Deloitte Debt & Capital Advisory

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Deloitte Debt & Capital

Advisory

Presentation to Enterprise

Ireland

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Debt Advisory

Independent financing advice

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Agenda Page

Introductions ₃

What We Do For Our Clients ₅

Case Study of Recent Transaction, Signs of a cash crises and Types of Insolvencies

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Overview of Bank and Capital Markets ₁₄

Q&A ₂₄ David Martin Director Office: +353 1 417 2522 Mobile: +353 86 839 2658 Email: davidmartin1@deloitte.ie Breandán O Callarán Senior Manager Office: +353 1 417 5721 Mobile: +353 87 124 7724 Email: bocallaran@deloitte.ie Gordon Naughton Manager Office: +353 1 417 8588 Mobile: +353 87 7485060 Email: gnaughton@deloitte.ie

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Gordon Naughton

Manager

Debt & Capital Advisory T: +353 1 4178588 M: +353 87 748 5060 E: gnaughton@deloitte.ie

Deloitte Debt & Capital Advisory

A team with significant Corporate Finance and Banking experience

Breandán O Callarán

Senior Manager

Debt & Capital Advisory T: + 353 1 4175721 M: +353 87 124 7724 E:bocallaran@deloitte.ie

Breandán Ó Callarán is a Senior Manager in Corporate Finance Debt Advisory in Deloitte, having joined in July 2012. Prior to joining Deloitte, Breandán spent six years in Bank of Ireland Corporate Banking, managing banking relationships for a large number of mid-market and SME companies across a broad range of industries and sectors, including; construction, retail, food & beverage, hospitality & leisure and healthcare.

Breandán is a member of the Institute of Chartered Accountants in Ireland (ACA), the Association of Chartered Certified Accountants in Ireland (ACCA) and of the Institute of Bankers in Ireland.

Gordon joined Deloitte in 2013 and is a Manager in Debt and Capital Advisory team. Gordon is a member of the Institute of Chartered Accountants in Ireland (ACA) and of the Institute of Bankers in Ireland. Prior to joining Deloitte, Gordon spent six years with AIB in both business and corporate banking specialising in the SME market. He previously worked for PwC for four years.

David Martin

Director

Debt & Capital Advisory T: +353 1 4172522 M: +353 86 839 2658 E: davidmartin1@deloitte.ie

David Martin is a Director in the Corporate Finance Advisory Services Division of Deloitte , having joined the firm in March 2014. Prior to joining Deloitte, David was with Bank of Ireland for 8 years working in Business and Corporate Banking s. David is a Fellow of the Institute of Chartered Accountants in Ireland.

David originated, structured and managed numerous debt facilities on a bilateral, club and syndicated basis across a wide range of trading sectors including hospitality & leisure, real estate, healthcare, medical devices, beverage and software sectors. Since joining Deloitte David has worked on a number Central Bank of Ireland assignments and is currently advising a number of companies across a broad range of sectors including hospitality, manufacturing as well as working as a coach for the Deloitte Best Managed Companies Awards.

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What We Do For Our

Clients

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• Negotiate with the loan acquirer on the Borrowers’ behalf in determining an exit price, and managing the exit process from incumbent bank to new lenders.

Potential new to bank customer:

Existing loans acquired by a

loan acquirer

• Separating the property debt from the business to provide a viable lending proposition for the existing or new Bank.

Strong underlying cash-flows:

Unsustainable property debt

overhang

• Work with the client in understanding their cash-flow requirements, improve cash-flow management, and recommend appropriate funding structure.

Strong EBITDA generation:

Poor cash-flow management

Strong business:

Poor MI provided to bank

• Work with client to provide appropriate MI, that in turn will support a viable lending proposition.

• Work with client to develop a viable lending proposition that has the flexibility to introduce junior debt and/or equity to part fund the expansion funding e.g. (NPRF / HNW).

Strong growth prospects:

Insufficient equity input/ over

reliance on bank funding

How we can assist you

Providing solutions

Typical Issues How Deloitte can help

• Together with our in-house experts (M&A, tax, etc.), work with the client in determining an efficient exit mechanism that makes sense for owners and other key stakeholders.

Good Business:

Little or no visibility on

succession/exit Plan

Existing Client:

Covenant Breach

• Work with client in determining why covenant breach occurred and create options report to include potential actions to include additional equity, security, margin, deleveraging, re-financing etc.

