Corporate Fraud Part 2 -- An Alternative Proposal for Enchancing Detection

Abu Arqala Publishes His Proposal

In the previous post, I expressed some concerns about a proposal to combat corporate fraud.

Saying that a particular solution seems unworkable or difficult to implement isn’t really of much utility.

Don’t tell me what can’t be done. Tell me what can.

The point is to outline a possible solution.

What then is AA’s alternative? What is to be done?

To start we have to accept that just as with corporate misgovernance there is no financial equivalent of hydroxychloroquine that is a sure cure. 

Because fraud is not just equivalent of a bad “flu”, financial or otherwise, and won't just go away in July or some other month, we do have to take action.

To that end I offer this alternative proposal which seeks to use existing structures to enhance current risk disclosures and promote risk-based auditing.

A key goal is turning auditors’ attention and action away from what appears to be a sole focus on policies, internal processes and controls, and pieces of paper.

As the old joke goes, if it isn’t written down, it doesn’t exist for an auditor.

The real risk with that mentality is the converse.

If an auditor has a piece of paper—a confirmation, a copy of a contract, etc.--the existence of an asset or liability or a business relationship is a proven fact.

The steps I’m proposing would not mean that auditors would abandon examining adherence to financial reporting and accounting standards, reviewing internal controls and processes for adequacy, nor performing many paper based audit activities, including confirmations, nor issuing opinions on those matters.

Because the majority of companies do not engage in major fraud, that current audit work provides needed information to a wide range of third parties, e.g. shareholders, other investors, lenders, business partners, etc. And so it should continue.

If a company is fraud free, an investor is still going to want to know if the company is following accepted accounting principles, has proper accounting systems and internal controls, has documentary evidence to back up transactions, etc. That it uses reasonable assumptions when valuing hard-to-value assets.

One doesn’t want to invest one’s money with or make a loan to an honest but incompetent or disorganized company.

So my proposals are designed to leave those aspects of auditing in place but enhance the extent of auditors’ work.

First, emphasize the need for auditors to identify if the company has any serious or unusual risks in its business model or practices, including unusual vulnerabilities.

If such risks are found, require that they are disclosed in a clear form in a company’s audited financial statements.

When those risks are pose substantial or unusual vulnerabilities, auditors should include these in the “key audit matters” section of their audit opinion. That would require that they discuss the existence and materiality of such “matters”; describe the additional audit work they have performed to address them; and their resulting assessment on that matter.

If they don’t reach the level of a “key audit matter”, they should be noted and addressed/focused on in the audit plan. 

The goal is not to come up with a laundry list of every potential risk factor similar to a bond or stock offering memorandum which is primarily a CYA or more accurately a CYLE (cover your legal exposure) exercise for the underwriting/offering banks and the issuer. 

All business are subject to a variety of risks.

The point is to identify those risks or vulnerabilities that are not obvious and have a material impact. 

This will become clearer in the post to follow where I outline this “point” applied in actual cases or hypothesize how it might have been applied at Wirecard or Hin Leong Trading.

Second, require that auditing procedures be scaled to risk of an individual asset, liability, etc.

For example, one should not use the same method to verify bank deposits of Euros 1.9 billion that one uses to confirm a USD 100,000 receivable. 

What are these two principles designed to achieve?

The first is designed to alert market participants, lenders, and regulators of vulnerabilities and dependencies that could have a material affect on the company’s health. To raise a red flag. 

That's important because fighting fraud is not the sole job of one group any more than corporate governance is. 

What that means is that for this aspect of point one to work someone out there has to be "listening".  If the "flag" is missed, the chances of uncovering the fraud decrease. 

It is also intended to cause the auditor to focus on a class of risks that seem often to be overlooked at least in some cases. 

That serves as the "back-up" if no one is listening.

Auditors are already required to assess a company’s risks and then develop a specific audit plan of work to ensure appropriate audit work is done on these areas. So this is a reminder with emphasis of this existing requirement.

But if they don’t focus on this latter class of risks, there is a real danger—as perhaps evidenced by some recent fraud cases—that they will not undertake the work they should have to address these issues.

The second is designed to "force" auditors to scale audit work to risks.

What’s the relation to fraud?

As I noted in an earlier post, many but not all types of fraud necessarily require the overstatement of assets. 

We’re most concerned with major frauds that threaten the viability of a company that is the reason for risk based scaling of audit work.

