Distressed Securities Class Presentation

Di st r es ess sed Secur i t i es Valuation

Copyright 2010 Investment Banking Institute

www.ibtraining.com

Table of Contents I.

Overvi ver view ew of Di st r ess essed Secur Securii t i es

II. Corporat e Debt Debt Pr i cing ci ng III. How t o get get Cont r ol of a Di Di st r ess essed As Asset IV.. Case IV ase St St udy - Samsoni amsonitt e V. Fi nancial Model

Table of Contents I.

Overvi ver view ew of Di st r ess essed Secur Securii t i es

II. Corporat e Debt Debt Pr i cing ci ng III. How t o get get Cont r ol of a Di Di st r ess essed As Asset IV.. Case IV ase St St udy - Samsoni amsonitt e V. Fi nancial Model

Distressed Securities The yea year of t he vult vult ure ur e The pr i vat e equ quii t y f i r ms t hat wi l l t hr i ve i n t he ye year ar ahe ahead  “ The ar e t hose t hat kn kno ow ho how t o pr of i t f r om ot her s'  mi sf ort or t unes”  

2007 wa w as a t al e of t wo ha hall ves 



The first was ebullient: nine out of the ten biggest leveraged buyouts ever, and Blackstone becoming a publicly traded company The second second wa w as one in i n whi w hich ch LBO LBOs f ell el l f r om al al most most 40% of t he dolla doll ar value value of dea deall s t hr oug ough h July Jul y t o a si ng ngll e-digi e-digi t ma marr ket sha harr e

May 15, 2008 Fortune Magazine

Wha hatt Ar e Di Di st r es ess sed Secur Securii t i es es? ? 

Di st r ess essed secu securr i t i es ar e secu securr i t i es of compa compani nies es t hat hat ar e eit ei t her already in default, under bankruptcy protection, or in distress and headi heading ng t owar owar d such such a condit condit i on   



Distressed fixed income securities are rated below investment grade The most most common types t ypes of dis di st r ess essed secur securii t i es are bonds and bank bank debt While there is no precise definition, fixed income instruments with a yield to maturity in excess of 1,000 basis points over the risk-free rate of return (e.g. Treasuries) are commonly thought of as being distressed

While sound methodologically, the absolute 1,000 basis-point benchmark may not be appropriate in all market environments 

Average credit risk spreads can fluctuate widely



denott ed as bp, bp, bps bps) is i s a unit unit t hat hat is equa equall t o 1/ 1/ 100t h A basis point ( of t en deno of a percentage point



As we will see later in the presentation, the market for distressed securi ecuritt i es i s l ess ess eff ef f i cient t han han othe ot herr mar mar kets ket s, ena enabli bl i ng skil l ed i nves nvestt ors t o ea ear n supe superr i or ri r i sk-adj k-adj ust ust ed ret urns

10 Largest Bankrupt cies in US 1980 - 2007 Company

Dat e

Asset s

Worldcom

07/ 21/ 2002

$103,914

Enron Corp

12/ 21/ 2001

$63,392

Conseco, Inc.

12/ 18/ 2002

$61,392

Texaco, Inc.

4/ 12/ 1987

$35,892

Financial Corp of America

9/ 9/ 1988

$33,864

Refco Inc.

10/ 27/ 2005

$33,333

Global Crossing Lt d.

1/ 28/ 2002

$30,185

Pacific Gas and Electric Company

4/ 6/ 2001

$29,770

UAL Corp

12/ 9/ 2002

$25,197

Delt a Air Lines, Inc.

9/ 14/ 2005

$21,801

What is Dist ressed Debt ? 

Most t radit ional way of categorizing debt is with reference to the ratings systems of the most prominent debt ratings agencies: Moody’ s Invest ors Service (Moody’ s) and St andard & Poor’ s (S&P) 





Whil e t hese firms use slightly different ratings notation, they have a functionally similar 10-grade scheme ranging from AAA t o D

A prominent dividing li ne is between BBB and BB. BBB and above is classified as invest ment grade, while BB and below is characterized as speculative grade and was, during the 1980s, labeled “ j unk” Fitch also provides rating of bonds

S&P

Moody’ s

AAA

AAA

AA

Aa

A

A

BBB

Baa

BB

Ba

B

B

CCC

Caa

CC

Ca

C

C

D

Investment Grade

Speculative Grade

Descript ion of Bond Rat ings (S&P) 







