TM Capital: Making the Move to Restructuring
July 29, 2009
Boutique investment bank TM Capital began as a core group of bankers from Thomson McKinnon Securities that spun out on its own when Thomas McKinnon was acquired by Prudential. The core partnership has survived more than 25 years, 20 of them as an independent firm. Now, in an effort to boost its presence in the restructuring space, TM Capital last month added Robert Grien as a managing director and head of its finance and restructuring advisory group (LFR, July 22, 2009).
Leveraged Finance News spoke with Grien and with TM Chairman Greg Robertson about Grien’s new role and about how they see the restructuring space today.
LFR: Tell me about your firm’s new focus on restructuring.
Robertson: Through the relationships we’ve formed doing M&A transactions, we’ve been called back in when a company’s capital structure was out of whack and they needed to rebalance. Over the years, we have done workouts for clients who got in trouble and borrowed too much money and couldn’t support their capital structure. In other downturns, we had done restructuring, refinancing and bankruptcy and advisory work, though not enough to become a member of the fraternity that works in that sphere. And those credentials were a little bit stale. … So we thought it would really help our effort to bring on somebody who had a lot more recognizable experience to add to our credentials. We reached out to Rob and asked him to consider us.
Are restructurings today more complicated and messier than in past credit cycles?
Grien: There’s a lot going on and a lot of messy restructurings happening right now. If you look at some of the litigation going on, if you’re looking at the GM and Chryslers, if you’re looking at the Charter and Spectrums with the cram-ups, if you’re looking at Delphi, you’ll see that there’s also a lot of creative restructuring going on outside of bankruptcy. A lot of that is driven by the nature of the holders of loans this time around, such as CLOs and hedge funds, which have a different mindset than the banks that held loans in prior cycles. The nature of this cycle, if you look at the credits that were being created at the end of the [upturn], makes it different. The covenant light loans have interesting ramifications for the restructuring business. So it’s a time where there’s going to be a lot of activity in this space. There’s more activity than there are practitioners, though there seem to be more practitioners created every day. We think it’s a business where we can get a toehold pretty quickly.
Robertson: If you go back almost to the 90s, to the last time you had a big credit meltdown, what you found was that the banks didn’t sell off their debt, they kept it and they had workout departments. Some banks are beginning to deploy workout people [now] because options for selling have become remote. In the intervening period, a lot of banks got rid of their in-house workout professionals, because they would sell the debt. If they didn’t like what was going on in the company they would turn around and sell out of the thing. One of the reasons we reached out to Rob is because Rob knows the players and has dealt with a lot of them.
Grien: I’ve seen a number of times where [companies] are a long way down the road negotiating with lenders only to find that the lenders they were negotiating with have sold their position to a distressed fund. And a distressed fund is completely different. So those types of things are nuances that are occurring today that haven’t occurred in the past.
Robert GrienIs there an industry sector that you have focused on in restructuring?
Robertson: From an industry standpoint, it’s across the board. … We don’t specialize by industry, yet we have credentials in six or seven broad verticals. … We do a lot of work with basic manufacturing companies. The general economic slowdown has created problems for all manufacturers whether they’re bending metal or making something more esoteric. We also do a fair amount of work in the retail sector. That’s a sector that’s hurt right now. We do a fair amount of work in the health care business, though that’s a sector that’s doing reasonably well right now.
Grien: There’s also a strong consumer product practice, and we think there’s a lot of opportunity there. While others look at restaurants as a separate industry, Greg correctly looks at the restaurant industry as subset of retail, as do I. TM, within the restaurant sector, has an extremely strong practice, and there’s a lot of opportunity there also.
Greg RobertsonWhat are the biggest mistakes you see companies making when they go about restructuring?
Robertson: They probably wait too long to bring on board the professional advisors. There are more options open to you if you move early and bring in the right group. But as things deteriorate the options get narrower. And your ability to execute the options that are still available becomes more problematic.
What advice do you have for companies looking to restructure?
Robertson: A lot of it is communication. The typical reaction, when management sees they’re starting to have problems, is they get inwardly focused and introverted and don’t communicate. When their earnings are declining, the last thing they want to do is go before a bunch of institutional stockholders and explain what’s going on. Dealing with debt holders in the debt market is not a lot different, and you’ll get a much more receptive attitude toward working with you if you’ve been open with your creditors. There are human beings making these decisions, and if you can establish a frame of reference and posture of credibility, that goes a long way in these creditors developing an attitude that yours is a management team they want to work with.
Grien: As a lender, you are always more likely to give a debtor time and rope when they are staying in touch with you and staying close to you. The natural reaction of a lot of borrowers is to go dark when there’s trouble, and that’s not always a great strategy.
If you could change one thing about the leveraged finance market right now, what would it be?
Grien: We would all like to see more capital. There’s a scarcity of new capital for situations, and that’s going to persist for a while. That’s part of why there’s going to be more of these types of workouts. The refinancing option just isn’t there. If you look at the amount of loans that are being refinanced with high yield deals, that capital’s going into the CLOs and the holders of loans, but they’re not able to reinvest that capital. You’re not seeing a robust new loan market. It’s indicative of what’s going on with this scarcity of fresh capital. But it’s creating creative solutions.
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