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• Work with client in understanding their requirements and also work with our tax advisers to determine the most efficient and appropriate borrowing structure.

Strong underlying cash-flows

Inefficient / unsuitable

borrowing structure

• Demonstrate whether a business can generate the relevant cash-flows to sustain debt (it shouldn’t be just based on the underlying collateral i.e. it should be a cash-flow lend).

Balance Sheet - Cash-flow Lend

• Work with client and senior lenders in either ring-fencing particular assets and cash-flows or putting in place inter-creditor agreement.

Potential new to Bank customer

Multi Banked

How we can assist you

Providing solutions

Typical Issues How Deloitte can help

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Case Studies of Recent

Transactions, Signs of a cash

crises and Types of

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Deloitte Debt Advisory

Case Studies

Irish Export Company

• Deloitte was approached by the owners of an Irish Exporting Company (“the Company”) with a view to restructuring its underlying capital structure.

• Although trading was affected by the global downturn, the Company continued to generate EBITDA of €2.3m p.a. The Company has good growth prospects and a strong management team.

• However, the owners are personally liable for c.€13m of debt against assets valued at €7m.

• Deloitte engaged with the incumbent Bank and are finalising a debt settlement agreement that includes asset disposals and a refinancing of the company with a new lender.

• The new lender has agreed to leverage the Company at c.4x EBITDA, which through projected uplift in trading coupled with aggressive debt payments will delever to c.2x in 2016.

• The proposed settlement protects employment at the Company, provides the incumbent Bank with a recovery in excess of that which could be achieved in an enforcement scenario and provides financial certainty for the promoters/ owners.

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2014 Debt refinancing and debt advisory services to Russell Court Hotel

€8m Ireland

Deloitte Debt Advisory

A selection of our credentials

2014 Ireland

€0.250m

Ireland

High Net Worth Individual

2014 Financial advisor for the raising of new debt finance to acquire commercial properties

€9m

2014 Ireland

€18m

Debt refinancing and debt advisory services to the LED Group Debt refinancing and debt advisory

services to Oliver Plunkett GAA Club

Commercial and Tax Advice on the development of a Fibre Optic Cable Business

€5 m

2010 Ireland

Business Modelling and Financial Advisory Services for funding of Biomass Gasification Facility

€10m

Ireland 2014

2014 €6m

Discounted debt purchase from Ulster Bank and acquisition of majority stake to the City Bin company

Ireland

Settlement of debt facilities with existing lender, incorporating a refinance with new lender

€1.1m

Ireland 2013

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INDICATOR SHORT TERM RESULT LONG TERM OUTCOME

• Over reliance on Bank Overdraft or over-reached facilities

• Unbudgeted/ unexpected Sales decrease or static sales

• Loss of supplier discount

• Inadequate liquidity & health ratios

 Acid Test ratio below 1:1

 Current ratio below 2:1

 Interest Cover below 1

• Increase in inventory days - Build up of stock

• Incur costs associated with storing stock & stock becoming obsolesce

• Bank ceases to provide O/D facility in future

• Bank demands immediate payment of outstanding amounts

• Day to day running of the business becomes impossible

• Suppliers will discontinue

supplying company and trading will become impossible

• Breach of bank covenants; bank has righto demand immediate payment of outstanding facilities • Receiver appointed in worst case

scenario

• Liquidity decreases and relevant ratios effected

• Operating Profit /EBITDA decreases

• Possible loss of debt & equity funding

• Incur high fees due to constant use of overdraft and high costs associated with exceeding agreed facilities

• Increase in Payable Days • Increase in Receivable Days

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Early warning signs of a Cash Crisis

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Type Key Details

• A debenture holder appoints a Receiver over a company who is actively realising and receiving its assets and/or managing its affairs in the hope that debts outstanding to the debenture holder can be met.

• Best Case scenario; All debts are paid/ agreement is reached with debenture holder – company’s status returns to normal.

• Worst Case scenario; No satisfactory arrangement is reached and company enters liquidation.

Receivership

Irish Examples • Greenstar • 18months in receivership • Sold to Cerberus Capital Management – US P.E firm

• Debt restructured and now trading normally. • A mechanism for the rescue and return

to health of an ailing but potentially viable business.

