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Investment Banking Committee Meeting Minutes

2006 Winter Leadership Conference

The Technology and Telecom Committee held a joint meeting with the Investment Banking committee at the Winter Conference. Under the revised charter of the Technology and Telecom Committee, the subject of the meeting was Virtual Data Rooms. The panel consisted of members of both committees and invited industry experts. The panel was very well attended and there were two $500 certificates given to all attendees of the meeting toward the purchase of a virtual data room.

2004 Winter Leadership Conference

The committees will be teaming up with Finance and Banking to present Chapeau, Sombrero or Fedora: A Lively Discussion About What Hats Investment Bankers, CRO/CRAs and Turnaround Consultants Are and Should Be Wearing. How do you determine whether you have the right professional for the job? This panel will address the distinction between financial advisory professionals hired, or recommended by, financial institutions and the roles they play at various points throughout a chapter 11 proceeding. Particular attention will be focused on the inherent conflicts that arise among these professionals as the lines among their service offerings begin to blur. Peter S. Kaufman, Gordian Group LLC, will moderate, and the panelists will include James D. Decker, Houlihan Lokey Howard & Zukin and Michael J. Epstein, TRG.

2003 Winter Leadership Conference

The Investment Banking Committee participated with the Financial Advisors Committee in a program entitled "Turf Wars among Restructuring Professionals—Who's On First?" on Friday morning. Becky Roof and Claudia Slacik participated as panelists.

A committee meeting was held on Saturday morning. In attendance were:

Becky Roof, Chairman
Bernie Katz
Matt Christensen
Kimberly Morse
Shal-lee Davidson
Robert Morris
Olin Glenn
Troy Taylor
Matt Pace
Cliff Zuchs
Susan Jacks

Topics discussed included:

1. Interest in future program topics, including:
   • What is an appropriate business model for a financial advisory firm in a declining business environment?
   • Interest in combining a program with banking & finance
2. Agreeing that committee work should be done outside of committee meetings
3. Completing unfinished Committee projects:
   • Model retention agreement
   • White paper on service differentiation
   • Establishing a newsletter
   • Establishing a system of emailing to members updates on "hot topics"
4. Developing a pre-filing checklist

2003 Annual Spring Meeting

The meeting was called to order at 8:30am and Robert Keach advised the attendees that the educational program was a joint presentation by the Business Reorganization Committee and the Investment Banking Committee.  He then introduced Anthony Schnelling, co-chair of the Business Reorganization committee and welcomed Peter Kaufman, co-chair of the Investment Banking Committee.

Committee Business:

1. Robert Keach discussed the success of the News at 11 column in the ABI Journal and solicited authors with an interest in producing work for that column.  He indicated that, at least at present, the editorial slots were filled but indicated that the editors were responsible for providing, not necessarily writing, the column for the months they had been assigned.  Interested authors were asked to contact Robert Keach at 207-228-7334or rkeach@mainelaw.com or Anthony Schnelling at 212-207-4710 or aschnelling@bridgellc.com.  Any topic related to the business aspect of the reorganization practice will be welcome and the editors will be encouraged to find a slot for publishing it.
2. Next Robert Keach discussed the need for both authors and editors for the E-Newsletter the committee produces each month.  Interested participants were encouraged to contact Robert or Anthony as the committee is trying to build on its early success with this vehicle and get a panel of editors in place.  Content for this publication is much more informal than for a Journal piece.  A case note on an interesting and cutting edge decision, a topic of relevant interest involving problems related to DIP financing, case management, plan creation and confirmation are all sources of material which would be of interest to members of the Committee.  These need only be a few informal paragraphs as the formatting and production is handled by Caroline Milani and the rest of the able staff at the ABI.

Educational Program – Emergence of the Chapter 363 Case

Robert Keach outlined the premise that more and more cases are apparently being filed with the specific purpose of organizing and consummating a sale or sales of all or substantially all of a debtors’ assets through a Section 363 sale under the auspices of the Bankruptcy Court.  He pointed out that this has been fairly common in the hi-tech, dot com and telecom industries in recent years.  He also pointed out that, notwithstanding Lionel, most courts have routinely approved these sales even though they commonly leave little for a debtor to accomplish through its plan but the liquidation of the proceeds left behind after the sale and the litigation remaining to the debtors and the unsecured creditors’ committees.

This trend has raised the level of importance of the Investment Banking function in the reorganization practice.  He asked Peter Kaufman to talk to the nuts and bolts issues and concerns of investment bankers pre- and post – petition and to discuss how he prepares a debtor for a sale and manages the process.  Peter Kaufman then discussed the investment banking process, without making specific distinction between pre – and post – petition engagements.