At first blush, this may sound like a good proposal. Or at least that's what I tell myself.

But it is not a panacea. There are no 100% solutions.

Why?

As to reliance on large numbers of market participants reacting to alerts (the first point), if you’ve read this blog before, you know I have little faith in the mythology of efficient markets.

Not no faith. Just a slight bit more than I have in the “Power Ponies”.

Admittedly, I’m banking on a very small number of market participants to read, understand, and then take action on any red flags raised by disclosure of these sort of business risks.  

That being said, just a few persistent sharp investigative (but probably underpaid) journalists at the FT played a major role in uncovering NMC and Wirecard

.

But, the effectiveness of this point doesn't just rely on those sort of market participants.

Widening auditors' risk focus and thus getting them to adjust their audit focus and work should also contribute to detection, particularly because they have access to detailed company financial information that other market participants don't.

But neither of these two intended goals will result in fraud detection all the time.

That’s the reason for the second point.

That’s why it’s in some respects more important than the first. 

Enhanced audit work. Moving beyond the tick-the-box approach to one that is based on risk. The more risk the more work required.

Why is that important?

As I’ve argued, “fiddling” with the income statement requires “fiddling” with the balance sheet pretty much dollar for dollar.

Major fraud requires major fiddling.  

If audit procedures disclose that assets are overvalued or non existent, it’s very good sign that the income statement has been overstated and income is non existent. And vice versa.

There are other cases of fraud that might be detected by enhanced audit work to confirm the existence of an asset or its carrying value.

Some examples.

Knowingly exchanging one asset for another of lesser or of no value.

Or, as happened at Hin Leong Trading, selling inventory without recognizing the sale in the accounts.

Failure to recognize the financial impact of a “good” transaction that has gone bad. A receivable associated with a legitimate sale turns out to be uncollectable. An asset purchased in good faith goes “south”. But there is no charge to the income statement or to equity.

Harder to detect frauds would be inflating expenses to take cash out of the firm. For example, overpaying for goods or services actually received. Or paying for non existent services.

Note in the second part of the previous sentence I’ve eliminated “goods”. It’s much easier to determine that an asset doesn’t exist, than it is that a service wasn’t performed. Or performed in full.

Enhanced audit procedures should lead to discovery of some and perhaps even many of those frauds, primarily those likely to have a material adverse impact on the company. 

Smaller amount items are likely to remain undetected. 

All well and good, you might say. But what about other cases of fraud like NMC where billions of US dollars in liabilities were not recorded in the financials.

Indeed.

These are extremely difficult to detect.

The “first line” of defense is the auditor’s confirm from lenders or providers of funds. This is not ironclad because auditors do not send confirms for each and every loan or other asset of the lender. 

If clever people are perpetrating the fraud, they may arrange a fraudulent reply to the confirms.  

One might hope that as part of annual credit reviews, lenders and other providers of funds look to see if their debt is reflected in the borrower's financials.  They have the details that generally should enable them to identify their debt, e.g., rate, tenor, currency in the absence of their name in the financials.

Banking on "hope" is a endeavor with limited probabilities of success.

Other difficult to detect frauds involve hard-to-value assets, e.g., non listed investments, or real estate. 

Slight changes in assumptions can result in large changes in value. If stock analysts have trouble accurately valuing listed securities, it’s unlikely that accountants or even forensic accountants will fare better.

Enhanced audit work (my second point) does not provide an airtight solution. It does, however, raise the odds of detection.

That means that at best my proposal will not detect all fraud, but it might result in more fraud being detected than currently.

In a post to follow, I’ll detail how both steps have been applied and might have been applied at Wirecard and Hin Leong.  The latter by drawing on my legendary powers of 20/20 hindsight.

Corporate Governance -- Easier Said Than Done

In the wake of the distress at Abraaj, there have been the usual calls to enhance corporate governance.  

As the title above indicates, AA has a contrarian view.  

In particular, I want to address two assumptions that seem to be held regarding this topic: 

1. If only we adopt certain measures, we can greatly reduce and perhaps even eliminate instances of corporate misgovernance.  
2. When corporate governance fails, the tendency is to blame third parties never oneself.  This “shifting” of responsibility seriously detracts from enhancing corporate governance. 

Corporate governance or lack thereof is the result of the interplay of three factors:  

1. Governance systems 
2. People 
3. Situations 

GOVERNANCE SYSTEMS 

The primary focus in the pursuit of good governance appears to focus on establishing systems, perhaps because the difficulty of controlling the primary factor in corporate governance—people— is realized to be difficult. 