AAA – highest rat ing assigned t o a debt inst rument , indicat ing an extremely strong capacity to pay principal and interest. Bonds in t his cat egory are oft en referred to as gilt edge securities AA –high quality bonds by all standards with strong capacity to pay principal and interest. These bonds are rated lower primarily because t he margin of protect ion are less st rong t han t hose for AAA bonds A –these bonds possess many favorable investment attributes, but element s may suggest a suscept ibilit y t o impairment given adverse economic changes Bonds are regarded as having adequat e capacit y t o pay principal and interest, but certain protective elements may be lacking in t he event of adverse economic condit ions t hat could lead to a weakened capacity for payment

Descript ion of Bond Rat ings (S&P) 



   

BB –Bonds regarded as having only moderate protection of principal and interest payments during both good times and bad times B – Bonds t hat generally lack charact erist ics of other desirable investments. Assurance of interest and principal over any long period of time may be small CCC –Poor quality issues that may be in default or in danger of default CC –Highly speculative issues that are often in default or possess ot her marked short comings C – lowest class of bonds. These issues can be regarded as extremely poor in investment quality D –Issues in default with principal or interest payments in arrears. Such bonds are extremely speculative and should be valued only on the basis of their value in liquidation or reorganization

Bond Rat ings of Companies 

As of the spring of 2008, there were only six companies left with "AAA" ratings from bot h S&P and Moody's. They are Aut omat ic Dat a Processing (ADP), Berkshire Hat haway (BRK), GE (GE), Johnson & Johnson (JNJ), Exxon (XOM), and Toyota (TM) –April 2008. In the late seventies this number was 58 and in the nineties it was 22 



Compet it ion and willingness t o t ake on more debt possible reasons

Rating agencies conduct a very thorough review of the companies t hat t hey rate. There are numerous considerations t hat are weighed, t he most import ant of which is a company’ s cash flow 







Basicall y, if a company is a cash cow, it is very li kely t o have a high credit rat ing. Rating companies look closely at t he source of a company’ s cash flow as well as it s variety, availability, and source Companies with high credit ratings have quick-turning, high quality accounts receivable, meaning that they are getting paid on time and getting all that they are due. Rating agencies also consider it import ant t hat a company have t he abilit y t o sust ain t heir profit abilit y Aside from cash flows, rating agencies scrut inize a company’ s management for t heir compet ence, st ruct ure, st rat egic planning, and composit ion. Ot her considerat ions include scrut iny of a company’ s appetit e for risk and competit ion Rating agencies must always consider ext ernal factors such as t he economic cycle but t he fundamentals of t he companies t hat t hey rat e always get first considerat ion and have a far greater bearing on a company’ s overall rating  –  Nevertheless, rating agencies have increased their responsiveness to and consideration of the economic cycle in recent years given the large impact that the economic cycle has on many companies

Investing in Distressed Debt? 

Dist ressed debt is not a part icularly suit able or pract ical invest ment for individual investors:  Significant risk of loss  –  Annual t otal market ret urns could vary dramati call y 



Professional participants in the market could have significant informat ion advant ages Distressed securities market is often fairly illiquid, which means there can be very high transaction costs for individuals investing on a “ modest ” scale  –  Transaction costs increase the relative risks and make it very difficult to earn appropriate risk adj ust ed returns



Size of the average trading unit or block is so large that, except for t he most wealt hy, it is dif ficult t o have an adequat ely diversified portfolio  –  Risk of t his asset class is such that invest ing should generally be done on a diversified basis  –  Bank debt and corporate bonds generally trade in blocks of $5mm and $1mm respectively. Though dist ressed securi t ies may trade at signif icant di scount s, t his st ill i mplies t hat t o own a diversified portfolio of approximately 15 companies could require a significant amount of capital

How to look for Distressed Companies 

Public St ock 



Bonds   



 

Liquidit y crunch and concerns or abil it y to make coupon/ amort izat ion payments Reduced borrowing base and availability Waivers or amendments

Internal Signals   



Rat ing downgrade(s) Sell -off in bonds Distressed bond investors start accumulating bonds

Bank Debt 



Trading at 52-week/ all-t ime low st ock price

Declining operating performance Management turnover Ext ensive and recurring rest ructuring charges/ asset writ e downs

External Signals  

Weak economy Industry cyclical downturn

Table of Contents I. Overview of Distressed Securities II.