1. Creation of an engagement letter with the tasks, responsibilities and compensation clearly spelled out and agreed;
2. Definition of goal with the client – usually achieve highest and best price for the assets.  The factors involved in this definition are:
   1. How to maximize certainty?
   2. What kind of consideration is wanted (stock/cash/other)?
   3. Encouraging the client to realize that cookie cutter solutions do not exist in reorganization.
3. Define the time line.
   1. 30 days too little to do a good job
   2. 90 days is an excellent amount of time
   3. 60 days is probably the optimum time frame

            i.     Factors involved here are:

           ii.     How much liquidity does the client have?

          iii.     What kind of relationship does client have with its lenders?

4. Building Blocks for sale process are:
   1. Define the buyer population
   2. Assemble due diligence and marketing materials.
   3. Organize an effective due diligence process.
   4. Keep competitive dynamic effective through closing.
   5. Prepare draft contract.
   6. Identify key problems – key contracts to put out for potential buyers to review.
5. Prepare and circulate confidentiality agreements:

           i.     How valuable are these?

           ii.    How much time does one have to accomplish the sale?

          iii.    How hard to get agreed.

         iv.    How to resolve the internal questions which will get asked regarding “sharing information with competitors bidding in the 363 process” and how to clarify their motivation – competitive research or genuine interest in the assets or both?

         v.     Be aware of the collateral issues that potential buyers may also be trading claims and consider asking all 363 participants for a standstill on claims trading.

         vi.    How tight Confidentiality needs to be depends on the context

1.     is a sale the only option?

2.     could the company emerge as a stand alone entity from bankruptcy?

3.     How valuable is raw data to potential competitors?

6. Issues to be aware of:
   1. Ist week decisions are critical

             i.     Info flow internally may affect quality of Confidential Offering Memorandum (“COM”)

            ii.     Building consensus with management or with crisis manager, if any, is key to getting good data together quickly for COM.

            i.     Short time frame drives process to strategic buyers because they know the industry and the deal (especially the warts).

           ii.     How critical is it to attract financial buyers to get maximum value and how can this be accomplished?

            i.     Who will run the business (no value will remain if everyone focuses on the sale and the business collapses)?

            ii.     Who will assist the investment banker with the sale process – due diligence, negotiation, sourcing potential buyers?

           i.     Identify best potential buyers

          ii.     Identify price levels

         iii.     Negotiate contracts simultaneously.  Keep an eye on the need for apples to apples contract provisions.

The discussion then shifted to the role of Fairness Opinions as part of a sales transaction in or out of bankruptcy proceedings.

7. Fairness Opinions – Peter Kaufman explained that outside of bankruptcy “fairness opinions” are routine and it is easy to understand that, in a litigious marketplace, boards of directors and officers of both buyers and sellers want the comfort that assets they are buying or selling are being traded at a price which is fair to their constituents.  Some obvious reasons are:

        i.     To avoid fraudulent transfer challenges in a future bankruptcy or under state law.

       ii.     To validate value so as to ensure the full protection of the “prudent man rule” and protect indemnification rights.

       iii.     To gain a level of comfort that the price is indeed fair in and of itself.

In a bankruptcy proceeding it is more difficult to understand the need for this form of assurance and protection for boards of directors and officers of selling debtors.  There was an extensive discussion, with much audience participation, regarding the purpose of a 363 sale – cleansing the assets of unwanted liabilities and getting court approval for the process.  The whole concept of requiring a Judge to validate the debtor’s decision as to the highest and best bid appears to immunize directors and officers from liability and obviate the need for a “fairness opinion”.

Robert Keach offered for consideration the fact that investment bankers in cases he is in have been asked recently for “fairness opinions” in a 363 context notwithstanding the immunizing value of a bankruptcy court order.  Anthony Schnelling offered the thought that in this context a “fairness opinion” might act to validate the process engaged in by the officers and directors of the debtor and assure them that their actions could not be attacked in that context.  There was a general sense of the meeting that this might be a valid reason to use and request a “fairness opinion” in the context of a 363 sale but that such opinions were of little use to anyone for a validation of the value of a transaction once a court had ruled on the fairness of value.  Keach indicated and Kaufman agreed that the context in which they have seen or considered such opinions did relate to the process aspects of the sale and offered the thought that these opinions were and should be heavily qualified to be entirely fact specific:

i.  under existing circumstances

ii.  considering existing liquidity

The thought was offered from the floor that if such opinions were to be requested they should be bargained for in the engagement letter process with the investment banker because no banker would give this sort of opinion in this context without very specific parameters agreed in advance.  To request such opinion during the process was likely to meet with a refusal or an exorbitant fee.

8. Conducting the Auction Process
   1. It is important to have auction procedures in place and blessed by the Bankruptcy Court well in advance of the auction.  The bid procedures are routinely blessed by the court but often the actual procedures for running the auction (timing of bids, interaction between bidders, closed or open process) are left to the debtor’s discretion and the buyers don’t have enough time to set their strategies accordingly.  Also, some courts have definite views on auction issues and it is best not to be in court on an emergency basis fighting over the procedures for running the auction on the day of the auction.
   2. On the Auction Day it is critical to provide

                 i.     Maximum flexibility to the buyer

                ii.     Maximum flexibility to the seller

                 i.     Open outcry auction?

                ii.     Sealed bid auction?

               iii.     All participants meet together at all times or can there be provate interactions?

              iv.     How to deal with the instantaneous valuation issue particularly when there bids which differ as to price, payment terms, contract terms, etc.

               v.     How to value non cash component of bids?

