Documenting & Negotiating Cov-Lite Loans

Transcription

1 Documenting & Negotiating Cov-Lite Loans Reviewing The Current Trends In The Market This course is presented in London on: 4 February 2019, 16 September 2019 If you have 5 or more participants, it may be cost effective to have this course presented in-house either on your premises or via live webinar. Trusted By: The Banking and Corporate Finance Training Specialist

2 Course Objectives Participants will: Acquire a detailed understanding of the key terms in cov-lite (and cov-loose) loans and how these differ from the LMA approach Review the current market approach to springing leverage covenants in terms of the RCF thresholds, headroom Review Course the current Overview approach to equity cure rights when and how? Gain an understanding of the key aspects (terms) of high yield bonds which have been imported in the cov-lite loan market Understand the grower and builder baskets which are used in the Permitted baskets and the variables that drive them (e.g. EBITDA, Total / Tangible Assets) Analyse the key various Permitted baskets and how these vary from the LMA approach (e.g. debt incurrence, acquisitions and disposals) Analyse how debt can be can reclassified between the various baskets and the ratio debt basket Review the current trends to the definition of EBITDA with focus on borrowerfriendly add-backs and run rate adjustments Discuss how the financial covenants and their constituents and how these affect other key terms of the loan (margin ratchets, debt incurrence) Review lender protection in terms of yields, MFN and sunset periods and how borrowers can (and have) gamed the lenders Topical issues in the market - restrictions on transfer (White and Black lists) when can the lenders sell and to whom? Holding limits and restrictions Course Content Key Concepts Review of the various types of cov-lite and cov-loose loans and how they are documented Structure of English cov-lite loan Structure of NY cov-lite loan How to read/approach a New York style credit agreement The Restricted Group Inclusions and exclusions Approach used in high yield bonds & why it matters Re-designation of subsidiaries to and from the Restricted Group Non-guarantor restricted subsidiaries Material subsidiaries What constitutes at material subsidiary market approach to the threshold % The various tests: EBITDA and other approaches Relevance and application in the SFA Date and manner of determination- Certificate (LMA vs market approach) Information and financial reporting Term Loan B vs LMA approach Treatment of unrestricted group Presentations Access rights A Word About Baskets Use and application Key variables and their ramifications Lender vs Borrower friendly Fixed baskets

3 Life time vs annual limit Carry forward and back Grower Application Key variables Builder Application Key variables Are baskets refillable, can amounts be split, restrictions Case: review of use and application of different types of baskets Voting Thresholds, Amendments & Waivers LMA / EU thresholds vs NY style thresholds Majority lenders Super-majority Thresholds Typical matters Entrenched rights Unanimous consent? - Typical matters Facility change / Structural adjustments (or equivalent) Approval Requirements Major vs minor vs payables Matters affected Snooze you lose timing Yank the bank Required consent threshold Non-consenting trigger Can non-consenting lenders be prepaid or bought at par Required source of funds Debt buy-backs Permitted Cap on amount Disenfranchisement Yield / Margins, Ratchets & Call Protection & Hedging Trends in LIBOR/Euribor floors Differences in NY law vs English law Matters affecting the Floor OID market trends Margin ratchets Incidence Application to facilities & step downs Commitments fees on RCFs etc Call protection Application & Scope - Repricing Events Specific carve-outs (Specifc Asset Sales or Significant Acquisitions, CoC, IPO, EBITDA increase, other) Basis of calculation of the Call protection (effective yield) Hedging required

4 Permitted Acquisitions & Investments Structure of Permitted acquisitions Permitted Acquisitions LMA vs Cov-lite approach Ability to acquire Majority interests & applicable requirements/ conditions Type and structure of basket lifetime or annual limit Typical tests & thresholds Similar or complementary business Leverage test applicable to Target Due diligence requirement - Third party / Independent certification Other restrictions (jurisdiction) Treatment of pro-forma synergies Can management add synergies to the test What synergies qualify, time limits? Limits on non-guarantor entities Must target accede to the collateral package Ability to acquire minority stakes Applicable requirements/ conditions Permitted Asset Sales Requirements for assets sales Threshold amount Nature of the consideration received Other requirements Fair market value certificates? Payment waterfall & de minimis amounts Debt Incurrence Incremental / additional debt generally Accordion style facilities Permitted Alternative debt Structure of incremental debt basket Ratio debt vs hard vs soft caps Grower cap Ratio & hard cap Hard and grower caps High Yield Bond style Accordion facilities Terms and conditions Types of debt baskets Free and clear baskets General basket Acquired debt basket Acquisition debt basket Contribution debt basket Case: review of use and application of different approaches to incremental (and accordion) debt MFN & Sunset Provisions That Relate To Incremental Facilities MFN provisions scope

