by Greenberg Traurig, LLP is an international, full-service law firm with approximately 1750 attorneys serving clients from 35 offices in the United States, Latin America, Europe, the Middle East and Asia. In the U.S., the firm has more offices than any other among the Top 10 on The National Law Journal s 2012 NLJ 250. Greenberg Traurig s Business Reorganization & Financial Restructuring Practice provides clients with the insight and knowledge that come with decades of advisory and litigation experience handling highly complex issues that arise in reorganizations, restructurings, workouts, liquidations and distressed acquisitions and sales as well as cross-border proceedings. Our restructuring attorneys work closely with the firm s M&A and private equity attorneys to help clients identify, evaluate and take advantage of opportunities for distressed mergers and acquisitions. Our integrated team offers a wealth of specialized knowledge and experience structuring transactions involving complex financial products. For additional information, please visit The M&A Advisor was founded in 1998 to offer insights and intelligence on middle market M&A activities. Over the past fifteen years we have established a premier global network of M&A, Turnaround, and Finance professionals. Today we have the privilege of presenting, recognizing the achievements of, and facilitating connections among the industry s top performers throughout the world with a comprehensive range of services including: M&A ADVISOR SUMMITS. Exclusive gatherings of the industry thought leaders. M&A ADVISOR AWARDS. Recognizing excellence and accomplishments of the leading firms and professionals. M&A CONNECTS. Direct connection service for domestic and international dealmakers and service providers. M&A ALERTS. Delivering relevant news and the industry leader s perspective. MandA.TV. Reporting on the key industry events and interviewing the newsmakers. M&A MARKET INTEL. Comprehensive research and reporting on the key issues facing the industry. M&A LINKS. The industry s largest global network of M&A, Turnaround, and Finance professionals. To learn more about The M&A Advisor s leadership services contact info@maadvisor.com The M&A Advisor. All rights reserved. No part of this material may be copied or duplicated in any form by any means or redistributed without the prior written consent of The M&A Advisor.