• Examiner is appointed to scrutinise company’s affairs and to formulate proposals for a compromise between companies stakeholders. Reports to Court within 70 -100 days. Protection of Court during this time.

• Management & Directors remain in control of the company.

Examinership

• Eircom

• 54 days in

Examinership

• €1.8bn debt reduction

• Also B&Q and

Pamela Scott.

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Types of Insolvencies

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Type Key Details

• Liquidator is appointed by the High Court on foot of a petition to wind up company made by a director, creditor, shareholder or the company itself. • Creditors can voluntarily decide to wind

up company if insolvent; Creditors Voluntary Liquidation.

Liquidation

Irish Examples • Setanta Insurance Ireland • Creditors Voluntary Liquidation • Ongoing. • Same concept as full Receiverships

however prior to formal appointment of the Receiver, a purchaser is identified and terms of sale are agreed for assets in question. Remaining assets in business are left to unsecured creditors. • Less costly and no diminution in asset

value as Goodwill remains intact.

Pre-pack Receivership

• Cleary’s SuperQuinn

• Company bought by Musgrave Group plc in 2011 • Remaining stores became SuperValu in 2014. 13

Types of Insolvencies continued

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Overview of Bank and Capital

Markets in Ireland

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Competing

Banks

Divesting

Banks

Portfolio

Acquirers

Lending

Funds and

Private Equity

Irish Lending Market Overview

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Lender _{Key attributes} _{Loan sales completed} _Pipeline

BOI _{• Policy of no debt forgiveness} _{• Shelbourne Hotel} _{• Capital Collection- Irish Retail & Office properties} UB/RBS _{• Non performing loans are been dealt}

with through settlements and loan sales

• Project Elliot • Project Achill (Pool A-E); Project Aran; Project Nadal

Anglo/IBRC _{• In liquidation through the Special} Liquidator.

• Some residual borrowers remaining not sold as part of loan sales.

• Project Stone (TR. 1,2,4,6,7,8) ; Project Rock & Salt; Project Evergreen (TR. 1, 9, 14); Project Sand; Project Pebble

• Project Quartz (Stone); Project Amber (Evergreen); Project Pearl

BOSI/Certus/

Lloyds • The book is being wound down. • No new lending.

• 75 St. Stephens Green; Project Pittsburgh; Project Phoenix; Project Lane; Project Prince; Project Pert

• Project Paris; Project Parasol; Project Spectrum; Project Cherry

ACC _{• The book is being wound down.} • No new lending.

• n/a • n/a

PTSB _{• The book is being wound down.} _{• n/a} _{• Irish CRE portfolio; Project Springboard} AIB _{• The book is being wound down} _{• Project Kildare} _{• n/a}

NAMA _{• The book is being wound down.} _{• Project Holly; Project Club; Project} Spring; Project Tower; project Aspen

• Project Cherry; Project Parks; Project Venue

Danske Bank _{• The book is being wound down.} • Exit from Irish Market

• Project Circle; Project Arc (ongoing) • Project Cherry; Project Griffin

The manner in which Banks are addressing their non-performing Loans and exit from

the Irish Banking market varies significantly. Loan sales have seen significant

investor appetite leading to further tranches.

Divesting Bank Overview

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‒ New lending in Ireland varies depending on the Bank, the company size and the sector. Focus is on cash generation rather than asset values.

‒ New lending has become more accessible over the last 2 years with BOI establishing New Business teams at Corporate and Business Banking levels.

‒ UB’s appetite is limited to certain sectors.

‒ Where available, typical lending criteria to the mid corporate/SME market includes:

 Composite debenture with full cross guarantee structure;

 3-5 year term;

 Debt amortises over the term with very little refinance risk on maturity;

 Max senior debt c. 3.0x – 3.5x EBITDA with interest cover > 3x; and;

 Senior priced at circa 3.5%+ with arrangement fees, however margins are tightening.

‒ Banks will lend against property, but property must be income generating with a strong lease. Typical lending criteria is:

 50% to 65% loan to current market value;

 Greater than 2 times interest cover;

 Surplus income is used to amortise debt;

 Term is 5 to 7 years but amortisation profile is based on a 15 to 20 year period.

‒ Banks are viewing lending as part of an overall relationship i.e. no longer a standalone product. The potential for other income streams is considered key to getting approval for the debt facilities e.g. deposits, cash collections, foreign exchange etc.