Corporate Debt Pricing

III. How t o Get Cont rol of a Dist ressed Asset IV. Case St udy – Samsonit e V.

Financial Model

Revolver, Term Loans and Bonds Revolver

Term loans Bonds

Claim on Asset s

Senior

Senior

Subordinat ed

Collat eral

Secured

Secured

Most ly Unsecured

Rat e

Float ing

Fixed

Fixed

Principal Repayment s

Amort izing

Amort izing

On Mat urit y

Covenant Package

Restrictive

Restrictive

Less Restrictive

High Yield Debt 

High-yield bonds are issued by organizations that do not qualify for “ invest ment -grade” ratings by one of t he leading credit rating agencies - Moody’ s Invest ors Service, St andard & Poor’ s Ratings Services and Fit ch Ratings 



High yield bond/ non-invest ment grade bond/ speculat ive grade bond or j unk bonds have a higher risk of default or ot her adverse credit events, but typically pay higher yields than better quality bonds in order to compensate for their added risk and make them attractive to investors

Credit rating agencies evaluate issuers and assign ratings based on t heir opinions of t he issuer’ s abil it y t o pay interest and principal as scheduled. Those issuers with a greater risk of default —not paying interest or principal in a t imely manner— are rated below investment grade 

These issuers must pay a higher interest rate to attract investors t o buy t heir bonds and to compensat e t hem for t he risks associated with investing in organizations of lower credit quality

High Yield Debt Levels and Default Rates 

Moody’ s said in a December 2007 report t hat Default s by speculative-grade companies will quadruple next year as the era of ‘ easy credit ’ comes t o an end and economic growt h slows 





The global default rate will rise to 4.2 percent by November from 1 percent now, the lowest since 1981 Forecast is based on an assumption that the U.S. economy slows wit hout falling into recession. In a recession, default s may approach 10 per cent

More t han one in 10 of t he borrowers t o which Moody's assigns rat ings are t reat ed as ‘ dist ressed’ by bond t raders, t he highest proportion since global defaults reached 10.5 percent in 2002 

At that time, bondholders charged as much as 11.4 percentage point s of extra yield t o buy high-risk, high- yield debt rather t han government bonds, double the current spread of 5.73 percentage points, according to Merrill Lynch & Co. indexes

Credit Det eriorat ion - Phase 1 and Phase 2 

Phase 1: New High Yield Debt Issued   







$150 million of XYZ Corp 13%Senior Not es due 1/ 15/ 2017 Purchased by traditional new issue buyers St andard credit prof ile and ratios – Debt/ EBITDA of 3.5x-4.0x, EBITDA/ Int erest 1.8x-2.2x, bond pri ce $100 Initially highly liquid and price driven by market fluctuations and demand for offering Liquidit y deteriorat es wit hin 6 months because outperf ormance of Company financials result s in f ew sellers and underperf ormance result s in few buyers

Phase 2: Company files 10-K or 10-Q 





Hosts management conference call and discloses a deterioration in operating perf ormance and short t erm out look not promising Immediate dislocation in market with bond price range typically from 7590 and issue supported by anchor buyers who put in lot of work in understanding the Company Pri ce and credit det erioration trigger credit focus screens among distressed investors which may lead to short positions being established and further price pressure towards lower end of range

Credit Det eriorat ion - Phase 3 

Phase 3: Company f iles subsequent 10-Q 

Disclosure of furt her credit det eriorat ion which may include  –  Violat ion of senior secured credit facilit y  –  Total Debt / EBITDA increases above 8x  –  EBITDA/ Interest falls below 1x









Furt her decline in bond price wit h st op at around 50 (est imat ed) dependent on size and condition of the shorts Bond price settles between 25-40 as mutual funds continue to exit credit and dist ressed buyers evaluat e t he opport unit y Distressed buyers that started work on the credit early in the process dominate volume and may accumulate a control position OR The Company may report an improvement in operations and securities trend towards 75-90 –takes 2 quarters of continued st eady / improvement in operat ions

Credit Det eriorat ion - Phase 4 

Phase 4: Further material adverse credit event 

Event of default under indenture but no Chapter 11 filing  –  Bonds prices t rend f lat and trend t owards approximat ely 20, mat erial downward asset re-valuation which may result in almost zero value for unsecured creditors



Voluntary Chapter 11 filing which could be a prepackaged or a prearranged deal  –  Reorganizat ion Plan and disclosure st atement make recovery analysis clearer  –  Prices dependent on asset valuation, capital structure and timing of emergence



Free fall Chapter 11 will lead to chaos and lack of disclosure pushing bonds t o 15-25

Recovery and Rest ruct uring – Phases 5, 6, 7 

Phase 5: Emergence 





Phase 6: Post restructuring 



Court approval of plan, NewCompany capital structure becomes effective Pricing of old debt securities contingent on equity and or debt prices of NewCo securities First 4 quarters of stronger operating statistics therefore credit profile improves and equity value increases

Phase 7: Post restructuring 

NewCompany experiences 6-8 quarters of steady operating performance  –  Process of refinancing restructured debt securities begins  –  Newco seeks access t o new issuance market

Table of Contents I. Overview of Dist ressed Securit ies Valuat ion Overview II. Corporat e Debt Pricing III.

