Focus / 01
Special Situations
Businesses whose capital structure has become unsustainable.
Special situations refer to situations where the capital structure of an otherwise healthy business has become unsustainable. They tend to arise because of a cyclical under-performance combined with an upcoming debt maturity and are often characterised by complicated group structures or unusual or difficult-to-value collateral.
Typical scenarios
- Debt under pressure from excessive leverage, a covenant breach or market perception
- An unwillingness of a lender to continue financing beyond maturity
- Removal of trade credit insurance cover so that suppliers demand payment in advance
- Financing alongside a restructuring programme that is paid off using a contemplated divestiture
- Financing of distressed acquisitions
- Recapitalisation of a business that has insufficient equity capital
What we look for
- A sound business with a stretched capital structure
- A clear exit or repayment strategy: refinancing, selling off a division, or sale of the entire recovered business
- Collateral that will protect the investment in a downside scenario
Instruments
Senior secured and asset-based loans (ABLs), bridge financings, mezzanine, HoldCo and PIK (payment-in-kind) loans and other forms of hybrid capital such as preferred equity, perpetual loans, convertible loans and loans with warrants.