Two Man White Oak Making 27 Million from Restructuring Deal
The following article was posted to the Financial Times and will be of interest to the BU family. Discuss for 10 marks.
Barbados creditors fume at ‘absurd’ $27m advisory fees
“London-based boutique, White Oak, in line for payout for work on $7bn restructuring
“White Oak’s engagement letter was signed five days after Mia Mottley was sworn in as prime minister last year…”
May 9, 2019 8:30 pm by Colby Smith in New York
A little-known UK advisory firm stands to make about $27m from the restructuring of Barbados’s $7bn of debts — close to what Lazard earned seven years ago when it advised Greece on defaulted debt nearly 40 times bigger.
White Oak Advisory is a small firm with just two partners located opposite Claridge’s hotel in London’s Mayfair. The size of the fee it will receive from its work on the default has outraged the Caribbean island’s creditors.
“The fee is absurd given the size of the debt,” said Sean Newman, an Atlanta-based portfolio manager at Invesco and a member of the external committee of creditors. “I’ve never seen anything like this in my 20 years in the business.”
White Oak was founded a decade ago by Sebastian Espinosa, a former Houlihan Lokey banker, and David Nagoski, an ex-US Treasury Department official. It will earn about $27m from the bankrupt country, according to FT calculations. That is almost double what Ukraine paid for advice on its $18bn restructuring in 2015, according to people familiar with the deals.
The Bajan government hit back at the creditor criticism. “We believe it is excellent value for money given that through their efforts we have saved over $1bn of interest and principal. We would hire [White Oak] again.”
White Oak’s engagement letter indicates that the Bajan government agreed to pay the firm just over $21m for the successful restructuring of its roughly $5bn of domestic debts, excluding arrears. The letter was signed five days after Mia Mottley was sworn in as prime minister on May 25 last year, and two days before the government announced it was defaulting on its debts.
By any metric or rationale, the fee is outsized and unwarranted.
Sean Newman, Invesco
Negotiations with external creditors are ongoing. Once complete, the government is set to pay White Oak about $4m for restructuring approximately $910m of debt owed to foreign investors. The firm is also receiving an $85,000 monthly retainer.
It is likely to take at least another 12 months to finalise the deal, according to another person involved in the negotiations. The additional $2m in monthly fees brings the total payout from Barbados to roughly $27m.
“It is a disproportionate fee for a small country,” said one financial adviser.
“Barbados is not Greece, which had a massive debt stock, multiple debt instruments and huge political tensions,” the financial adviser said. “Double-digit fees are for very large transactions that are super complicated with a large number of instruments and a large number of different creditors.”
White Oak’s partners said the fee was justified because “placing this debt on a sustainable footing has required an unusually complex operation”. Its rates are “among the lowest charged in any Caribbean restructuring, again in relative terms”.
Barbados’s debts came to roughly 160 per cent of gross domestic product at the beginning of the restructuring in June last year, among the highest in the world.
Mr Espinosa and Mr Nagoski point out that their business in the country goes beyond the public restructuring and that they are not charging a fee for additional work. The pair say they are advising Barbados on several commercial contracts, as well as the restructuring of a number of state-owned enterprises and the country’s regional airline, of which the government is the largest shareholder.
However, few Caribbean debt restructurings have paid out fees in the tens of millions to financial advisers in recent years. Citigroup earned roughly $3m restructuring Jamaica’s $9bn of defaulted debts in 2013, and in Belize advisers were paid single-digit millions for the restructuring of more than $525m of debt in 2017, according to people familiar with both deals.