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When a business is in distress, and forced to sell assets or consider filing for bankruptcy protection, the company’s property and casualty insurance policies likely are not a top priority. They should be.
How Can NFP Help?
- Protect key stakeholders (management liability pre- and post-restructuring).
- Identify and recover sources of trapped cash (collateral recovery in Chapter 11 and 7 scenarios).
- Facilitate sales of businesses or assets from distressed sellers (including 363 sales and Article 9 transactions).
- Cost optimization of risk management and insurance programs (pre- and post-restructuring).
Protecting Directors and Officers
Management liability insurance can be an essential source of protection for company directors and officers and other stakeholders, but only if properly structured policies are in place.
- Clarifying what happens in the policy when the company enters some form of insolvency/ bankruptcy or goes through a restructuring that changes control of the company.
- Avoiding common policy language that can negatively impact all insured stakeholders.
- Prioritizing policy terms to maximize personal asset protection for directors, officers and trustees.
- Redrafting D&O programs to include dedicated limits for CROs, interim management and outside directors.
- Providing contract terms and enhancements for new management upon emergence from bankruptcy.
Recapturing Collateral
Casualty insurance programs, including workers’ compensation, general liability and commercial auto, often take up a company’s borrowing power and leverage by depleting revolver headroom. By focusing on the right financial levers, delivering deep analysis, and engaging senior and executive-level insurance company personnel, meaningful amounts of trapped cash can be returned to the company (and provide liquidity for other uses).
- Independent and objective claims and actuarial analyses identify over-securitized bands and frame negotiating positions with current and legacy counterparties to release excess collateral held by insurers.
- Program cross-collateralization – will improve capital efficiency.
- Establish contact with insurance company decision makers to drive rational responses on the release of collateral.
- Employ proven alternative risk strategies to reduce or eliminate future collateral obligations.
- Post-restructuring: reduce insurance program expenses – including TPA agreements, claims mitigation strategies, ROI based safety and loss control directives, retention optimization and alternative captive implementation.
Insuring Distressed Deals
Distressed asset sellers can help maximize value, and buyers protect against future legal liability, while shifting allocation of liability away from the parties and to third-party insurers.
- Buyer R&W insurance increases efficiency and potentially value in 363 sales or other distressed asset purchases. Seller representatives generally cannot stand behind purchase agreements, while insurance creates a pool of indemnity for buyer. Policiestypically cover additional taxes, interest, penalties and a tax gross-up for aterm of seven years orlonger, if required.
- Fraudulent conveyance insurance protects distressed asset buyers against claims by aggrieved creditors.
- Successor liability insurance protects asset buyers from court-imposed liability despite contractual limitations.
Optimizing Cost
Insurance and risk management solutions that will enhance value of businesses after a bankruptcy process or out of court restructuring.
- Eliminate pre-restructure collateral requirements by extinguishing legacy casualty programs and installing new, financially efficient program structures, including reduced letter of credit obligations.
- Optimize all go-forward insurance program costs based on facts to account for reduced business revenues, employee count or market cap on a post-restructured basis.
- Introduce carrier management, including establishing relationships with the insurance company’s executive team and Chief Credit Officer.
- Review, streamline or eliminate TPA, external risk management and other insurance service provider costs.
- Implement new risk management strategies, including cost-efficient retention structures.