Asset management imperatives
Imperatives for Management of Restructuring & Majority equity stakes
BAMC maximizes the value of its claims by restructuring the debtors where this strategy is economically justified
In the context of financial restructuring, BAMC ensures capital adequacy and solvency through debt-to-equity swaps, disposal of non-strategic real estate, or write-offs. In cases where other creditors are present BAMC usually closely cooperates with these creditors in line with the general principles adopted by the Bank Association of Slovenia. In cases where it is the largest creditor, BAMC is taking a leadership role in creditor consortiums.
BAMC aims to keep control over the debtor's cash flow in cases where BAMC is the economic owner
The free cash flow generated by the debtor is a key resource for debt servicing, repayment and generating residual debtor value. When BAMC decides to restructure the debtor, it is therefore essential that the debtor's management will:
- be able to maximize the debtor's free cash flows;
- act in the company's interest, i.e. in the interest of the debtor's economic owner (BAMC) and that it will not steer the free cash flows to fit the interests of other interest groups (e.g. the formal owners and the related parties).
BAMC wants to have its own trusted agent in companies subject to restructuring efforts, reducing the so-called agency costs.
BAMC will seek to lower agency costs in companies where it acts as the economic owner by appointing trustworthy professionals in the debtors' supervisory and management boards, or it will appoint a procurator in such companies.
BAMC will enter into the direct ownership of restructured companies via debt-to-equity swaps when:
- This will provide capital adequacy and sustainable debt to the debtor;
- This is the most efficient or the only way to lower agency costs;
- Entering into the ownership structure will improve BAMC's options for maximizing the value of its investment in the debtor;
- The risks involved in entering into the ownership structure do not exceed the expected benefits.
BAMC is maximizing enterprise value of restructuring cases
If BAMC decides to enter into a direct equity position in a debtor, BAMC is targeting the maximization of enterprise value, i.e. the combined value of debt and equity.
BAMC will provide liquidity to restructuring cases where it is commercially justifiable
By definition, mainly non-performing assets were transferred to BAMC. At the time of the transfer, the debtors were over-indebted, usually insolvent and burdened with capital inadequacy. This is also the case for companies where BAMC pursue a restructuring strategy. In cases where BAMC opts for financial restructuring of the debtor, BAMC will aim at restructuring the debtor's financial liabilities so that the debtor will have sufficient capital adequacy and ability to meet its financial obligations. As a rule, this means that after the restructuring of cash flows has been arranged by signing a contract, the debtor will once again be able to acquire additional liquidity on the market to finance its operating capital and make urgent investments required to stay in business or restart its operations.
In some cases where BAMC pursues a restructuring strategy, the debtors may be unable to access bank financing to fund their immediate working capital needs or urgent capital expenditures. This is not unusual in cases where financial restructuring has not yet been agreed or the restructuring process has not yet commenced. Even in other cases banks may be insisting on BAMC participation. Inability to access credit may put the indebted company's survival at risk, and therefore also the execution of the restructuring strategy.
In such cases, BAMC can provide the debtor with the necessary liquidity in the form of a loan or additional capital, depending on which option proves to be more viable. Before doing that, BAMC must have
- ascertained whether providing the necessary liquidity is indeed urgent and
- ensured control over the debtor's cash flows.
BAMC initiates, assists and monitors operating restructuring of debtors
In addition to financial restructuring, most of the debtors undergoing a restructuring process also need operational restructuring. It is not enough to deleverage the debtor and adjust the financial outflows in the debt servicing options; it is also necessary to initiate changes to increase the cash flows from operations.
BAMC has a limited capacity of in-house industry specialists, who could assist the debtors' managements in the operational restructuring efforts. BAMC will provide assistance and advice in seeking out the best experts (domestic or international), who might assist the debtor's management staff in the execution of operational restructuring.
BAMC will always directly supervise the progress of operational restructuring and its effects. It will do so either by appointing procurators in the debtor companies, by appointing members in supervisory boards, or by directly tracking progress through the involvement of BAMC's case managers.
BAMC will complement individual case strategies by bundling assets into portfolios
There is a high degree of uniqueness and complexity in most of the cases BAMC manages. To optimise the value for BAMC, strategies and exit options have to be developed, assessed and decided on in each case. As the case-by-case detailed strategy formulation is coming to an end after all foreseeable transfers have been concluded, it is now possible to define further concrete strategies that involves bundles or portfolios of BAMC's assets.
