Deloitte Malta Financial Advisory Services January Independent Business Review The Deloitte methodology

Independent Business Review

The Deloitte methodology

Deloitte Malta

Financial Advisory Services January 2016

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Deloitte Malta Financial Advisory Services 3

Contents

4 The Deloitte restructuring approach 5 Our creditor advisory and IBR offering 6 Phase I - The business plan review

7 Phase I - Value of the business plan review process 8 Phase II - Stakeholder analysis, valuation and options review 9 Creditor advisory - Key workstreams

10 Contingency planning is often critical 11 Project lead

The Deloitte restructuring

approach

Restructuring Services (RS) works with ‘Stressed’ to ‘Insolvent’ businesses

RS are delivered by partners with specialist “situational” skills and experience, working closely with our Consulting, Corporate Finance and Tax teams, to advise and support corporates directly, or their creditors, or investors. Consulting • Strategy and operations • Pensions and benefits • IT systems Turnaround and performance improvement Portfolio lead advisory services

CRO (Chief Restructuring Officer) services Financial restructuring • Creditor and corporate advisory • CBR/IBR (Business Review) Insolvency Contingency planning

Performing Under performing Insolvent

Fast track M&A Debt advisory

Valuations and CF advisory and real estate

M&A and restructuring tax

Debtor led

Cr

ed

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Our creditor advisory

and IBR offering

The Deloitte business review - Overview

When the business is showing signs of stress/distress, it needs to be reviewed to assess its current state and be able to formulate robust restructuring advice. Such a review takes form of:

• Company Business Reviews (CBRs) for PE’s; and • Management Independent Business Reviews (IBRs) for

creditors.

Business

plan review

Stakeholder

analysis and

valuation/

options

review

Deloitte

business

review

=

+

Extent of our scope may vary depending on who is the client and influence of banks

CBR often restricts our scope to Business Plan review, which is insufficient for creditors, although CBR providers are able to support Management through the restructuring process thereafter

Phase I

The business plan review

Business plan review Stakeholder analysis and valuation/ options review Deloitte business review (IBR or CBR)

=

+

Specialists (tax, treasury, pensions, real estate, insurance) Sector skills and experience Commercial review Operations review Financial review Modelling capability Management assessment

=

Establishment a base line EBITDA and cash flow that everyone agrees is a basis for negotiating a restructuring and improves prospects for a robust restructuring and successful exit

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Phase I

Value of the business plan

review process

Mitigates the risk that stakeholders will end up back at the table and increases the prospect of a robust restructuring and successful exit.

Basis of review

• Sector skills and experience • Insights and ‘intelligence’ • Commercial review • Operations review • Modelling capability • Stakeholder dynamics • Management assessment • Specialist teams as needed - tax,

treasury, pensions, real estate, insurance, accounting

Benefits

• Real multi-dimensional challenge to management forecasts: commercial, operational, financial

• Realistic set of “post-vulnerability” numbers to baseline and track future performance

• Risks/upsides are fully evaluated • ‘Close-up’ assessment of the business

and strength/depth of its management team

• Reliable basis for valuation/options review

• Business briefing facilitates communication to multiple stakeholder groups/syndicates

Phase II

Stakeholder analysis, valuation

and options review

Business plan review Stakeholder analysis and valuation/ options review Deloitte business review (IBR or CBR)

=

+

Stakeholder analysis Business valuation Capital structure Contingency planning Covenant evaluation

=

Benefits:

• Determine potential outcomes for stakeholders • Contingency planning to protect downside

• Recommendations on the optimal course of action for our clients • Financial, tax and operational structuring advice

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Creditor advisory

Key workstreams

• Value now and indicative value post implementation of the reorganisation plan

• Determine where value breaks

• Hence determines potential outcomes for all stakeholders

• Review and benchmark lender returns under all options

• Establish lender led option as alternative to sponsor/equity holder • Develop lender solution to point where it can be implemented

• Delivery mechanism - consensual or non-consensual • Assess rights of parties to the financing documents • Commercial support to lawyers in delivery

• Financial funding model to overlay post vulnerability trading plan • Flex model to reflect funding structures, interest and equity shares • Returns analysis to stakeholders to benchmark options

• Debt capacity and structuring advice • Accounting / audit input to new structure

• Full tax steps and implementation exercise required

• Identifying new management or alternatives to existing management • Define roles going forward

• Structure Management Incentive Plan

• Trustees obliged to seek elimination of deficits as soon as possible • Debt restructuring potentially increases ability to service pensions • Negotiate future funding profile before debt compromise

• Consideration of potential buyers • Disposal of non-core activities • Exit considerations

Valuations

Options review

Delivery of

solutions

Modelling

outcomes

Financial and

tax structuring

Management

team

Pension

negotiation

M&A support

Coordinationn/ leadership of stakeholders throughout the restructuring process Leveraging off our strategic, commercial and financial

review, bringing together a wide range of other skills to deliver robust restructuring advice.

