FEDERAL INTERNATIONAL FINANCE
A Unique Solution
SITUATION
FIF is a finance company that finances the sales of AI’s Federal Motors which sold Honda motorcycles. The key to any FinCo. is access to debt and there was none available in SE Asia in 1998-2002.
The Parent company and all affiliates were all in some form of distress and unable to aid FIF. In addition all local banks and other finance companies had either been closed or taken over by the government.
Lenders were secured making a non-consensual deal difficult. One lender refused to participate insisting on a liquidation. Therefore the key was to persuade existing creditors to provide both capital and time, which they did.
A result achieved by no other FinCo in SE Asia in this period of crisis.
SOLUTION
The Restructuring plan was built around recycling capital rather then repaying lenders to ensure the company could remain in business and maximize sales for Federal Motors. Solution was built on low loan losses for the receivables. The currency depreciation had created an anomaly in that a repossessed motorcycle was worth more than the debt on it which meant a repossession following a default and sale made money for FIF.
The advisor had to persuade the creditors this was real and sustainable. In addition, as one creditor flatly refused to consider anything but a liquidation, a cram down solution was crafted that was acceptable to the other lenders.
APPROACH
Validate core thesis that FIF was an atypical FinCo.
Hoard cash to create an incentive to settle while using some for new business.
Restructure proposal split net capital inflows into two parts – half to creditors to service and pay down debt half to FIF for new business.
Create a structure that forced the hold out bank to join the transaction.
OUTCOMES
FIF restructured it’s debts within three months of AI. The hold out bank was forced into the deal via a double stick threat:
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The deal was closed without them and their pro-rata repayment escrowed; and
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Other lenders agreed in advance to support a Composition Plan should the hold out sue for repayment.
Holdout signed (last) at closing.