Creating portfolios that have a specific risk return profile may enhance value. Examples include portfolios in the fields of retail, parking, hospitality / hotels, residential real estate and commercial real estate
Such portfolios can be formed inside BAMC or within a special legal entity ("SPV"). SPVs will be managed by the same principles and rules as BAMC and BAMC's credit and investment committees will be authorized to handle the SPVs' asset management decisions.
Portfolios may enable more effective value creation and will likely attract more interest from investors with targeted investment strategies or - which is common for international investors - with minimum sums to invest.
Imperatives for Management of Recovery situations
In cases where BAMC determines that the debtor as a going concern is no longer viable, and where no commercially (and legally) acceptable offer for BAMC's exposure is available, BAMC will initiate bankruptcy proceedings against the debtor
In bankruptcy proceedings, the bankruptcy trustee, who will monitor and supervise the selling process, will play the most important role. BAMC will involve itself in, or lead, the creditors' committee, where it will keep close watch over the administration of bankruptcy proceedings and disposal of the bankrupt creditor's assets.
Where appropriate, BAMC will seek to actively support the activities set forward by the bankruptcy trustee, especially concerning assets collateralised to BAMC. When it is estimated that BAMC can add value to collateralised assets, and where BAMC has a legal and commercially justifiable ground to do so, BAMC will seek to take over the assets and sell them on its own.
BAMC will decide for the disposal of operating companies' assets where taking control over the company is not prudent or even possible
BAMC will opt for the disposal of pledged collateral and other assets in operating companies where cash flows from on-going operations will not suffice for repayment, or in cases where the company management and/or shareholders are not willing to cooperate constructively in finding a solution for debt repayment. The manner of the sale and the procedure involved depend on the type of asset and the legal characteristics of the collateral. In disposing of collateral, BAMC will engage in necessary judicial recovery and other judicial proceedings, as well as out-of-court procedures. In some cases, BAMC may decide to purchase or acquire assets and thereby settle its claims, either partially or in full.
BAMC may find it advantageous to sell a claim along with the collateral to a third party, who will then continue the on-going recovery proceedings. In particular, BAMC will seek to sell promptly when it deems that immediate payment would be a preferable solution to the lengthy recovery process involving the disposal of assets through court and other proceedings.
Imperatives for Management of Minority non-strategic equity stakes
BAMC will strive to find a transparent and optimal exit for each directly owned minority shareholding
Minority ownership stakes were also transferred to BAMC with no credit exposure. In many of these cases the previous owners (banks) had been unsuccessful in finding acceptable exits
Taking into account existing regulation (ZGD-1, Zpre-1) regarding corporate governance rights of minority shareholders, there are no fast and easy ways to exit minority ownership positions.
Different approaches will be considered, including:
- Proposing to the majority owners to acquire BAMC ownership share;
- Proposing to the majority owner and management of the company to form a treasury shares fund by the company itself;
- Searching for other interested investors.
- Improving the attractiveness by cooperating with other owners
Where appropriate, and commercially justifiable, BAMC will seek to explore ownership synergies with Sovereign State Holding (SSH) or other important owners.
Imperatives for Management of Real estate
BAMC will take over collateralised real estate where economically justifiable
Internal valuations of pledged collateral serves as BAMC's basic price, based on which it can be decided whether or not to accept a price proposed by a bankruptcy trustee. If BAMC finds that a proposed selling price is too low, it will actively intervene and acquire or take possession of the asset effectively settling its claim either partially or in full.
BAMC will acquire real estate from distressed/bankrupted companies in the following cases:
- real estate which the bankruptcy trustee is not able to sell (forced take over). In this case the real estate will be taken over only if the internally estimated value exceeds the charged bankruptcy cost,
- deteriorating real estate in bankruptcy procedures for which a further deterioration cannot be prevented due to a lack of funding (the same goes for unfinished projects),
- selected real estate, for which BAMC believes that fire sales should be avoided because the assets can be sold under better conditions in the future,
- specific types of real estate in order to bundle and sell them.