AIB _{• Lending at c.3x to 3.5x EBITDA multiples and restricted} term.

• Anecdotal evidence of providing longer term facilities. • Actively seeking new lending opportunities.

• Focus is on trading businesses and residential mortgages.

BOI _{• Lending at c.3x to 3.5x EBITDA multiples and restricted} term.

• Actively seeking new lending opportunities. • Focus is on trading businesses.

UB/RBS _{• Limited lending to the corporate and semi state market,} and to the mid corporate/SME market.

• Little appetite for property lending.

Barclays _{• Lending to the Irish large corporate and limited} investment property deals.

Close Brothers _{• Specialist in leasing and invoice discounting.} • Looking to expand in the Republic.

Rabo Bank _{• Appetite for new lending into Food & Agri sector.} HSBC _{• Limited appetite for new lending in Ireland.}

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Competing Banks Overview

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Borrower

• Stability and certainty

• Access to funding / credit lines

• Quick decision making process and

access to decision makers

• Funding package that reflects the

profile of the business

• Leaves management get on with

running the business i.e. no onerous

conditions

• Will work with management if the

business underperforms

No surprises!

Provide relevant financial information

Provide solutions

Lender

Key Considerations

• Stability and certainty

• Good quality information

• Full banking relationship to maximise

overall “share of wallet”

• Clear repayment strategy

• If the company is stressed – clear exit

strategy that demonstrates why

existing management are best placed

to maximise the Banks recovery

• Minimise losses and timeframe to exit

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Relationship Banking

Borrower and Lender have their own set of objectives however a strong working

relationship is based on finding the common ground

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Key Details

• The Strategic Banking Corporation of Ireland (“SBCI”) was established by the Government in May 2014 and incorporated as a company in September 2014.

• It’s core purpose is to improve funding mechanisms and access to finance for Irish SMEs.

• Tranche 1 (consisting of €800m in loans ) will be made available primarily from:

• the Ireland Strategic Investment Fund (“ISIF”); • the European Investment Bank (“EIB”); and • the German Development Bank KFW (“KFW”). • Under the scheme, existing retail banks will borrow from the

SBCI (who will have a lower cost of funding) and will then lend to SMEs. The banks must demonstrate that the lower cost of their sourcing the funds is passed on to SMEs, in order to avoid a serious breach of European state-aid rules. • The banks will be responsible for accessing SME ‘s

borrowing proposals and will hold that risk.

• Long Term, the legislation establishing the scheme will facilitate up to €4bn in lending if there is sufficient appetite.

Tranche 1:

• €150m provided by German Development Bank KFW • €650m provided by EIB and ISIF

Source: www.sbci.gov.ie

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Strategic Banking Corporation of Ireland

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Key Criteria to Qualify for an SME Loan

• SBCI loans will be available to full range of SMEs, from micro one person enterprises to medium sized businesses. SMEs defined using the Europeans Commission’s definition;

• Enterprises which employ fewer than 250 persons and

which have an annual turnover not exceeding €50m and/or an annual balance sheet total not exceeding €43m’.

• According to the new definition;

• An enterprise is ‘any entity engaged in an economic activity, irrespective of its legal form’.

• Thus, the self-employed, family firms, partnerships and associations regularly engaged in an economic activity may be considered as enterprises. It is the economic activity that is the determining factor, not the legal form.

• No information at present on whether certain industries are excluded. SCBI have listed the following beneficiary

industries; Hospitality, Professional services, Agriculture, Manufacturing and recent start-ups.

Key Characteristics of the Loans:

• Offering; Long Term working capital and capital investment finance

• “Reduced funding costs”

• Extended repayment holiday/ payment flexibility • Longer repayment term/longer maturities • A single SME can borrow up to €4million

Case Study Example 1 – Family owned restaurant

• Requires: Loan of €30,000 to rollout deliver service and upgrade computer system.

• Traditional Bank: Payback must start immediately over 24 months.

• SBCI: Repayment holiday for 1 year then payback is arranged over the following 2 years.

Case Study Example 2 – Letterkenny Legal Firm

• Requires: Loan of €15,000 to invest in new computer system which has yearly maintenance costs.

• Traditional Bank: Full loan given now and payback must start immediately over 18 months.

• SBCI: Loan is offered over 6 years to match life of investment.

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Strategic Banking Corporation of Ireland

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Increasing number of domestic and foreign funds looking to fund Irish companies.