1.     Get opening bids from all potential buyers in advance to assist the debtor to understand any non-cash component prior to the auction taking place.

             vi.     How does one recognize and deal with collusive bidding or side deals

            vii.     Make certain creditors’ committee representatives are part of the process, especially if they are out of the money

The participation from the floor was lively throughout.  Questions were not held till the end, but were entertained and answered during the flow of the discussion

There being no more business, Robert Keach offered thanks to Peter Kaufman for his excellent presentation and thanked the attendees and the panel for their participation.  The meeting was adjourned at 9:30 am.

2002 Winter Leadership Conference

The Committee on Investment Banking, Corporate Finance and M&A met on Dec. 6, 2002, at 8:00 AM. There were 12 attendees. Peter Kaufman of Gordian Group LLC, Co-Chair of the Committee, and Matt Niemann of Houlihan Lokey Howard & Zukin LLC, were the moderators.

There was a discussion of indemnity issues relating to investment banks, and of the state of the law (including the disparity amongst jurisdictions and inconsistency among firms). There was a discussion of "market" protections commonly available to investment banks in non-distressed situations and the applicability of these market provisions to chapter 11 retentions. A suggestion was made that this committee seek an audience with the U.S. Trustee's Office in Washington, D.C., to discuss the matter.

There was a discussion of investment banking "opinions," and when a Board of Directors might require opinions in respect of fairness, valuation and solvency—and whether circumstances might exist in chapter 11 settings where such opinions might be appropriate. The LaSalle decision, and implications for the need (if any) for opinions, was also discussed. The Sarbanes-Oxley legislation, and implications for directors in insolvent situations as it relates to opinions, was also discussed.

There was a discussion of break-up fees—when permitted, how computed, etc., and the disparity among jurisdictions. This broadened into a discussion of the circumstances under which break-up fees (and attendant buyer protections) should be granted.

An invitation was extended to audience members to write articles or brief summaries of the issues discussed at the committee meeting—or any other topics of interest relating to investment banking. The moderators each committed to identifying a topic to be written on.

The meeting adjourned at 9:15 AM.

2002 Annual Spring Meeting

The Investment Banking Committee of the ABI met at 8:30 am Sunday April 21, 2000 at the Annual Spring Meeting of the ABI. Given the number of attendees (two), the discussion focused on the needs, concerns and questions of the participants as it related to investment bankers in financial restructuring.

In particular, we discussed the role that investment bankers can play in managing the sales process of a debtor and how investment bankers can assist a debtor in maximizing value. We discussed the role and value of investment bankers in the context of various sales scenarios under § 363 of the Bankruptcy Code including emergency sales and sales with a stalking horse.

We also discussed the current climate and types of deals that investment bankers were involved in today. Specifically, the conversation focused on the kinds of cases that were being filed, hypothetical solutions to those types of cases, and the general financing environment. We discussed which cases might be amenable to a reorganization of their capital structure and which might be more appropriately suited to the M&A process. We discussed the types of attitudes we were seeing from the traditional constituencies in these cases, including secured lenders and bondholders.

A robust Q&A session ensued. Although attendance at the meeting was light, we covered thoroughly a number of issues that lawyers and investment bankers were experiencing in the current bankruptcy environnment.

2001 Annual Spring Meeting

James Garrity (Shearman & Sterling, New York City), Hon. Erwin Katz (N.D. Ill; Chicago) and Peter Kaufman (Gordian Group L.P., New York City) had a discussion about the engagement of investment bankers in insolvencies. Topics discussed included (i) when the need for an investment banker arises, (ii) methods of payment, (iii) standards for employment in bankruptcy court and (iv) scope of work and skills provided by investment bankers, compared to other insolvency professionals such as crisis managers and accounting firms.

Anyone interested in pursuing these issues should contact Peter Kaufman (psk@gordiangroup.com) or Andrew Miller (amiller@hlhz.com).

There was also a discussion previewing the upcoming New York City June 18-19 conference on Workouts, Restructurings and Transaction Alternatives: The Role of the Investment Banker. This conference, the ABI's initial conference focussing on investment bankers and their role in insolvencies, promises to be a major event and will provide insights for any insolvency professional interested in learning more about (i) what it is that investment bankers do, (ii) what skills they bring to bear to solve financial challenges, (iii) how the services they provide differ from other professionals and (iv) how investment bankers work with other professionals.

The roster of speakers is a blue-chip list of the nation¹s leading investment bankers, attorneys and accounting firms, together with keynote speaker Prof. Robert Shiller, author of "Irrational Exuberance." The conference will have broad educational and networking appeal to insolvency professionals around the country.