August/September 2015 | 1

TURNAROUND MANAGEMENT ASSOCIATION OHIO

Turnaround TimesVolume 2 | Issue 4 | August/September 2015

TMA is the premier national organization

of professionalsdedicated to

corporate renewaland turnaround management.

August/September2015

In This Issue

Page 2The ABI Commission on

Business Bankruptcy Reform: Secured Lenders

Page 32015 Events Schedule

About TMA

Visit our website:www.turnaround.org

Follow us on Twitter:

@OhioTMA

President’s ReportSally BartonKey Bank

As my associates and I get ready to welcome 18 brand new credit analysts into our “credit campus,” the majority of which are recent college graduates just starting their careers and finding out what a “real job” is all about, I was reminded of the importance of the training process. Although we’re not all in the “training” field, doesn’t this topic touch all of us as turnaround professionals and in our everyday lives?As professionals that have been in our field for quite some time, we begin to take what we do and what we know for granted. We forget that many of the clients we are working with have not been through this before. What we rattle off, almost without thinking, they may not understand. And it is our responsibility to ensure that they do. We need to watch the body language and look for the telling signals that we’ve lost them. Sometimes we need to step back, offer more explanation rather than less, put the papers aside, and welcome the interruption and devote our full attention to the person in front of us or on the phone. And, lastly, remember how you felt all those years ago when you were a new employee, new to your position or perhaps finding yourself in the middle of a situation in need of a turnaround. I’m sure that as school starts, parents can relate to this with children attending new schools, having homework, going off to college, etc.Speaking of a subject that has undergone many changes in the past few years, please join us on Thursday, September 10 at 5:30 p.m. at Lockkeepers in Independence for a presentation on the Anatomy of a Healthcare Turnaround, by Jim Yanci from DHG Healthcare. Then, on October 15th, we’ll hold our annual education program, in partnership with the Cleveland Metropolitan Bar Association. It’s a half day of a luncheon speaker, informative workshops and networking. We look forward to seeing you there!

Lifetime Achievement and Turnaround/Transaction of the Year Awards

It’s Time!The Ohio TMA is ready to present two awards at this year’s holiday social in December. The first is the Lifetime Achievement award to celebrate the significant achievements of an Ohio TMA member’s career work in the turnaround profession. The second award is for the best submitted Turnaround/Transaction of the Year by Ohio TMA members in 2015. The deadline to submit nominations for both awards is September 30, 2015. We encourage anyone to submit nominations for either award to admin@tmaohio.org. Any questions? Contact Louise Walsh, also at admin@tmaohio.org. Look for a link to the Turnaround/Transaction application materials in future TMA emails.

2 | Turnaround Times

BakerHostetler, founded in 1916, is one of the nation’s largest firms, with 900 lawyers working in offices throughout the United States. We represent clients around the world, through five core practice groups: litigation, business, employment, intellectual property and tax.

Feature Story

Featured Sponsor

Ohio TMA Officers

President Sally Barton

Vice President Mark Kozel

Secretary Dan DeMarco

Treasurer Mark Kutylowski

Past President Scott Opincar

Ohio TMA Board Members:

Kelly Burgan

Rob Folland

Dov Y. Frankel

Mike Kaczka

Gus Kallergis

Suzana Koch

John Lalley

Mark Seryak

Steve Skutch

Rob Stefancin

Jerry Stethem

Rick Szekelyi

Chapter Administrator Louise Walsh

In 2012 the American Bankruptcy Institute convened a commission to reform Chapter 11. Its members were the leading jurists, lawyers, academics and turnaround professionals in the field. The commission’s report was issued last December. The following is a summary of proposals regarding the conflicting rights and needs of secured and unsecured creditors at the beginning of a case.60-Day Breathing Space Before Going Concern SalesThe sooner a sale of the distressed business occurs, the faster the secured lenders can recover money. Unsecured creditors argue that a proper marketing of the company might produce value for unsecured creditors. The commissioners compromised by prohibiting the conclusion of a sale in less than 60 days from the commencement of a bankruptcy case ex-cept in truly extraordinary circumstances--for example, where a debtor’s assets are quickly disappearing. The commissioners felt that establishing certainty for the time period of a sale would allow secured creditors to protect themselves, and unsecured creditors to have an opportunity to enhance the sale process. “DIP” Lender Rights and CollateralDebtor-in-possession financing provides a company additional loans to operate the business after the Chapter 11 filing. However, some lenders provide little if any new money to a debtor, instead characterizing the “roll-over” of pre-petition revolving loans into post-peti-tion loans as “new lending.” The commissioners proposed prohibiting DIP financing that contains roll-up provisions unless the pre-petition and post-petition lenders are different, or there is an extension of substantial new credit in the post-petition facility or the facility provides financing on better terms than any other option offered to the debtor.The Commissioners also recommend that junior lenders subject to inter-creditor agree-ments that prevent them from offering post-petition financing without the consent of senior secured lenders should still be able to provide post-petition financing in one of two situa-tions—the proposed facility does not “prime” (take a first lien before) the senior secured lender; or the senior secured lender is given a right of first refusal. That is, allowed to offer financing on the same terms as the junior lender, if approved by the court. The commission also supported rendering unenforceable a senior lender lawsuit for damages resulting from a junior creditor offer of post-petition financing.Limiting Adequate Protection RightsAdequate protection allows the debtor to continue to use collateral during the reorgani-zation, while ensuring that the value of the collateral does not erode during the case. The commissioners concluded that adequate protection, at the beginning of a case, need only be enough to cover the collateral’s “foreclosure value” – that is, the value the collateral