Funds will invest through equity, mezzanine debt and senior debt. Investment is

typically IRR driven however some funds are prepared to take a longer term view.

Selected Providers

Offering

Targets/Strategies

NPRF Funds:

Bluebay

Carlyle Cardinal Group

BDO Development Capital Fund

MML

Senior/Mezzanine/Uni-tranche.

Equity.

Equity/Bridging Underwrite.

Performing trading businesses.

Promote M&A and growth strategies.

Stressed and distressed businesses.

PE Firms:

Avoca / KKR

QED Equity

Proventus

Full capital stack.

Will look to fund performing and stressed

businesses. Preference for performing

businesses is to enter the capital stack at a

mezzanine and/or equity level. Preference

for stressed business is to acquire debt on

a loan to own basis.

Lending Funds and Private Equity

Selected Providers

Offering

Targets/Strategies

NPRF Funds:

Bluebay

Carlyle Cardinal Group

BDO Development Capital Fund

MML

Senior/Mezzanine/Uni-tranche.

Equity.

Equity/Bridging Underwrite.

Performing trading businesses.

Promote M&A and growth strategies.

Stressed and distressed businesses.

PE Firms:

Avoca / KKR

Broadhaven Capital Partners

Proventus

LDC

Starwood

Earlsfort Capital Partners

Full capital stack.

Will look to fund performing and stressed

businesses. Preference for performing

businesses is to enter the capital stack at a

mezzanine and/or equity level. Preference

for stressed business is to acquire debt on

a loan to own basis.

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Raising Funds < €1million in Ireland

Microfinance, HNWI, VC funds, Enterprise Ireland

Selected Providers

Offering

Targets/Strategies

Microfinance Ireland

• Offer loans between €2,000 and

€25,000 at 8.8% fixed APR

• ‘Enterprise’ – turnover below €2m and

fewer than 10 employees

• TaxAssist Accountants

• Castlemine Farm

• Lilliput Loaf Company

High Net Worth Individuals/

Angel Investors

• Angel Investors

• Funding and/or mentorship in return

for an equity stake in the business

• Currently €70m is invested by HNWIs

in Ireland

• The Business Angel Partnership have

invested €71m to date – average €180k

• Recent investments by HNWI

include;

• Yellow Schedule

• OnePageCRM

• CurrencyFair

• Investment by Victor Treacy

(HNWI) in Carlow Brewery Company

Venture Capital funds

• Delta - €250m under management

• Kernel – €173m raised to date

• ACT - €350m invested to date

• Frontline ventures

• Enterprise Equity

• Hybird Energy

• Sport Authority

• Eventovate

• Game

• Boxfish

Enterprise Ireland

• Range of funding options for SMEs

including grants to; grow your business;

engage in R&D; and develop your

Management Team

• Veronica’s snacks

• VistaMed

• Treemetrics

• ProFlame

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Lender _{Target borrower} _{Funding level} _{Product types} _{Target sectors}

Bibby Financial Services Ireland

• Businesses who have given up on their banks • €60m fund set up in January 2014 • Invoice Finance • Invoice Discounting • Export Finance • Trade Finance • Bad Debt Protection

• New Start Business Finance

• Manufacturing • Printers

• Recruitment Invoice Finance • Transport

• New Start Business Close Brothers

Commercial Finance

• SMEs and large businesses across Ireland.

• C.€50k-€10m • Asset finance – hire purchase, leasing & refinancing

• Invoice finance • Asset based lending

• Recruitment • Engineering • Print & packaging • Transport & haulage • Manufacturing

• Wholesale & distribution • Service industries Debtors

Exchange • Micro-medium sized _{organisations} • Suppliers with a turnover _{of less than 15M} • Invoice Discounting • Various Grenke _{• Small and mid-sized companies} _{• Purchase price of €500 to}

€500,000

• IT and office systems leasing • Various Linked Finance _{• Businesses > 2 years old} _{• €5,000 to €50,000} _{• Links individuals/companies}

who wish to lend with business borrowers

• Various

Tower Trade

Finance • Gross margin > 12% _{• > 3 years old}

• The products it sells must not be, perishable, or capital intensive. • < 90 days cash to cash cycle • Turnover > US$2.5m p.a.

• c.€50k • Sales finance • Supplier finance

• Various

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