Intercreditor (& AAL) Issues In Leveraged, Real Estate and ABL Transactions

Transcription

1 Intercreditor (& AAL) Issues In Leveraged, Real Estate and ABL Transactions Discusses the critical legal and commercial issues in leveraged, real estate and high yield Intercreditor agreements This course is presented in Dubai on: 27 September 2017 The Banking and Corporate Finance Training Specialist

2 Course Overview Intercreditor agreements have assumed increasing importance over the past few years as debt market has witnessed the evolution of a raft of esoteric structures in conjunction with a wide range of funding instruments such as high yield bonds, unitranche and, more recently, asset based lending ( ABL ). The dramatic rise of unitranche and the myriad of structures that term covers, has introduced a new level on complexity and seen the introduction in Europe of Agreement Amongst Lenders which may carve out specific matters from the Intercreditor. Course Overview Historically, the 2009 LMA Intercreditor precedent was aimed at senior and mezzanine structures but could also be accommodate to accommodate second lien. The financial crisis flushed out the numerous issues in the prevailing arrangements in a raft of landmark cases e.g. European Directories, Stabilus and IMO Carwash. RBS Worldpay represented the first real effort by mezzanine lenders to redress the balance of power and may well have led to the publication of a revised LMA Intercreditor in This sought to address some of these issues, particularly valuation and the duties of the Agent vis-a-vis the mezzanine. The increasing popularity of pari Loan / Bond structures after the crisis, which embraced a raft of variations, raised a new range of issues and compelled the LMA to publish a SSRCF Intercreditor in 2013 aimed at alleviating some of the problems posed by these structures. Real estate transactions also vary from the leverage cousins and induced the LMA to produce an Intercreditor for Real Estate transactions in Whist that document is broadly similar to the leverage Intercreditor it seeks to address a range of matters which are specific to those transactions. Finally, regulatory pressure on bank lenders is driving a rise in ABL to fund working capital in place of the traditional RCF. Whilst ABL is widely used in the U.S. market (in conjunction with raft of other financial instruments) has taxed the imagination of market participants who have wrestled with ways of trying to shoe-horn these structures together. Last, the rise of cross-border deals has added an additional layer of complexity and intercreditor arrangements have to be mindful of issues arising from deals which embrace other jurisdiction, particularly the US. Course Content Introduction to Ranking and Subordination techniques Summary of key terms of relevant Junior debt instruments Mezzanine Second Lien Loans & Notes Subordinated/Unsecured Notes PIK Loans & Notes Methods of creating ranking/subordination Taking collateral / security Contractual Structural Equitable subordination (US, Germany, Spain, France, Italy) Relevant documentation and precedents 2009 Leverage precedent 2012 Leveraged precedent (amended to 2014) SSRCF 2013 version for pari Loan Bond structures

3 Course Content 2015 Real Estate precedent The LMA ICA as a point of departure for negotiations Agreement Amongst Lenders ( AAL ) Use and application Review of relevant deal structures Traditional senior loan vs. mezzanine, shareholder loans Legacy deals - senior, 2nd lien loans, mezzanine, shareholder loans Pari-Senior Loan/Bond structures ( Loan and Note ) Real Estate transactions Unitranche structures Asset Based Lending structures Ranking & the Waterfall / Cascade: general approach Who should be a party to the ICA Ranking of the various layers of debt Typical ranking Position of hedge liabilities Dealing with intra-group & parent liabilities Issues arising in re Loan notes, Equity substitutes, Vendor loans Rationale for inclusion as parties to the Intercreditor Rationale for exclusion as parties in the Intercreditor Position in pari Loan / Bond structures Ranking as to Payment Permitted Payments on Hedge Liabilities Permitted payments & restrictions on Mezzanine Mezzanine Payment Stop Notice Potential abuse and cure Mezzanine Debt purchase by sponsor Ranking as to Proceeds of Enforcement of Transaction Security Senior Facility Liabilities - Restrictions and Permissions Security and guarantees/indemnities - Senior Lenders Enforcement of Security Who can Enforce importance of the Instructing Group Instructing Group in Senior loan v Mezz structures Instructing Group in pari Loan / Bond Structures Role of the Security Agent Timing of Enforcement standstills Enforcement standstills Senior loans vs. mezz pari Loan / Bond structures When can Mezz and other junior lenders Enforce? Problem areas re Enforcement Timing, manner of Enforcement Role of the Security Agent in Enforcement Lessons from Saltri v MD Mezzanine (Stabilus) case Non-Distressed disposals Application and scope Non-Distressed defined Interaction with the Senior Facilities Agreement Interaction with the Mezzanine Agreement Release of Security Waterfall of Disposal Proceeds Position in pari Loan / Bond structures Covenants in High Yield Bonds affecting Disposals Reconciling conflicts in pari Loan / Bond structures

