Structuring & Negotiating Mezzanine, PIK, Second Lien And Unitranche

Transcription

1 Structuring & Negotiating Mezzanine, PIK, Second Lien And Unitranche Analysis of junior debt products - structuring issues, application, terms and pricing This course is presented in London on: 27 November 2018, 25 February 2019, 21 June 2019, 18 November 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: Gain an introduction to the junior debt spectrum Explore the structuring parameters how much senior and how much junior debt is appropriate in a given structure Get to grips with the different types of mezzanine: its use and key issues Master the features of second lien finance Be taught about Course PIK Overview (PIYC, PIYW, Toggles) Develop an understanding of products within unitranche & direct lending Get to grips with relevant intercreditor issues and agreements among lenders ( AAL ) Gain an insight into the use of junior debt in developing markets, its challenges and how to mitigate them Course Content Introduction to the junior debt spectrum Overview of the market The role of direct lenders Review of the various products Mezzanine PIK, PIYC & Toggles Second Lien Unitranche Structuring parameters how much senior and how much junior debt Typical approaches to gauging debt capacity / capital structure What are the key criteria to consider Multiples vs Capital approach Key ratios (covenants where relevant) used to right-size the debt How Jurisdiction can affect debt capacity (and how to mitigate) Types of Mezzanine: use and key issues Main features of the mezzanine European vs US vs Asian mezzanine Warrantless mezzanine return structure Fixed vs floating rate Cash pay PIK Redemption premia stepped vs linear Other tools for achieving the target IRR OID to enhance returns Using Libor/Euribor floors Fees Call protection - hard vs soft call protection Equity Kickers Warranted mezzanine Coinvertibles pro& cons Equity strips why they make sense Other forms of structured equity carry Issues for junior lenders What is an exit had vs soft Information rights what are the options Board / Observer status risk and how to mitigate them Other (better) options Other variants of mezzanine Senior mezzanine Junior mezzanine Hybrid mezzanine

3 Mezzanine in Emerging markets specific problems and how to resolve them The different role to developed markets Legal risk why and how it matters Tools for mitigating legal risk How to structure the deal & collateral to overcome Reputation issues Recourse / PGs? Other tools Second Lien Use and application Market trends / recent deals Documenting the 2nd Lien - composite or separate facility agreement Typical terms, leverage, pricing and call protection Pros and cons of 2L vs unitranche, high yield bonds Other tools for achieving the target IRR PIK (PIYC, PIYW, Toggles) Pay-in-Kind (PIK) generally Different types PIK PIYW Toggle PIYC Typical terms, leverage and pricing Call protection - hard vs soft call protection Market trends / recent deals Unitranche & direct lending products Market trends Recent developments Where and how its used Review of different unitranche structures Classic product Clubbed Dual tranche Structured First out / last out Interaction with bank led finance & impact on bank lenders Typical terms & leverage Typical pricing Cash coupon PIK Warrants Other tools for achieving the target IRR Leverage how much and impact on returns Call protection Why it matters to lenders Hard vs soft call protection Are direct lenders now able to compete with high yiked bonds and larger syndicated loans Comparing HY syndicated loans and unitranche Intercreditor issues & Agreement Among Lenders ( AAL ) Typical inter-creditor issues for junior debt Enforcement standstills Turnover why and where this matters Option to purchase - Practical issues Key issues in distress

4 Information rights Why going on the Board may not help Costs in distress Valuation in distress (q.v. IMO Carwash) Release of collateral (q.v. European Directories) The role of the Agents - how and why it matters in distress Appointing a separate Facility Agent Appointing a separate Security Agent key issues to consider 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 Xplained, with Grant Thornton UK (Debt Advisory) and is also a Senior Advisor to KPMG Finland. He has spoken at conferences in the UK, Europe, and Australasia & South Africa. He has been involved in mezzanine for 18n years and was previously on the advisory panel fo the IIR mezzanine conference. He has knowledge of junior debt in both develped and developing markets in africa and Asia. He provides training to a wide range of clients on a bespoke in-house basis & publicly through Redcliffe Training Associates. 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 Despite copies amounts of liquidity in nthe credit markets, junior debt, in all its forms, continues to enjoy an attractive part of the funding spectrum from both lenders and borrowers. Borrowers welcome the benefits of reduced costs of capital, stretched leverage and, in developing markets, a product than can bridge the funding gap. The intense competition between providers of junior debt means that hard data about pricing, leverage and terms remains veiled as lenders remain wary of revealing commercially sensitive information which could inhibit their own funds. Providers of junior debt have become increasingly eclectic about which type of product they can provide. Unitranche, in its various forms, remains the product of choice for lenders as it enables them to deploy greater amounts of capital and to retain a greater degree of control both pre and post distress than other junior forms of junior debt. Data from Deloitte s Alternative Deal tracker, shows continued growth in that market and against a backdrop of strong demand from borrowers across Europe. Moreover, funds increasingly are targeting larger deals as large scale is essential to mitigate the expense of deal origination and portfolio management. Against this background, direct lenders are firmly on the radar of both syndicated lenders and arrangers of high yield given their ability to deploy increasingly large amounts of capital which can compete with all but the largest loans and bonds. The Second Lien market, which is primarily a product in the syndicated market (but can be deployed as a stretched senior product too in smaller deals) has seen increased issuance in the last 12 months. Mezzanine continues to face pressure from other cheaper products (2L in larger deals and unitranche in smaller deals), but continues to remain an important tool in lender s arsenal of products. Mezzanine was provided by Capzanine for Dorsia and by Kartesai for Rafaut. Mezzanine continues to exert a strong influence on other junior debt products as many direct lenders had their roots in mezzanine and have been willing to apply the practices in that market to direct lending (e.g. the use of PIK and warrants)

5 PIK remains popular as lenders chase returns up the risk/reward curve but the recent dual tranche notes issued by Recordati emphasised the eclectic nature of debt markets as the coupon was bifurcated between a cash pay and smaller PIK element. This is a usual structure for senior debt and was last seen in the Focus Wickes Mezzanine Notes issued in Junior debt is also showing signs of growth in the developing markets where if fulfils a different function to developed markets in that it provides funding where local credit markets are embryonic. The programme looks at the challenges lenders face in these markets and suggests ways in which they may be mitigated. Whilst junior debt offers attractive returns, this is not without risk and the lesson from the credit crisis is that these providers invariably ended up receiving little or nothing in distress (e.g. Imo Carwash, Stabilus). Against this background, junior lenders have sought ways to mitigate these risks and have been assisted by an updated LMA Intercreditor (2012). However, many, more sophisticated providers have sought other ways to improve their position, for example through the appointment of their own Facility and even Security Agents, although this is not without controversy. This programme examines the range of junior debt loan products available in the market, their use and application, the typical terms and conditions, market pricing and returns. The program also considers the various techniques junior lenders can adopt to structure their credit ab initio (via Intercreditor issues), how they can monitor their credit thereafter (and have advanced warning of impending distress) and finally how they can maximise recovery in distress. The course is highly practical and interactive and will include case studies which will first, require participants to devise appropriate junior debt structures and second, to consider the various Intercreditor and other matters which can protect their position in distress. The programme will review the impact of the draft ECB guidance on leveraged transactions. A model will be provided in advance of the programme and participants will be required to bring a laptop to the course with that model loaded.

6 9:00-17:00 London Standard Price: 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.