TMA-Brazil’s Second Annual Conference on Corporate Recovery & Turnaround highlighted the challenges and opportunities related to corporate restructurings and turnarounds, focusing on the knowledge of turnaround management and of the Brazilian corporate restructuring legislation as key tool for all sorts of companies and situations, even in times of economic growth. The main corollaries that emerged from the event included: professionals involved with corporate recovery must possess multidisciplinary training and certified experience; self-illusion is a human reality to be faced in an environment of crisis; the law must be challenged to improve the practice of turnaround management; the performance of the administrators should be improved through specialized training and promoting the practical experience of the most talented; it is essential to promote transparency in corporate recovery; in most transactions the synergy in mergers and acquisitions do not correspond to the expectancy due to their poor implementation; the best management arises from clear business plans; and creditors wish for good diagnosis, negotiation and implementation of a recovery plan.

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TMA-Brazil's One Day Seminar covered the importance of correct preparation of cash flow; renegotiation of liabilities; cutting costs and optimizing cost structures in crisis situation; tax issues; labor issues; liability of professional directors and managers; when bankruptcy can be a good alternative for recovery.

TMA Brazil presented status and cases of Turnaround Financing in Brazil. The greatest difficulty in obtaining new financing in recovery is that Brazilian companies concede for turnaround when its too late, with depleted working capital, and no turnaround management approach capable to restore creditors' confidence. It was no different in the case of Independencia, which demanded new corporate governance. What saved this case was that most of its assets were not pledged, which allowed Independencia to raise turnaround funding abroad, through issuance of bonds. Luiz Fernando Paiva talked about the high costs and complexity of contracts needed, not to mention the difficulty imposed by the law, which indirectly provides incentives to those creditors who are excluded from in-court procedures and plan by the Brazilian law, specially creditors owners of assets in fiduciary alienation. Eduardo Munhoz summarized the history of Selecta and listed three obstacles to DIP Financing: balancing interests of creditors with new money with those with old money in the company; little experience in using the Bankruptcy code and turnaround approach as a tool of corporate recovery; and the lack of a secondary market for distressed debt. Thomas Felsberg recalled the Agrenco case the recovery kick-off of which was possible due to changes in governance. Luis de Lucio (Alvarez & Marsal) considered the importance of not mistaking the term "exit financing" by "DIP financing", and Eduardo Lemos (Perform) reminded that the first one reflects the investor's intention in making profit from disinvestment while in the second the creditor aims financial return from turnaround financing in itself.

TMA-Brazil's Financial Solution Committee (CSF) presented its paper "Turnaround Financing". CSF president and KPMG partner Salvatore Milanese presented CSF's bench and field research concluding with key recommendations for enabling DIP financing in Brazil: firstly, enterprises must win the cultural barrier of accepting the situation and the need for turnaround planning and for adopting a pragmatic approach with transparency and a capable turnaround team. Secondly, banks have little confidence and incentive with respect to other options rather than DIP with no real distress finance market and with rigid Central Bank rules against credit renovation to bad payers. Finally, CSF's study concluded that suppliers have little buy-in into Brazil's bankruptcy procedures misinformed and with no strategy other than to fight for their short-term dollar.

Giuliano Colombo from Pinheiro Neto Advogados illustrated one of few cases in which new money was obtained thru notes emission abroad (US$ 165 million at higher than 20% effective annual interest rate) and within the Brazilian bankruptcy 180 days stay-period after filing.

James Sprayregan summarized the US history and highlighted some cases on US bankruptcy. He shared that Brazil's 5-year old bankruptcy law is too young and more time and a couple of hundred amendments, as took the US, is needed to mature the necessary turnaround culture, professionals and financing solutions many of which became affirmed in the US by years of usage and perfectioning not necessarily stated in the law itself. He exemplified common provisions: rollups and "self priming" higher in the capital priority structure; covenants tied to a plan of reorganization or assets sale; waivers of rights challenge of validity; priority or perfection of prepetition liens, and waivers of the debtor's right to charge the collateral for the costs and expenses associated with preserving such collateral. James reminded that the market for distress finance also requires long time for its own maturity and he emphasized the distinctive roles and approach of passive creditors and active creditors and turnaround practitioners praising the "active" for their pioneering role to promote the necessary turnaround culture and approach. He also praised institutions like TMA-Brazil to help develop the turnaround and bankruptcy legislation environment and defend the cause of recovering value in companies in distress with respect to the stronger lobbying power of creditors.

Debtwire Latin America, in conjunction with the TMA, hosted the first annual Brazilian Bankruptcy and Distressed/High Yield Symposium on April 29, 2010. The two-panel event was held in Sao Paulo and was sponsored by Alvarez & Marsal, Felsberg e Associados, Intralinks, Bank of America, KPMG, and Veirano Advogados, bringing together over 150 distressed investors, advisors and industry professionals to discuss the intricacies of the Brazilian market.

