IMPORTANT NOTICE - Investment Magazine
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IMPORTANT NOTICE This presentation is given by Solus Alternative Asset Management LP in connection with Solus Recovery Fund Offshore LP and Solus Recovery Fund LP (collectively, the “Fund”). Solus Alternative Asset Management LP is regulated by the Securities and Exchange Commission (the “SEC”) under US laws, which differ from Australian laws. This information must not be copied, made available, published or distributed to any third party without the prior written consent of Solus Alternative Asset Management LP. It has been prepared without taking into account anyone's objectives, financial situation or needs so before acting on it each person should consider its appropriateness to their circumstances before making any investment decision. Solus Alternative Asset Management LP assumes no fiduciary responsibility or liability for any consequences financial or otherwise arising from any reliance on this information. This presentation does not constitute or form part of any offer, invitation or instruction to invest in the Fund, or any other securities, interests or markets referred to in the presentation. Accordingly, this information should not be relied on in connection with any investment decision and each person should carefully read and consider the proposed offer document for the Fund before making an investment decision. In particular, a person should consider the Fund's investment objectives, risks, fees and other charges. Each person should make their own appraisal of the nature of an investment in the Fund as well as the associated risks and should consult to the extent necessary, their own legal, financial, tax, accounting and other professional advisors in this respect prior to any investment in the Fund. This presentation and the Fund are only to be made available for wholesale clients as defined in the Corporations Act 2001 (Cth). The information in this presentation is current as at September 2012 unless otherwise stated and Solus Alternative Asset Management LP is not under any obligation to update the information to the extent that it is or becomes out of date or incorrect. It is confidential and has been prepared by Solus Alternative Asset Management LP solely for use in connection with the Fund. The information in this presentation is indicative and may change with market fluctuations. Past performance is not a reliable indicator of future performance. This presentation does not purport to be a comprehensive statement or description of any markets or securities referred to within. This presentation is for informational purposes only and is being furnished on a confidential basis to a limited number of eligible investors. This presentation is not an offer to sell, or a solicitation of an offer to buy, any security. Any such offering may be made only by a private placement memorandum (“Memorandum”) related thereto and the information contained herein will be superseded in its entirety by such Memorandum. The information contained herein is confidential and may not be reproduced or distributed in whole or in part. The private investment funds (the “Fund”) described herein will not be registered under the Investment Company Act of 1940, as amended (the “Company Act”), and the interests therein will not be registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state or foreign securities laws. These interests will be offered and sold only to persons who are “qualified purchasers” for purposes of Section 3(c)(7) of the Company Act and who are also “accredited investors” as defined in Regulation D under the Securities Act, or to non-U.S. persons who purchase interests outside the United States pursuant to Regulation S under the Securities Act. Past performance is no guarantee of future results. Future performance may not meet the levels achieved to date. References to specific investments are for illustrative purposes only and are not intended to be, and must not be relied upon as, recommendations to purchase or sell such investments or indications of performance of all portfolio investments. References set forth herein are subject to change without notice. There is no representation or guarantee regarding the reliability, accuracy or completeness of this material, and Solus Alternative Asset Management LP (“Solus”) will not be liable for any damages, including loss of profits, which may result from reliance on this material, in each such case, unless otherwise imposed under applicable law. Because Fund performance is expected to be volatile and an investor could lose most or all of his investment, an investment is very speculative and involves a high degree of risk, and therefore is not suitable for all investors. Further, an investment in the Fund is illiquid due to restrictions on redemptions and transfer and there is no current or expected secondary market for Fund interests. The investment strategy, where permitted, may include non-performing/distressed and illiquid assets and non-US assets and may employ leverage and short selling. Management fees and performance compensation may create an incentive for the manager to take greater risks than it ordinarily would without such fees and compensation. This is not a complete description of the offering, including the risks associated therewith. For full details of the offering, including a description of fees, performance compensation, expenses, risk factors and tax consequences, eligible investors must consult the Funds’ Memoranda before investing.