These systems are designed to: 

1. Establish “rules of the road” for conduct generally in the form of codes of conduct or ethics.   
2. Create organizational structures and limitation of personal authority/segregation of duties to (a) prevent individuals from exercising unfettered control over the corporate entity and (b) provide multiple review mechanisms to “catch” bad behaviour that has slipped through the ethical and  organizational “nets”.  

Rules establish standards of conduct.  Basically, these can be summarized as follows.  Don’t cheat, lie, or steal from the company’s owners and other stakeholders.  Don’t use your position to take advantage of the company’s owners or other stakeholders.  Discharge your duties as a faithful agent. Pretty simple and obvious “stuff”.   Presumably, this is the sort of moral sense we’d expect from board members, officers, and employees of a firm.  

And well might ask why do we need to tell people to be ethical unless we assume we’ve hired some pretty low lives.  Does any ethical person think it’s right to steal or lie?  

So if they’re so self-evident, what’s the need?  

1. Ideally they provide clear unambiguous rules of conduct.  If insider trading is properly defined, to use one example, then there is little room for debate on what constitutes insider trading.  They also provide an inventory of responsibilities. 
2. They can address gaps or ambiguities in the law or governmental regulations.  Also they can hold the board, officers, and employees to higher standards than mandated by the law or government regulations.  
3. If crafted properly, they provide a legal basis for the termination of employment or other service.  If you find a “bad apple” you’ll want to get him or her out of your barrel ASAP.  

Examples of organizational structures and procedures (exercise of authority) are segregation of duties, including management of key review functions, dual control, requirements for independent directors, an independent chairman, etc. 

Review functions are both internal and external. Internal review includes internal audit, compliance, risk management, etc.  External review includes external auditors, including requirement for rotation of firms or audit partners; government regulation (chiefly for financial sector entities).

In some cases firms or governmental regulatory agencies have “whistleblower” programs for individuals to report inappropriate behaviour.  

But these measures while necessary are not sufficient.   

And unless there are glaring deficiencies, the benefit of adding additional measures is often likely to be marginal.  Using AA’s wayback machine, here’s a post from 2009 which shows that sometimes enhancement to existing measures can be theoretically useful.  

PEOPLE

No matter how good the system, if those charged with implementing it don’t follow it for whatever reason, corporate misgovernance can occur.  People are the critical variable. 

To set the stage, some examples of system failures due to people:  

1. Wells Fargo had a fairly developed whistleblower program.  It received numerous complaints about unauthorized opening of customer accounts and credit cards.  There was no discernable impact on firm behaviour.    
2. Enron had a 65 page corporate ethics manual, which if it were followed to the letter, would have prevented much, if not all, of its inappropriate behaviour.  
3. For more examples, take a look at the Breeden report on Hollinger International.  Richard C. Breeden, former head of the US SEC, and his law firm have prepared other reports on corporate mis-governance, e.g., MCI,  WorldCom.  

Typically, an attempt is made to address the “people issue” by establishing “fit and proper” criteria for owners/partners of unlisted firms, board members, and senior managers; limitations on numbers of boards board members may serve on; requirements for a number of independent-of-management board members; and possession of relevant skills and experience. 

Enron had a distinguished Board: 15 independent directors, including a former regulator, a former British MP, a distinguished former accounting professor who served as head of its audit committee.  

If you were looking for the ideal board which on its face has all the “right” people–qualified with years of practical experience and as outsiders ostensibly independent—and every Corporate Governance box "ticked", Enron’s Board would be a very strong contender.  Yet, as per press reports, Enron’s Board “suspended” the Company’s Code of Ethics to allow the CFO to be a shareholder in an Enron-related offshore entity.  Articles here and here.  

Enron’s Chairman/CEO had a reputation for promoting corporate governance and ethics.  See the first page of the Enron Code of Conduct.   Read his stirring speech at a 1999 the University of St Thomas in Houston. 

What went wrong? 

People are not perfect.  

Laziness, self-interest, incompetence, a propensity to “go along to get along”, fear of displaying one’s ignorance, etc. are typical traits that lead to governance and other problems.  Add to that an increasing sense of entitlement at the senior that one deserves more and more.  In short human nature.

Efforts to fundamentally change human nature do not have a track record of success.  Nor do those that focus solely on changing behaviour.  