The first panel focused on the new 2005 bankruptcy law and reviewed some of the restructurings that have made their way through the code over the last years. Panelists included Luis de Lucio, Alvarez & Marsal Latin America, Thomas Benes Felsberg, Felsberg e Associados, Amaury Junior, Vision Brazil Investments, Leonardo L. Morato, Veirano Advogados and Andre Schwartzman, TMA. Beef sector restructurings, treatment of tax and other claims outside of the in-court procedure and the underdeveloped DIP finance market in Brazil were among the topics discussed.

The second panel focused on investment opportunities in the Brazilian distressed debt and high yield market. Panelists included Adrian Devenyi, Elliott Management Corporation, Fernando Antônio Hadba, BRZ Investimentos, Salvatore Milanese, KPMG, and Luiz Fabiano S. Saragiotto, Bank of America Merrill Lynch. The panelists discussed the overheated crossborder market and where to find value, reviewing local opportunities such as NPLs, SME loans and "precatorios".

Tony Alvarez II, founder and co-CEO of Alvarez & Marsal, spoke about the impact of the American crisis on companies and how to restructure them, pointing out that the first measure consists in checking the cash flow and the remaining time. He highlighted that an incisive "liquidity plan" is essential to face the lack of money and time, which are typical in turnarounds. Alvarez also affirmed that speed of action and leadership are crucial in a restructuring process, reminding that the strongest ability of a turnaround practitioner should be communication, in order to regain confidence, listening to all parties and being honest about the company's real situation. He emphasized that turnarounders should be seen as saviours of sustainable jobs and not as job cutters. When asked about the profile of turnaround management companies, Alvarez said they shouldn't be compared with consultancies which have a strategic, organizational, technological or process approach which well address other phases of the business life cycle. Turnaround firms are sharp too in these aforementioned capabilities but they disntinguish themselves with a strong financial and operational "hands on" approach.

The Management Practices Committee (CPG) conducted public hearing presenting the first of three chapters of a paper intended to nurture turnaround approach in a country where companies consider it only when already subdued in Brazil's chapter 11 equivalent. The CPG proposes practical recommendations under the legislation's timeline grounded on a feasible recovery plan which must go beyond creditor renegotiation tackling strategic, product-market and organizational changes. Other needs highlighted by the CPG are: transparency, resilience and assistance from qualified management and law professionals.

The first convention of the Brazilian Turnaround Management Association had the participation of 200 among Brazil's top executives of companies, banks, investment funds, law firms; judges; and leaders in industry and bank associations, of Brazil's Central Bank and National Development Bank, and of business schools. The event suggested further developments in Brazil's recovery and bankruptcy law and practice related to: rules for debtor-in-possession financing; legal risks hampering turnaround managers; professional training of judge-appointed administrators among others.

Limited to macro-economics statistics and to the few data available in Brazil's young "turnaround industry", Salvatore Milanese, KPMG partner for Restructuring and president of the Financial Solutions Committee of TMA Brazil, showed that the historical frequency of financial crisis in the economy and the volume in bank defaults are growing exponentially with globalization and with the growth of credit and capital markets. He reminded by demonstrating the direct correlation between liquidity crisis and corporate turnaround. He presented the growth in bankruptcy filings, 1453 up to June under the new law, and the most affected sectors among which, sugar-alcohol, civil aviation, banking, raw meet processing and department stores.

Milanese reminded that early turnarounds don't get to the point to file for bankruptcy protection, which is better and with more chances of success for turnaround management than having to perform balance sheet restructuring sunk in advanced liquidity crisis. He shares that Brazilian companies tend to consider turnaround only when in advanced stage of distress and to propose turnaround plans limited to work-out without effectively tackling sustainable P&L recovery. In bankruptcy protection, he warned the need to improve the role of auditing, cash control and level of interaction of court-appointed administrators with company management and creditors committee.

Under the light of the maturing bankruptcy legislation and case law, and of the turnaround management practice and financial tools, it is only for us to expect a strong development in Brazil's "turnaround industry" with the specialization of the judiciary, court-appointed administrators, work-out officers, chief restructuring officers, interim managers, financial advisors, "special situation" investors, DIP financers and specialized data base providers.

The book launch event took place in São Paulo on Spetember 3 2009 gathered business owners, managers, and academics as well as finance professionals, lawyers and judges. For more information regarding the book, access: www.comorecuperarumaempresa.com.br/en

The meeting gathered 70 among TMA Brazil associates, WTC Business Club members, invitees and journalists. The speakers were Maurizio Mauro (TTLM partner, professor at Insper and Grupo Abril turnarounder CEO from 2001 and 2006) and Thomas Felsberg (Bankruptcy lawyer founder of Felberg & Associates and Chairman of TMA Brazil) with the mediation of Eduardo Lemos (Perform managing partner and TMA Brasil CEO).