Contingency planning is

often critical

Contingency planning may be required either as a discrete exercise, or as part of a wider IBR solution, providing financial stakeholders with an understanding of options and thus respective negotiating positions and leverage. Business Plan Review Detailed contingency planning Solution through enforcement Contingency options Stakeholder analysis Consensual options Consensual negotiation/ advisory support Consensual restructuring or

Functional / sector specialists, operational and commercial due diligence, tax, valuations, etc.

• Benchmark for robust restructuring advice • Evaluation of Stakeholder options including : - “Fall back” contingency options; and - Alternative consensual solutions • Detailed “Plan B” analysis; • In depth negotiation of consensual terms; • Stakeholder and/or Project Management. • Enforcement could be holdco/opco prepack • Complex/ contentious insolvency • Consensual could be through shareholder

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Project lead

Dimitrios Goranitis Banking Leader Tel: +356 9909 7707 Email: dgoranitis@deloitte.com.mt Location: Malta Background

Dimitrios joined Deloitte Financial Advisory Services in 2012. Prior to Deloitte, Dimitrios was a manager in Transaction Advisory Services with Ernst and Young (Central and Southeastern Europe), an assistant director of M&A with Altium Capital Group (APAX Partners), senior manager with UBS Financial Services (New York) and VP of Business Strategy with Bear Stearns - JP Morgan (New York). Dimitrios has gained substantial AQR, Stress Test and NPL advisory experience by leading AQR and Stress Test engagements in Greece and Cyprus and participating in similar exercises in Spain.

Relevant project experience

• AQR and Stress Test support to Malta Financial Services Authority / ECB - Full scope PMO and Quality Assurance of the country wide project in relation to three systematic banks in the country • AQR and Stress Test of five tier 1 banks in Greece

- Full scope Asset Quality Review of five tier one banks in Greece on behalf of Blackrock Advisory and European Central Bank. The review extended to their international holdings in six countries in Eastern Europe, Switzerland, UK, and Turkey.

• AQR and Stress Test of two tier 1 banks in Cyprus - Full scope Asset Quality Review of five tier one banks in Greece on behalf of Blackrock Advisory and European Central Bank. The review extended to Cypriot banks due to their significant exposure to the Greek market.

• Due Diligence and Valuation of two tier 1 banks in Greece - Full scope financial due diligence and portfolio valuation of two tier 1 banks in Greece on behalf of European Stability Fund (ESF) and Hellenic Financial Stability Fund (HFSF) in advance of recapitalization.

• Due Diligence Restructuring and Valuation of Proton Bank - Resolution and Liquidation of distressed lender ‘s bad bank under Central Bank of Greece

• Due Diligence, Restructuring , Valuation and Sell side services of Agricultural Bank of Greece - Good bank buy side to Piraeus bank

• Non Core and Non Performing Loan Portfolio Advisory to undisclosed Bank - Full scope exit readiness strategy for French international Bank in Greece

• Sell side Non Performing Loan Portfolio Advisory to undisclosed Bank - Full scope sell side NPL for US international Bank in Greece and Bulgaria • Sell Side on Non Core Subsidiaries of undisclosed

Bank - Full scope sell side NPL for US international Bank in Greece and Bulgaria

• Buy Side NPL Advisory on Large Corporate portfolios for undisclosed buyer - Full scope buy side services for distressed debt UK Fund [multiple sellers in Eastern Europe]

• Loan restructuring Analysis (IBR) for Piraeus Bank and NBG - Multiple engagements • Strategic Advisory to European Stability Fund

/Hellenic Financial Stability Fund - Program Management Office, Vendor Relationships Management

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/mt/about for a more detailed description of DTTL

For more information please contact: Dimitrios Goranitis Banking Leader dgoranitis@deloitte.com.mt Deloitte Deloitte Place Mriehel Bypass Mriehel BKR 3000 Malta Tel: +356 2343 2000 Fax: +356 2131 8196 info@deloitte.com.mt www.deloitte.com/mt