How to Get Control of a Distressed Asset

IV. Case St udy – Samsonit e V.

Financial Model

Current Sit uat ion    

Companies are coming under increasing pressure f rom lenders at an earlier stage than before Banks have a large number of distressed credits in their loan portfolio The leveraged loan market has experienced a sharp contraction Banks no longer have patience with troubled companies  



Banks are forcing more companies to go to auction or sell asset s quickly 



Less willing to extend waivers indefinitely Demanding more in fees and amendments

Relationship lending is not as prevalent

Presents an opportunity for creative investors

How t o Get Cont rol of Dist ressed Asset 

Out of Court 





Purchase bonds and exchange for equity in a privately negotiated transaction Exchange offer to completely recapitalize the Company

In Court  

Formal process of a Chapter 11 reorganization Chapter 7 liquidation

Advant ages and Disadvant ages of In Court and Out -of Court for Distressed Investor 

In Court Advantages 



In Court Disadvantages  





Transaction costs associated with bankruptcy proceeding Potential for competing bidders and plans as part of the bankruptcy process Higher and Better offers

Out of Court Advantages   



Can acquire assets free and clear of liabilities and encumbrances

Can avoid competing bidders in open auction process Avoid bankruptcy cost s Can privately negotiate a debt for equity swap that creates the right capit al st ruct ure

Out of Court Disadvantages  

Possibility of acquiring hidden liabilities May be stuck with acquired securities if situation deteriorates further

Debt for Equity Swaps  

 

Buying bonds at a discount and swapping into equity through a privat ely negot iat ed transaction wit h t he company Can approach the original equit y sponsor before buying t he bonds t o ensure a friendly transaction and potentially access detailed due diligence information Acquire enough of the bonds so that a swap will engineer the best capit al st ruct ure for t he company Exchange the bonds for most of the equity 

Leave original sponsor wit h a st ub equit y port ion (5%-15%), warrant s or other consideration  –   –   –   – 



More favorable than a long drawn out restructuring Ot her bondholders remain in place Now have par paper Senior l enders should be more comfort able and willing t o st ay commit t ed to the credit

Must get in earl y and exploit t he sit uat ion before t he credit is t oo dist ressed

Exchange Offers   

A more comprehensive approach could involve the combinat ion of an exchange offer and new money investment Combines t he rest ruct uring of t he old debt wit h a change of control Can often prove the most efficient method to gain control in the public forum   



Accomplished relat ively quickly Low t ransact ion cost s compared t o bankrupt cy Avoid large number of competing bids

Difficult to accomplish in complex situations   

Large vendor list ings Publicly list ed equit y Diverse group of bondholders

Chapter 7 vs. Chapter 11 

 

Distressed opportunity typically arises when a company, unable to meet all its debts, files for Chapter 11 (reorganization) or Chapter 7 (liquidation) bankruptcy Chapt er 7 involves shutt ing a company’ s doors and parceling out it s assets t o it s credit ors Chapter 11 gives the company legal protection to continue operating while working out a repayment plan, known as a plan for reorganizat ion, wit h a commit t ee of it s maj or credit ors 



These credit ors can be banks who’ ve made loans, ut ilit ies and other vendors owed for t heir goods and services, and invest ors who own bonds Stock holders are also among the constituents, though when it comes to dividing up the assets of the company they are paid back last and usually very lit t le, if anyt hing  –  If in a bankrupt cy, a company does not have sufficient assets t o repay all claims, t he st ock holders will get wiped out as t hey are last in line t o receive any of t he proceeds from t he liquidat ion or reorganizat ion

Chapter 11  

Equit y nearly always wiped out Intense pressure to sell the Company 

 

High risk of change of management Lawyers control process with constant court appearances 

 

Most restructuring advisors are bankruptcy or M&A specialists

Most restructuring advisors are bankruptcy or M&A specialists

Average time in Chapter 11 is over 12 months Extremely costly in fees with $3 mm to $10 mm in fees for lawyers and advisors in large assets

Table of Contents I. Overview of Distressed Securities II. Corporat e Debt Pricing III. How t o get Cont rol of a Dist ressed Asset IV.