The ABI Commission on Business Bankruptcy Reform: Secured Lendersby Eric Goodman and Tatiana Markel, BakerHostetler

August/September 2015 | 3

Ohio TMA Corporate Sponsors

Baker Hostetler

Barnes & Thornburg

Brouse McDowell

Calfee

Centrus Group

Creative Consultants Co. LLC

First Business Capital Corp.

Ice Miller LLP

Inglewood Associations

McDonald Hopkins

Phoenix Management Services

Taft Stettinius & Hollister

would yield if the automatic stay were lifted and the secured creditor foreclosed. At later times, if the debtor reorganizes or sells as a going concern, secured creditors would be entitled to the reorganization or enterprise value of their collateral. The commissioners concluded that cross-collateralization should be used to provide adequate protection, but only to the extent necessary to protect against a decrease in value of the collateral. Finally, the commissioners decided against granting secured credi-tors a lien in “Chapter 5” (mostly preference) “avoidance action” proceeds. Those recoveries are often an estate’s only unencumbered assets and should be available to pay unsecured creditors.Who Pays the Costs for Helping the Secured Lender: Enhanced 506(c) and 552(b) Section 506(c) allows a court to “surcharge” a secured creditor for the cost of preservation or sale of its collater-al. A secured creditor often agrees to “carve out” certain

expenses from the proceeds of the collateral (quite common in DIP financing agreements), but usually in exchange for a waiver of debtor’s right to “surcharge” under section 506(c). The commissioners’ final recommendation leaves the language of section 506(c) as is, but prohibits waiver of a trustee’s 506(c) rights. Section 552(b) allows a court to charge costs of the case to a lender’s collateral “based on the equities of the case.” In essence, the provision allows the estate to be reimbursed for enhancing the value of collateral. As with section 506(c), the Commission felt it is im-perative that courts are able to assess the “equities of the case” exception. Therefore, any waiver of section 552(b) provision should be prohibited.The commissioners’ effort to “level the playing field” regarding secured lender rights was perhaps the most contentious and important issue the commission reviewed. While the report reflects substantial compromises, and relates the differing views expressed during the negotiations, the end result appears to provide debtors a more reasonable opportunity to survive the bankruptcy process.Eric Goodman is a partner in the Cleveland office of BakerHostetler. Tatiana Markel is an associate in the firm’s New York office.

September 10 Anatomy of a Healthcare Turnaround by Jim Yanci, DHG Healthcare.Thursday, September 10Lockkeepers, 8001 Rockside Road, Valley View5:30 PM – registration, networking & cocktails; 6:15 PM – Panel presentation and Q&A; 7:15 PM – Networking continuesTMA members – $40.00; Non-members – $70.00

October 15 TMA/CMBA Educational Workshop.

November 12 Subject, time and location TBD. December 9 TMA/CMBA Holiday evening event Westin Hotel downtown.

NOTE: The dates and subjects listed in this tentative 2015 calendar are subject to change to accommodate speaker’s availability, facility availability, verification of availability of other organizations in the case of joint events, and current events which might pre-empt this current schedule. The schedule will be updated as necessary.

2015 Schedule

The end result:

providing debtors

a more reasonable

opportunity

to survive the

bankruptcy

process.

4 | Turnaround Times

Events

Scenes from the annual TMA Ohio Golf Outing. Photo top left, from left to right: Drew Parobek (golf chairman) with Jason Phillips, Sharon Rader and Tom Pratt. Photo at right: Vince Sack, Chris Wolf and Pat Whelan. Above, the raffle table.

More TMA Events. Above, pictured at the June Next-Gen event, from left to right: Joe Esmont, Tom Wearsch, Bob Burns and Tom Pratt. To left, a scene from the annual joint ACG/TMA Summer Social at the Shoreby Club.