Distressed Lifecycle
Solus Recovery Fund II LP is Focused on a Very Specific Segment of the Distressed Lifecycle
Unlike traditional distressed opportunities, Liquidations remove valuation and process risks
100
85 Recovery
Deterioration
75
Price (%par)
Restructured Debt/Equity
55
25
Liquidation
Restructuring/Refinancing
TimeLate-Stage Bankruptcy Claims
Liquidation Claims
Advantages
• Significant insight into potential outcomes and return probabilities
• Limited process risk; restructuring and distribution plans in place
• Well-defined downside scenarios
Primary influences on IRRs
• Reductions to claims pool
• Increases in distributable cash/assets
• Timing of distributions
Litigation Claims
Significant upside potential based on litigation outcomes or out-of-court settlements
Claims generally trade at slight discount/premium to current distributable cash
Legal expertise key to evaluating potential for successLiquidation Claim
Well-defined downside allows for asymmetric
Successful Liquidation Claim Outcome risk/reward
Solus has extensive experience in evaluating
complex liquidations
Significant value creation through fundamental
analysis
• Bankruptcy process expertise
• Claims pool analytics
Disputed
Claims • Scenario analysis for distributions
• Expertise in asset valuation
Litigation
Significant upside potential through claims pool
Assets
Allowed reduction, increases in distributable cash and
Claims assets, accelerated timing of cash distributions and
Assets
potential litigation recoveries
Cash
Cash Past examples include:
Adelphia, Anchor Glass, Asarco, Calpine,
Beginning End Comdisco, Conseco, Enron, Horizon PCS, Marconi,
Refco, Washington Mutual, WorldcomWhat Goes into Liquidation Recovery Calculation
Dedicated Top 5 investment
Restructuring professionals have
Specialist with over 100+ years of
34 years of collective experience
Bankruptcy Practice in analyzing
Experience liquidations
Extensive network
CASH Value creation
amongst legal and
advisory
community A LLOWED = RECOVERY
% through claims
pool analysis
CLAIMS
Ability to identify 1) Settlements
Broad stable of 2) Adversary proceedings
and synthesize
seasoned 3) SIPC correspondence
large quantities of
analytical models 4) Congressional testimony
valuable and 5) Judicial rulings
driven by an array
complex 6) Bond indentures/
of diverse sources
information Loan agreementsSample Opportunity Set
Adelphia General Motors Nortel Current liquidation market value in excess of
$120 billion
Ambac GGP Bank Debt PMI
Axon Golden Key Serpentine Average life of opportunities ranges from 6
months to 3 years
BKUNA Graceway Sigma
CapMark Gryphon Swissair Ability to source claims at opportunistic prices
critical to investment success
Chemtura Icelandic Banks Terrestar
Chrysler Finco KGen Tho rnburg Mortgage Significant value in off-the-run (less liquid)
Colonial Bank
Lehman and
TOUSA
opportunities
Subsidiaries
• Size of claim
Dynegy MadoffClaims Victoria Finance
• Overlooked subsidiary claims
Enron MadoffFeeders Washington Mutual
Fontainebleau MF Global WR GraceWhy are they selling?
Original Investor Hedge Funds
Lack of expertise to value assets and/or Early stage bankruptcy players often want to
navigate the legal process “book a profit”
Desire to “move on” from a mistake (get it off Deal fatigue from protracted litigation is
the books) common (even hedge funds wear out)
Temptation to sell at first opportunity after Legal expertise and significant experience are
long period of illiquidity critical in accessing the timeframe and potential
investment reward
Time-consuming nature of liquidations and
litigations can be prohibitive Larger funds need to take advantage of liquidity
when available
Post-distribution sizes of positions become
inconsequential for larger fundsStrategy Advantages
Compelling Alternative to Traditional Fixed Income Investment
Fixed Income Late-Stage Bankruptcy Claims
State of the Market • General market segment • Specific market segment designed to
overbought due to excess exploit current market opportunity
liquidity created by QE
Correlation to Market Returns High Low
Dependence on Macro-Economic Factors High Low
Duration of Investment 7-10 years 6-24 months
2012 Return Expectations 3-8% 15%
Current Cash Flow Interest payments Distributions
Potential for Capital Appreciation Low High
Risk Factors:
Significant Corporate Leverage High Low
Low-Growth GDP Environment High Low
Refinancing Risk High Low
Interest Rate Risk High LowReturn Drivers – Case Study (Enron)
WSJ articles begin
Enron settles final
Merger with Dynegy announced MegaClaim with Citibank
6th distribution
5th distribution
4th distribution
Bond Price
Credit downgrade/ 3 rd distribution
merger terminated
2nd distribution
1 st distribution to creditors
Enron sells Latin Assets
for 4.0x estimated Plan value
Enron settles MegaClaim
Ch 11 filing with JPM, TD, CIBC and RBS
Enron sells Pipe Assets
for 1.4x estimated Plan value
Plan of Reorganization filed,
Asset auctions begin estimated recovery of 18%
Source: Deutsche Bank Securities Inc.You can also read
