Question about restructuring and bankruptcy
I am trying to understand the landscape of restructuring advisors. What is the difference, if any, between "financial advisory" and "restructuring investment banking"? Some boutique banks call their practice "financial advisory", but Big Four restructuring groups also describe their services as "financial advisory." Firms like AlixPartners seem to be consultants as opposed to investment bankers, but are referred to as "financial advisor" in bankruptcy court filings. What is meant by financial advisory? Also, as some financial advisory firms have broker-dealer affiliates, do debtors always hire both an investment banker and a financial advisor? Does the same firm ever serve both functions? This is all very confusing and if anyone could add some insight that would be great.
Financial advisors are the coordinators of the whole restructuring deal while investment banks involved are mostly underwriters of the restructured loan
This is just wrong lol. Financial advisors encompass all the different advisors - both investment banks and often the consultants (i.e. Alix, FTI, A&M)
You seem to be confusing restructuring investment banking with exit or DIP financing. A debtor might hire PJT to give them restructuring advice and then have PJT and Goldman Lev Fin group work together to market whatever securities get issued in the course of the agreement they come to with creditors.
In a situation like that, would Goldman have to submit a motion to the bankruptcy court for fees?
Banks that advise on RX do not underwrite loans (it's a conflict of interest). They will syndicated. That's mostly for additional financing like DIP financing. Restructuring of the pre-petition debt will be done via negotiations with the current creditor. The consultant can be involved in the finances, but that will be stuff like working capital needs. The actual debt restructuring part of an RX case is done by the independent advisory bank.
The reason the conflict of interest exists is because BBs and other balance sheet banks (ex. BNP Paribas) have so many different loans to so many different people that it's inevitable that some of them will go into distress. It would then be a conflict of interest to try to advise debtors on how to deal with their creditors, when one of their creditors might be you. I assume lending is far more lucrative for banks that have the money to do so.
An illustrative example of this would be Twitter: Morgan Stanley and the rest of the syndicate are still stuck with the debt after they advised Musk on his decision to buy the company.
If you are Elon Musk, would you hire Morgan Stanley to negotiate against another bit of Morgan Stanley or the profitable regular Morgan Stanley S&T client they offloaded your junk to ?
Of course, not. So, you hire a bank that doesn't syndicate debt, a pure play advisory shop with expertise in restructuring.
As the above commenter already mentioned, "financial advisor" encompasses both Rx IB and Rx consulting. Sometimes you see the IB identified as such, but not always. It's not really that confusing once you become familiar with the roughly two dozen total financial advisory firms in restructuring.
The Rx consultant does the operations focused stuff whereas the banker will operate at more of a strategic level. For example, with the current FTX in-court restructuring, A&M has the thankless tasks of forensic accounting and making sure everyone is paid and the company meets its shortest term obligations like payroll etc. In a more traditional restructuring where there's an actual going concern business, they will also do things like manage vendors/supply chain sort of things.
The bankers (PWP in the case of FTX) are hired to help drive negotiations with creditors/future UCC, assess how to maximize the value of the estate, and eventually put together a Plan of Reorganization.
I have never heard of the same firm to fill both roles explicitly (I think FTI and Deloitte have IB arms - never seen them), but the more middle market cases might not necessitate one or the other type of advisor. You will always hire a debtor-side lawyer though.
A better way of looking at this is that Rx Consultants can be thought of as management consultants. They will come in and prepare liquidity analyses, liquidation analyses, etc. They also handle bankruptcy filings, serving as the CRO (Chief Restructuring Officer) in some cases and putting together the Plan of Reorganization. These are firms like AlixPartners, FTI, A&M, etc. Rx IB handle areas such as capital restructuring, UCC-9 Foreclosure Sales, 363 Asset Sales, etc.
Separately, my last firm would regularly fill both of these roles (serving as the restructuring advisor and the banker). They can be more common among boutique restructuring-focused investment banks.
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Could I pm you?
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