V.

Case St udy – Samsoni t e

Financial Model

Company Overview 

Samsonit e is t he worl d’ s largest designer and manufact urer and distributor of luggage products   



Products marketed under Samsonite and American Tourister brands - 90%brand recognit ion in t he U.S. and over 70%in Europe; 80%American Tourister brand recognition in U.S. 



Only global luggage brand Approximately 31%market share in Europe and 19%in US in 2002 Competed in a highly fragment ed market against much smaller regional companies

Expanded product line to include casual bags and computer cases

Europe market share – 31%in 2002 CAGR of 11%growt h in sales since 1996  

Asia sales growing at CAGR of 19%f rom fiscal 1997 to 2002 US market share fell from 30%in 1996 to 17%in 1999 due to product and marketing, st rat egic decisions t aken by management  –  Recovered t o 18%in f iscal 2001 under new CEO

Background and Sit uat ion in Lat e 2002/ early 2003 

Company’ s capit al st ruct ure has had many issues: 

Company stock was virtually illiquid at the end of 2002  –  Traded an average of under $5,000 per day and t he bid ask spread is approximately 65%of the bid price  –  Absence of inst it utional support / coverage for common st ock









Total obligations (debt and preferred stock) senior to the common stock have a face value of approximately $800 mm Existing preferred is increasing through PIK dividends at such a high rat e t hat it grows by approximat ely $50 mm per year Onerous terms of the Existing Preferred Stock increasingly causing significant earnings dilution for common shareholders and could precipitate a Company-sponsored exchange offer or bankruptcy Overall leverage is too high 1. Lack of financial f lexibilit y t o mit igat e pot ential short fall in earnings performance 2. High risk/ low probabil it y of execut ion of Company’ s five year business pan and forecast without a de-leveraging event

Background and Sit uat ion Assessment 

 

Balance Sheet and t he report ed financial st at ement losses continued t o affect Company’ s business and relat ionships wit h t he Company’ s suppliers, vendors and other constituencies Management stock option plan is not able to provide incentive to management in a way to benefit common shareholders The impact of t he downturn in the economy and the Company’ s industry  

Company’ s revenues and EBITDA were highly dependent upon performance of international operations and global travel industry Current geopolit ical and economic cli mat e puts downward pressure on t ourism and t ravel relat ed indust ri es, and adds uncert aint y t o the Company’ s business model and operating forecast going forward    



US war with Iraq Terrorism concerns and is effect on international travel Spread of SARS virus Continued global economic softness

These issues have led t o anot her significant decline in t ravel beginning in early 2003, which have impacted the Company beginning in February-March 2003

Obj ect ives of t he Recapit alizat ion Transaction 

Recapitalization Transaction incorporates a financial restructuring which accomplishes the three principal obj ect ives set by the Company t o reduce t otal debt and preferred stock of the Company   

Convert preferred stock into common or convertible securities Reduce leverage through issuance of equity securities Address senior debt, particularly with respect to maturity as the Company’ s exist ing senior credit facilit y mat ures in June 2003

Summary of the Recapitalization Transaction 

Equit izat ion of t he balance sheet - $160 million Convert ible Preferred Stock    



Terms of New Preferred Stock 





Dividends: 8%(PIK option) compounded quarterly, with upward or downward adj ust ment s aft er year 8 depending on “ control issues” Conversion Price: $0.42 per common share

Senior Debt 



$106 mm of new equity investment in cash $35.3 million contribut ion by Bain Capit al $35.3 million contributed by OTPP $54 million of additional New Preferred Stock via conversion by Existing Preferred Stockholders

Approximately $60 mm of new revolver availability

103/ 4%Senior Subordinated Not es due 2008 

$323.4 million of Existing Notes remain outstanding after the recapitalization transaction

Summary of the Recapitalization Transaction 

137/ 8%Senior Redeemable Exchangeable Preferred St ock (Exist ing Preferred Stock)  