5 Incidence in deals Scope application to specific facilities Method margin cap vs all-in-yield cap Other requirements and exclusions Structuring the yield cap to avoid being gamed by borrowers Issues for lenders Sunset provisions Incidence Duration Effective date? Differences in NY law vs English law Case: review of approach to MFNs and sunset provisions Restricted Payments (Distributions) Permitted / Restricted Payments General Basket(s) Hard vs soft caps Source of funds condition Builder basket approach Investor Payments Leverage Basket Typical range Available Amount ( AA ) / Cumulative Credit ( CC ) - Leverage compliance test Investor payments - Leverage Basket Funding Sources (other than AA/CC) Other conditions for Investor Payments Leverage Basket (other than AA/CC) Sponsor Fees & Sub-debt Payments Types of fees and their caps Holding Co / Admin fees Sponsor / Monitoring fees Advisory fees Other material fees Parent Debt Servicing / Fees/ Expenses Aggregate of hard capped equity and sub debt related payments Equity repurchases Employee benefits Negative Pledge, Permitted Liens / Security Can incremental debt be secured & if so what assets are available Existing collateral No collateral assets Non-Guarantor Restricted Subsidiaries Restrictions on securing incremental debt Availability of general and other baskets Hard vs soft grower permitted lien baskets Intercreditor accession Mandatory Pre-payments (Cash Sweeps) Excess cash Opening percentage Step down Step down mechanism linear or stepped

6 IPO Applicable repayment percentage [Available amount vs Cumulative Credit basket] The five main basket combinations CNI and out of the box amount Build up basket start date when does this start? Ratio test Leverage FCCR Other Change of control Is this treated as an EoD or mandatory prepayment Six approaches automatic exit, Lender has option etc Transferrability & Portability Transferrability Whitelists / Approved lenders Blacklist / Disqualified Institutions List present Specific affected parties Industry competitors Loan to own investors Consent, Deemed consent & Reasonableness requirement Triggers to facilitate sell-down Minimum transfer & hold sizes interaction with Related/ Existing lenders Matters affecting the RCF Portability Ratings test Ratio - Leverage or Enterprise value ratio Timing periods/limits & Frequency Additional requirements Financial Maintenance Covenants & Covenant Suspension Financial covenant package type Review of current market approach: Traditional vs Cov-loose vs Cov-lite Springing leverage covenants What are they Typical terms Aggressive add-backs to EBITDA Synergies and other add-backs Por-forma adjustments - Scope Run-rate adjustments what does this mean in practice Equity cures Current market approach what can be cured; how often, over-cures? Deemed cures what are they and why they matter Deal outliers Introduction of minimum EBITDA covenant Maintenance covenants tested at greater intervals Covenant suspension Trigger Availability and scope Case: review of Equity cures

7 Guarantor Coverage Incidence of guarantor coverage GCT percentage (where present) Exclusion of Material subsidiaries & materiality threshold Other market exclusions Events of Default LMA EoDs and typical market exclusions Clean-up period Cross-default or cross-acceleration Right to accelerate Grace periods Non-payment Other obligations Commencement of grace period MAC Review of market variations Background of the Trainer The trainer is a consultant, public speaker and author. He provides training programmes globally to a blue-chip client base on private equity, debt finance, loan documentation and restructuring. He is a senior consultant with Debt Explained and as such has access to current market trends and developments in the cov-lite loan market. He is also a Senior consultant to Grant Thornton UK (Debt Advisory) and is also a Senior Advisor to KMPG Finland. He has spoken at conferences in the UK, Europe, Australasia & South Africa. He provides training to a wide range of banks, law firms, advisors and other parties involved in the leveraged loan market on a bespoke, in-house basis. Additionally, he is the Programme Director for the infrastructure/project finance module for the MBA programme at the Cass Business School in London. Course Summary The European leveraged loan market has experienced significant changes over the last few years. The market has bifurcated into two segments; larger loans above roughly 200m which compete with the high yield bond market and smaller loans. The latter continue to follow LMA leverage precedents, however the larger loans have adopted many aspects imported from the high yield bond market. The most obvious and high profile example is the advent of cov-lite loans. High yield bonds have incurrence rather than maintenance covenants and these larger loans have been forced to follow suit with the result that the incidence of financial maintenance covenants has declined alarmingly (from the lenders perspective); grower and builder Permitted baskets have also become a standard feature (with some even appearing in loans sub 50m) along with the ability to reclassify amounts as between baskets. At the same time borrowers have taken advantage of current borrowerfriendly conditions to curb lenders ability to transfer their loans and thus limit their downside. The programme uses data from the Debt Explained database to review the current trends prevalent in this dynamic market.

8 09:00-17:00 London Standard Price: 695 +VAT Membership Price: VAT In-House Training Delivering this course in-house for 5 or more participants could be very cost effective. The venue and timing can be agreed to suit the client, as well as the selection of the trainer and the precise contents of the seminar. Tailored Learning All of our training courses can be tailored to suit your company s exact training needs. We will work closely with you to help develop a training programme with content that is unique for your organisation. Please us on enquiries@redcliffetraining.co.uk for more information E-Learning This course can also be presented as a bespoke e-learning programme created by you to fit your exact requirements.