The Soviets brought the power of the state to bear in an attempt to create a new and better Soviet man.  Jamal Abdul-Nasser and his colleagues a new Egyptian, freed from the legacy of colonialism, and what was perceived to be the dead hand of tradition.  Various religions have sought to modify behaviour and have wound up neither achieving widespread practice of right thought, right speech, or at a minimum right action.   

Those working on corporate governance enhancement have to recognize (a) the limitation of the perfectability of man and (b) that enhanced systems will not solve the people element in corporate governance problems.   

That doesn’t mean that one doesn’t try, but that one needs to have a sense of practical limitations.  In short we will not eliminate corporate misgovernance.

SITUATIONS 

In extreme cases, corporate entities are set up as “criminal enterprises” from inception.  Systems may be put in place but there is no intent to adhere to them.  

In noncriminal corporations, there is an intent to adhere to control systems.  Much corporate mis-governance occurs in response to distressed circumstances.  These situations are the real tests of ethics.  

It’s easy to be ethical when the money is rolling in and the corporation is doing well.  

AA has not once been tempted to rob a 7-11.  But if my imagined investments in Dubious Gas went to zero (my entire portfolio), I lost my job, and couldn’t access money, I might like Jean Valjean steal to feed my family.   

The same in the corporate world.  

If an investment firm had an ongoing cash shortage and needed money to continue operations but couldn’t get it immediately from legal sources, might its managers decide to temporarily “borrow” some client funds to bridge a cashflow problem that they’ve persuaded themselves is a temporary state of affairs?  

No doubt making the argument that preserving the firm also preserves clients’ assets, doesn’t disrupt financial markets leading to economy-wide problems.  And also considering carefully the impact of failure on their reputations as well as the loss of the perks of their positions.  

It’s in these cases that people will try to subvert systems.  Often they can do so and do so for a long time.  

Interestingly, when corporate misgovernance occurs, opprobrium is generally directed at those whose misgovernance is followed by collapse of their firm.  

In other words, the market seems distinguish between two situations: “successful” misgovernance (not bad) and “unsuccessful” misgovernance (unconscionably bad).  

Misstating financials is considered a fairly serious breach of corporate governance.  

At the outset of the Latin Debt Crisis, all US money center banks and some large regionals were insolvent based on a proper valuation of their Latin Debt.  Not a single one of these banks produced accurate financials.  The Government and external accountants either were woefully ignorant of the true state of affairs or colluded in the charade.  Eventually, the banks were able to work their way out of insolvency with a helping hand from the US government.  

Enron mis-stated its financials.  Lehman misstated elements of its financials.  Sunbeam as well.  All crashed and burned.  The Boards and senior officers of Enron, Lehman, Sunbeam and other companies were pilloried for corporate malfeasance.    Their auditors were charged with dereliction of duty.  In one case a major auditing firm was destroyed.

On the other hand not a single word of opprobrium was directed at the banks or their auditors over the Latin American debt crisis.  

What’s the takeaway here?  

1. For non-criminal firms, one can’t predict the response to corporate distress.  What level of distress will cause the system to bend and then break?  To cause normally ethically sound people to relax and then abandon their standards of conduct?  How can one devise a governance system that prevents that from occurring?  
2. Some corporate mis-governance is apparently good, i.e, if the firm survives.  It’s a natural response of someone in a distressed situation to imagine all sorts of “good” reasons to justify breaking the rules.  

RESPONSIBILITY SHIFTING 

A general reaction to corporate governance problems is that management failed, the board failed, the auditors failed,  regulators failed.  Indeed, they may have.  

But there is additional culpability.  What about other stakeholders and market participants?  If they adopt this very convenient view that they are innocent victims, then corporate governance is the responsibility of others. If one has no responsibility, then one need take no action, other than complain about the turpitude, avarice, and incompetence of others.  

The next post will deal with the apparently inconvenient and uncomfortable responsibility of other market participants to promote corporate governance.

Dana Gas Restructuring: Creditors, What Then Is To Be Done?