$320.3 million face value of Exist ing Pref erred St ock wit h liquidat ion value of $333.5 million as of March 15, 2003 Holders will elect t o exchange t heir Exist ing Pref erred St ock f or eit her New Preferred Sock or common st ock or a combinat ion of both, subj ect t o a prorat ion in t he event t hat he holders of Exist ing Preferred Sock collectively elect to receive more than $54 million in New Preferred Stock $129 mm converted into $54 million face value of New Preferred Stock  –  Valued at 41.9%of liquidat ion preference ($54 million/ $129 million)







Remaining $204.9 million of Existing Preferred Stock converted to common stock at $1.00 per share (equivalent number of shares to valuing at 41.9%of face and converting into common stock at $0.42 per share) Aggregate implied valuation of Existing Preferred Stock is $140.1 million

Common St ock   

Proposal involves a conversion of the New Preferred Stock into common stock at a conversion price of $0.42 per share Common shareholders would initially own approximately 3.3%of the Company pro forma the proposed Recapitalization Transaction New invest ors have t he right t o elect five out of t he nine Board Members

Alt ernat es t o Recapit alizat ion 

Issues with status quo with new senior credit facility   



Management issues Capital structure issues Refinancing difficulties of new facility

Issues with sale process with other parties    

Prior sale process yielded no or low interest Effect on business while conducting sale Management issues will st ill remain Capital structure issues –buyer will not be comfortable

Table of Contents I. Overview of Distressed Securities II. Corporat e Debt Pricing III. How t o get Cont rol of a Dist ressed Asset IV. Case St udy – Samsonit e V.

Financial Model

IS, BS and Old Capit al St ruct ure 







Let us model the historical income statement and balance sheet for year ended January 31, 2001, 2002 and 2003  Information is available in Samsonite 10K for January 31, 2002 and 2003 Make sure we check our data after we complete the income statement  Net Income t ies in t o the NI from Income St at ement barring any unusual or non-recurring items we took out  Asset s = Liabilit ies + Shareholders Equit y Income Statement  Observe t he drop in revenues and EBITDA in 2002 vs. 2001  See how the Preferred Stock dividends (37.5 mm dividend in 2002 are impact ing t he Company’ s Net Loss every year Balance Sheet  Observe how t he redeemable preferred is increasing from $240.0 mm to $320.3 mm from 2001 to 2003 as it is PIK interest (paid in kind –a t ype of bond t hat pays interest in addit ional bonds or interest is added to the principal, as opposed to cash payouts )

Sources and Uses 

Let us prepare sources and uses for the recapitalization transaction 

Pay down old term loan and revolver



Fees paid t o bankers, lawyers and miscellaneous expenses is $20mm $106 mm of new preferred equity is being put in by private equit y invest ors Use the January 31, 2003 numbers Keep t he cash balance t he same as before at $22.7mm Sources equal uses and the balance will be the new revolver balance



  

Pro Forma Balance Sheet and Capitalization    

Let us make a pro forma balance sheet for January 31, 2003 incorporating t he sources and uses for t he recapit alizat ion Capitalize $5 mm of the $20 mm of fees and the other $15 mm get expensed Uses t he sources and uses t able t o make t he adj ust ments In the pro forma capitalization see how the following ratios change as a result of t he recapit alizat ion – look at t hese ratios before t he recap and aft er t he recap  Total Debt t o EBITDA  (Tot al Debt + Preferred St ock) / EBITDA

Pro Forma Ownership 

What %of t he Company do t he Exist ing Common Shareholders and the Preferred St ockholders get aft er t he recapit alizat ion? 







Conversion price of preferred shares to common stock is $0.42 per share Find the current common shares outstanding for Samsonite from the most recent 10K or 10Q (January 31, 2003) Find out how many shares and %of the Company the common and pref erred shareholders get (Old pref erred and new pref erred shareholders) The private equity investors end up owning more than 50%of the Company after the recapitalization for the $106 mm equity investment they made as they owned some of the old Preferred also (41.7%as the result of the $106 mm investment and over 10% from the Old Preferred shares)

Valuation Analysis 









We did a valuation analysis t o see how much would Samsonit e common shareholders and preferred shareholders get in the current company wit hout t he recapit alizat ion Comparable Company –looked at other brands –challenging to find appropriate comps to Samsonite –Comps included apparel companies like Nike, Ralph Lauren as one group and luxury groups like Coach, Gucci and Waterford Comparable Transaction – challenging t o find appropriat e comparable transactions also –Antler was sold to an investor group etc Discounted Cash Flow Analysis - forecast free cash flow for 5 years, t erminal mult iple of 7.0x-8.0x and discount rat e of approx 10%-14% We see that common shareholders get zero in most of the scenarios