DVI Situations

Question 1

Tell me about your JC Penney case from class

Answer 1

1. Description of Company
   - large monoline retailer selling merchandise at its department stores and through its website
2. Problem Risks
   - Operational:
   a. Activist investors pushed for new leadership
   b. Ron Johnson came in and completely changed the company’s strategy
   
   • moved away from discounts and coupons, wanted to be more like target
     c. sales completely fell off a cliff
     - Financial:
     a. highly levered
     b. minimally adequate liquidity exacerbated by 25% decline in revenues
3. Assessment
   - They needed a path to raise additional capital or face possible Chapter 11
   - They owned most of their real estate which was largely unencumbered
   - negative pledge: one security would not allow for additional debt to have liens against real estate
4. Solution
   - They bought this security back and were able to raise additional capital using their real estate assets as collateral
   - This gave them time to stabilize operations and operate in their new reality

Question 2

Tell me about Avaya

Answer 2

1. Description of Company
   - Communications products and solutions for businesses
   a. voice, video and messaging: software and hardware
   b. customer engagement via call center software
   c. cloud solutions for enterprise communications
2. Problem / Risks
   - leveraged almost 7x prior to filing
   - $8bn LBO in ‘07 with TPG and Silver Lake
   - Sales declined with increased competition, shift from hardware to software services
   - $6bn in debt maturity coming due
3. Assessment
   - Large, stable client base
   - 90% of Fortune 100
   - bottom line: strong business, required shift in focus and smaller debt service
4. Solution / Outcome
   - delevered in Chapter 11 went from 7x to 3.1x
   - Took out $900mm of Pension Obligations
   - Cut costs and expanded margins: EBITDA margin up 400bps
   - Sold its networking business

Question 3

what was your metals & mining project?

Answer 3

1. Situation
   - our client was suncoke energy
   - we were presenting a situation, together with suncoke, as a possible acquisition of Suncoke by Cliffs
   - consolidation necessary in increasingly competitive steel industry
2. Company descriptions
   - Suncoke produces coking coal, necessary for production of steel
   - Cliffs mines iron ore, essential to coal production
   - a mix of the two are heated in a blast furnace, creating pig iron from which steel is made
3. looked at the companies on an unlevered free cash flow basis as neither were profitable

Question 4

Owens Corning

Answer 4

1. Situation
   - - building products company (roofing, insulation, etc.)
   - - Significant personal injury claims related to asbestos litigation
2. Problem / Risks
   - - CSFB syndicated a $2bn revolver for OC to finance an acquisition
   - - CSFB had (smartly) required that any domestic sub with > $30mm in BS assets be a guarantor to this unsecured loan
3. Assessment
   - - Company filed for bankruptcy in 2000 following higher than expected claims from asbestos litigation
   - - I evaluated recoveries to the capital structure across a range of scenarios: substantive consolidation, entities holding w/ post-petition interest, cash to asbestos claims
4. Solution
   - - Entities held and post-petition interest was allowed for