As outlined in previous posts, the creditors face two key issues with the restructuring:

1. Obligor Attitude:  If there are not already serious concerns about the obligor’s integrity and willingness to pay, then there should be.  The situation is similar to that of The Investment Dar Kuwait.  Back when it became evident that TID was headed for a restructuring, if not the shoals, its creditors petitioned the Central Bank of Kuwait to appoint an official “minder” to keep an eye on—or more accurately to “control”— TID’s management.  CBK did not.  By contrast creditors did not ask for one in the Global Investment House (Kuwait) restructuring a similarly uncertain large ticket exercise.  As DG is a commercial company and not a financial institution, there’s not even the extremely slim possibility of CBUAE intervention.  Creditors are “on their own”.  That has important consequences for what they should do.
2. Obligor Aptitude: Glacially slow collection of receivables and an apparent chronic weakness in operating cashflow indicate that the obligor is unlikely to repay principal and interest within the proposed five-year tenor. Factors largely outside DG’s control.  The path was cast when DG embarked on its business in Iraq and Egypt.  Given these facts, creditors are likely to find themselves in another restructuring “adventure” with DG in five years’ time.  Therefore, minimizing that future exposure should be a key goal. 

Что делать? 

In framing this post, AA looked to inspiration from other authors who wrote similarly titled pieces, though hopefully this post is free from excessive utopianism.  As you'll notice one such author is missing.  I believe he was in heated exchange on call-in program with the Governor of New Jersey when I called.

In any case, here's are potential steps that AA believes creditors need to take based on the assessment that protection of creditor interests requires measures beyond the usual ones in a restructuring. 

1. Legal steps –recast the deal or elements of the deal to reduce/eliminate exposure to Abu Yusuf-ery legal maneuvering by the obligor.  While this is an important step, it will not be sufficient to protect creditors’ interests.
2. Collateral – get more and to the extent possible, take possession now rather than relying on the exercise of legal rights to deliver it later when Abu Yusuf may have come up with even more clever arguments.
3. Amortization – use interim scheduled principal repayments plus a cash sweep to achieve reductions.  With DG’s weak/uncertain cashflow getting dollars now is wiser than waiting five-years as the past ten years unequivocally demonstrate. 
4. Tenors – Shorten to keep DG’s and your minds focused on repayment.  A five year bullet moves the payment far enough into the future that focus is lost: repayment is a lower priority, particularly for DG.

Legal

Transaction documents are meant not only to set forth the obligations and rights of both parties so there is no ambiguity, but also to provide protection by providing recourse through court ordered enforcement of the agreement if one party cannot fulfill its contractual obligations or decides not to.  DG’s maneuver in Sharjah and other courts to declare the Sukuk contract “illegal and unenforceable” shows the practical limits of that strategy. 

One response would be to change the form of the replacement contract.  If “Islamic” transactions are uncertain, then a conventional (non-Shari’ah) transaction would seem preferable.  If a starving Muslim may eat a ham sandwich in order to avoid death, then it seems to me that if confronted with an obligor that may not be trustworthy as originally assumed and uncertain protection from the courts, a Muslim creditor could legitimately change the form of contract to a non-halal one.  This is important because as shown with the English and BVI courts actions, non-GCC courts are likely to show deference at least initially to areas beyond their competence, e.g., the Shari’ah.

A less severe approach would be to recast the debt obligation into another form of “Islamic” transaction as discussed below.  Perhaps, the transaction could be split into two?  One tranche for only principal repayments in which case Shari’ah or non-Shari’ah distinctions might not apply. Or in other words, the first tranche would be both.  The second an Islamic structure for "profit" (interest), hopefully limiting opportunities for future Abu Yusuf-ery.  Dealing with default interest could be difficult, but creditors are going to have to make some hard tradeoffs following their initial and unfortunate underwriting decision. The ability to ensure cross default would be another key consideration with this no doubt utopian strategy. 

Other actions would be to ensure that entities critical to the success of repayment were incorporated and active in jurisdictions believed to be more likely to give the creditors a fair shake rather than relying on the uncertain existence of a  fair shakyh in local GCC jurisdictions.  Reducing as much as possible the impact of local law on the transaction would be ideal. 

Alternatively, could the DIFC be the jurisdiction for the restructuring suitably structured as an offshore transaction?

But such steps are unlikely to be definitive, even if they are theoretically possible. 

In particular, Argentina’s or the Arab Bank’s recent unhappy experiences in US courts should suggest more than abundance of caution is warranted with reliance on legal jurisdictions as providing a “fair shake”. 

Collateral

On the theory that the “old” deal is dead, then a new deal needs to be struck.  So the door is potentially open to new terms. 

It’s often said that possession is nine tenths of the law.  This should be a guiding principal for the creditors.