4 Distressed Disposals Release of Guarantees and Security What can be released? Circumstances in which the junior lender s claims can be discharged Lessons from the European Directories case Valuation issues Position under 2009 LMA ICA Why non cash consideration may be acceptable under the 2009 ICA? Position under 2012 LMA ICA Lessons from IMO Carwash case what went wrong (and how to fix it) A closer look at Stabilus is this more instructive? Valuation approach going concern vs. liquidation Valuation method - problems with traditional approaches in distress Fair value defined Approaches per the 2012 LMA ICA Potential problems with Fair Value (why fair may not be fair ) What is a Competitive Sales Process? Solutions for Junior lenders re Fair Value Form of consideration; cash vs. non cash consideration (2012 ICA) Credit bidding Is it available under the Intercreditor (2009 vs 2012) The Stabilus position Credit bidding in action Potential pitfalls Interaction of cross-default vs. cross-acceleration between senior & junior Implications for EoD under the SFA on the Mezzanine Trigger options for Mezz EoD SFA EoD, Default or Acceleration Limit to specific Events / covenants Typical carve-outs Position in pari Loan / Bond structures Potential solutions Issues with Hedging & Hedge parties Definitions relevant to Hedging Close-out Netting Senior Credit Participation Voting pre-close out key issues Post close out - inclusion in Majority Senior Lenders Option to Purchase & Turnover Key terms How effective is this remedy: Examples in practice Lessons from IMO Car Wash Does Stabilus change things Approach in pari-loan/bond structures Is it workable solution? Current market trends / wish-list for Mezzanine Turnover per and post enforcement Key differences between the Leveraged and Real Estate Intercreditor Differences in deal structure and ramifications Approach to security Issues with the Security Agent

5 Dealing with Hedging Acquisition of shares in the mezzanine borrower Cure rights a different approach Release of security and disposals Intercreditor issues in Asset Based Lending structures Key concerns of ABL lenders Key concerns of the other finance parties (high yield, unitranche, Loans) Interaction with ABL Facilities (Algeco Scotsman) Intercreditor issues in ABL Standstills Enforcement Dealing with pools of collateral Possible solutions in the European context Issues in Agreement Amongst Lenders Use and application (lessons from America?) Intercreditor vs AAL Issues in the AAL Problems for borrowers Intercreditor issues arising from US parties / security Terms to include in LMA / European Intercreditor Bankruptcy waiver Automatic Acceleration Separate security EU terms to include in NY style Intercreditor Release / Assignment of claims on sale or enforcement Payment subordination What Redcliffe s clients are saying about the course; Excellent overview of a number of ICA principles as applied to different types of finance. Very good use of real world examples Really strong on current market practice and getting us to think about solutions to potential Issues (e.g. ABL) A very energetic trainer who provided references to key deals & cases The course was divided up well & had continuous themes that made it interesting throughout Very well delivered; I never felt sleepy at all unlike other courses I have attended. A good use of live deals Excellent examples used, particularly the case studies. Very well presented. Super engaging! Good discussion around recent case and commercial market positions Extremely informative!

6 09:00-17:00 Dubai 700 Discounts available for multiple participants: 3-4 participants: 15% discount per participant 5-6 participants: 20% discount per participant 7-8 participants: 25% discount per participant 9 or more participants: 30% discount per participant Delivering this course in-house for you to a number of participants could be very cost effective. enquiries@redcliffetraining.co.uk +44 (0)