Felsberg explained the concept of insolvency as being a liquidity crisis rather than associating it to evil intention of defaulting as often distorted. He cited four factors associated to turnaround: economic, financial, management, and legal and four forms for it to happen: restructuring, in-court, out-of-court and creditor led. "Succession is an uncivilized anachronism to oblige debt payment" he says. Without it, he believes the financial paper Gazeta Mercantil could have survived. "Tools already encompassed in the law could have saved Gazeta" he said. One option could have been an MBO with employees taking over operations. Another option could have been sale without succession in the terms of the law "as happened when Varig passed on the business to Gol" but timing did not favor Gazeta. Felsberg highlighted that GM in the US left Chaper 11 in 40 days. In Brazil we lack this agility "which was not there for Gazeta to survive". Felsberg sustains that often an enterprise is not viable making it necessary either to let it go for others to operate it or liquidate it efficiently in order to detoxify and maximize value and efficiency to the market. Mauro joins in saying that in these cases not even turnaround management or a turnaround leader can guarantee the recovery of the capabilities for sustainable projection and they complete saying that companies do not need or should survive if they are not needed or adding value.

Maurizio Mauro shared particularities and the future of the media industry. He highlighted the misalignment between who consumes -readers- and who pays -advertisers for the most part- the product, and between economic and social value often unbalancing the traditionally cartesian business management approach. Regarding the future, Mauro says that as we move forward it will be necessary to reinvent forms to add value to the product and forms to generate revenue. The professor pointed that technology increased competition through many smaller, niche focused, communication vehicles "but they will have to eventually run under a bigger organizational structure or they won't sustain themselves". In the actual scenario, there is no role business model for the communication enterprises, but Mauro casted some bets. First of all is the sale of targeted content to the consumer (which would diminish dependency from publicity). "If content is valued, the consumer will pay" he said. According to him, it will be also fundamental not to extinguish value chain intermediaries but instead "add value in communication channels and points of sales instead of advertisements, content reselling or media companies selling themselves directly for example." In his vision, advertising agencies themselves will also need reinvention but will survive.

Kargman gave an overview of the global crisis from an emergent market perspective and the new wave of corporate cross border recovery dynamics. The first dynamic is associated to the new roles of hedge funds who are finding themselves as creditor stakeholders rather than distress financers and of banks who are forwarding their credits and risks hence less charged in the debt recovery process. The second dynamic regard the higher complexity of derivatives and the third regards growing cross-border interdependencies. Kargman suggested a 10-pronged action plan emphasizing preference for preventive, incisive, realistic, both strategic and operational, early turnaround approaches.

The event covered: UNCITRAL-compliant cooperation between court jurisdictions; cross-border restructuring cases; out-of court financing and analysis of relative protections and privileges; investment opportunities and alternative capital structures to invest in distressed companies' assets and different ways to protect investors according to specific legislations; fraud and corruption investigation in the recovery of assets often deviated in bankruptcy processes as well as tools to recover those assets based on a hypothetical case.

Thomas Feslberg (Felsberg & Associdos), Eduardo Lemos (Perform Management & Consulting), Luiz Cláudio Galeazzi (Galeazzi & Associados), Sergio Werther Duque Estrada (Valormax), Luiz Fernando Valente de Paiva (Pinheiro Neto Advogados), Antonio Toro (PriceWaterHouseCooppers) and Renato Carvalho (Angra Parners) presented TMA Brazil's objectives which encompass legitimate representation of, and best practice support to, professionals involved with corporate recovery, restructuring and liquidation. The committees and their plans were presented. Proposed activities for 2009 included bimonthly seminars, turnaround book launch, annual forum and whitepapers.

TMA Brazil's constitutional General Assembly was unique. Attendance exceeded convocation and the GA asked to post pone some days the registry of the association in order to give a chance to other reputable colleagues in the profession to register themselves as founding members. In total the managers, lawyers and financers that signed-off as founding members were 119 individuals and 28 companies.

Cláudio Galeazzi, founder of Galeazzi & Associados and currently CEO of the Brazilian retail group Pão de Açucar, emphasized that company recovery should prioritize the bottom line (profitability) rather than the top line (sales) as is often the approach. He shared his experience in Pão de Açucar, the relationship between the CEO turnarounder and top management, corporate downsizing eliminating inefficient intermediate management layers, and the relocation and clustering of market-products according to point of sales clientele profile in the neighborhood. Eduardo Lemos, managing partner of Perform Management & Consulting presented the Turnaround Management Association and the eminent opening of the Brazilian chapter which will represent and support management, finance and law professionals involved with corporate restructuring, recovery and liquidation.