A wise move would be what is in effect a pre-emptive exercise of collateral/security rights. That argues for the creditors getting possession/ownership of collateral now to be returned upon full repayment. Transfers of ownership would take place at the inception of the transaction not after a default occurs and potentially lengthy and uncertain legal proceedings are concluded.

A potential replacement structure is a sale/leaseback with DG responsible for operations, capex, insurance, third party liabilities, etc.    DG would sell these assets (by selling the stock in the companies) to the existing Sukuk holders.  The holders would then lease the assets to DG for an x-year period.  No cash would change hands as the “proceeds” of the sale/leaseback would serve to retire the existing obligation.  Sukuk repayment would come from lease payments where perhaps a fixed profit rate would pose less of a problem if Shari’ah structures were chosen.  Upon its successful retirement of the sale/leaseback transaction, DG would have a bargain purchase option to reacquire the assets.

Additional collateral.   Zora is now free from debt and generating cash. It is perhaps the most saleable of DG’s assets.  More (stale) receivables, assignments of proceeds from arbitral awards, ownership of the holding and operating companies for Egypt and the KRG. But unless Dana Gas Ventures BVI owns shares in Pearl, then the KRG operations are not part of the Trust Assets. 

Creditors can expect a robust reaction from DG based on the Trust Assets (TA) being the only security offered. So obtaining new collateral not related to the original TA will be extremely difficult.

If no new collateral can be obtained, then the creditors should take possession of the Trust Assets as outlined above.  If the lessee fails to pay, then the bargain purchase option would be invalid. The assets could be sold to third parties in whole or part.Or investment “adventure” in Egypt or the KRG. Bon chance!  Of course, DG or its shareholders could be given pre-emptive rights in any asset sales. 

Principal Reduction – Amortization

As indicated in my earlier post, the Company’s cashflow is highly unlikely to enable it to retire the debt over the mooted five-year tenor. Creditors could rely as they have over the past ten years on the Company’s promise for principal payment at the end of the next five-years bolstered by no doubt a rosy projection. 

Or they could more wisely include binding (such as one can bind DG) requirements for principal repayments.

With DG’s uncertain cashflow, it’s hard to come up with repayment scenarios.  But that doesn’t mean that the new deal cannot contain some required interim principal repayments before the final principal balloon payment at maturity.  

A key problem with this approach is that it requires faith in DG’s compliance.  Fool me once shame on you. Fool me thrice – we’ll you know the rest. 

A more prudent option would be to include a cash sweep with the required principal payment structure.  As cash came into a newly established concentration account controlled by the security agent (both account and security agent located in a more reasonable jurisdiction), the cash would be divided by the security agent according to a pre-agreed formula.  This mechanism ensures (subject to there being a cashflow) that creditors are not forgotten. Cashflow for the creditors under the sweep would be directed first to scheduled principal payments and then to prepayments.  That is, the sweep should not be limited to only the scheduled payments, but to as much as can be taken limited only by the outstanding debt amount. The point is get the cash now not later.  Creditors would be wise to eliminate prepayment penalties as debt collection is the key issue they face.   

There is another very real benefit to this arrangement.  Just as taking ownership of collateral at the inception of the deal makes it difficult for DG to frustrate creditor rights so does a cash sweep. Under the cash sweep cash would be given to creditors on an ongoing basis as soon as practical after it were received in the concentration account.  Creditors would immediately apply the cash against principal due.  It should be more difficult for DG to later clawback the cash already “swept” to the creditors compared to making some bogus assertion about the transaction becoming invalid due to changing interpretations and then not paying.  

Shorter Tenor

Restructuring at the same or a longer tenor defers the day of reckoning far into the future, particularly if an inadvisable bullet structure is used.  Far enough so that it’s not a priority for either. To avoid this unhappy outcome the maturity of the debt should be shortened.  The debt could be divided into tranches (cross default protected) with a maturity ladder, i.e., 1, 2, 3, 4, 5 years.  Or left as a single amount with 2 or 2.5 year maturity.  This would keep the pressure on DG and hopefully prevent the creditors from lapsing into unwarranted somnolescence. 

The shorter maturities would offer creditors the opportunity to reopen the debt to impose additional terms more frequently as it is highly likely that DG will require more than five years to repay the debt, absent a miracle.  And as AA was once told by a local GCC banker, the only "miracles" in Islam occur in the financial statements of Islamic financiers.