For each piece of real estate, an individual business plan will be prepared, containing the important elements for successful marketing. These business/action plans will be discussed and approved by the relevant Investment committee. Before the real estate is taken over it has to be visited by the respective BAMC real estate expert and, if needed, additional examinations done in order to make sure there are no environmental or other issues with the property.
Value protection and value enhancement through facility management
A large number of properties, for which BAMC will obtain ownership, will not be possible to sell immediately. BAMC will therefore have to put in place a comprehensive and efficient facility management system. A limited number of external service providers/facility managers will be needed to accomplish this.
BAMC will use rental options to optimise the combined yield and exit value from real estate
In cases where real estate will not be possible to sell immediately, BAMC will try to find temporary tenants. Generally, rented real estate is also easier to sell. For flats in residential complexes, BAMC may also use a "rent to buy"-option. Interested buyers will be encouraged to rent the flats first before finally buying it. Part of the rent is normally recognized as purchase price.
BAMC will not be a real estate developer
BAMC should not develop any project by itself. However, partnerships with sound local and international developers/investors are possible. Only companies with high credit rating and proven track record should be considered potential partners of BAMC.
BAMC may however develop real estate projects to a certain stage in order to facilitate the selling process. For example BAMC might develop a lot plot by financing a new building plan, building infrastructure like roads and subdivide the plot.
If deemed advantageous, BAMC will create real estate portfolios with distinct risk & return profiles
BAMC will consider forming real estate special purpose vehicles ("RSPV") as subsidiary companies and sell the whole or part of it to the interested investors. The RSPV could be formed by the type of asset (residential, land, etc.) or by other criteria, which could be of interest to the investors. Listing such a RSPV on the stock exchange might be considered as an exit option.
Selecting optimal selling technique and process in bankruptcy procedures
In cases where BAMC finds that the sale process suggested by the bankruptcy trustee to be sub-optimal, BAMC will not give its consent to the sale and propose another approach, which it believes will provide the best way of settling of its claims.
BAMC will take an active role and support the bankruptcy trustee in the selling process, e.g. by using BAMC's network to find potential investors, assigning real estate agents, etc. BAMC will further publish all actual real estate bankruptcy auctions on its own web site.
Value adding through a wide range of marketing activities on owned real estate
An individual strategy for each real estate will be developed and approved by the executive investment committee. When devising such a strategy, consideration will be given to whether the real estate might fit into a larger portfolio, which could be offered to international real estate investors. If so, BAMC will still try to market the real estate individually and in case an appropriate price is received, execute the transaction. At the same time such real estate will be "earmarked" for inclusion in a possible larger portfolio. BAMC will regularly investigate the interest of the international real estate investors in order to find buyers for larger real estate portfolios.
Competitive and transparent exiting process
All real estate for sale or rent will be published on BAMC web site. Each advertisement will be published for at least 30 days (60 days for larger real estate). In case of several interested buyers an auction/tender will be organized. BAMC may use external real estate agents. For more complex residential real estate special interactive web sites will be developed.
Termination Exit strategy
Some real estate objects may be difficult to exit even in the long run. After BAMC ceases to exist, the remaining real estate can be transferred either to another public company or sold to a private real estate fund or other interested party.
The conceptual marketing strategies that may be applied to various types of real estate are summarised in the table below.
High, especially if
High, if large premises and good location
High, if large premises and good location
High, if large premises and good location
|Finish projects and remedy defects||Yes||No||No||||Yes, if large real estate||No|
|Project development||||||||Generally No, limited in specific cases|||||
|Appointing facility manger||Yes||Yes||Yes||Yes||Yes||Yes|
|Sale or rent?|
+ rent to buy
|Marketing strategy||Real estate agent, special approach (interactive web-site)||Real estate agent||Real estate agent + own marketing activities for large/specific real estate + support of community||Real estate agent + own marketing activities for large/specific real estate + support of community||Real estate agent + own marketing activities for large/specific real estate||Real estate agent + own marketing activities for large/specific real estate|
|Target markets||Funds, Individuals||Individuals, funds||Local, regional and international entrepreneurs (for larger real estate)||Local, regional and international entrepreneurs (for larger real estate)||Local, regional and international entrepreneurs (for larger real estate)||Local, regional and international entrepreneurs (for larger real estate)|
|Market liquidity||medium||High||Low, especially for larger real estate||Low, especially for larger plots||medium||medium|