Senior Syndicated Leveraged Loans

Transcription

1 Senior Syndicated Leveraged Loans Negotiating Issues & Trends This course can be presented in-house for you on a date of your choosing The Banking and Corporate Finance Training Specialist

2 Course Overview This programme is aimed at professionals involved in syndicated high-yield (leveraged) loans used by both Sponsored and Corporate borrowers. Historically, bonds were structured mainly as junior debt in the European high yield market whereas the recent trend has seen them used increasingly used as senior debt together with senior loans and/or super-senior RCFs in bifurcated pari Loan / Bond structures. Course Overview These developments have intensified pressure on syndicated lenders to adopt a more borrower-friendly approach than is advocated by the relevant Loan Market Association precedents. Borrowers have become increasingly frustrated by the conflicts between the flexibility offered by incurrence-based bond covenants and the more restrictive maintenancebased loan covenants. This conflict is driving convergence between these products and has accelerated the migration of terms from bonds to loans and vice versa. Well known examples of the former include cov-lite loans and debt buy backs but more recent areas include covenant release/loosening on I-Grade rating and greater flexibility in the use of the various permitted baskets (including reclassification and splitting). The recent Orange deal introduced a more alarming (and little noticed) innovation which, if adopted in loans, could allow Midco permitted payments to service debt. This programme will look at the current trends and developments in syndicated loans and will draw on data and analysis from DebtXplained's Representative Loan Terms Database ( The database is a unique tool that has already changed the way that sell-side practitioners pitch for mandates and keep abreast of market trends. It tracks over 400 terms of loan documentation on a non-confidential basis allowing the users to precisely understand what is "market" for all significant negotiating points of a deal at any given time. This information has never been available to the market before and gives borrowers, bankers, lawyers and advisors unprecedented knowledge of the current trends and practices in the Loans Market and Loan Terms. Course Content Part 1: Deal & Loan structure, changes to the Parties & Buybacks Scope of the Loan Concept and composition of the Covenant (Restricted) Group Issues re Dormant subsidiaries why they matter Issues re Joint Ventures Dealing with Acquired firms Debt buy-backs Buybacks provisions present or silent, permitted? Conditions permitting debt buybacks Affiliate debt buyback methods Investor buyback - restrictive conditions

3 The Lenders, changes to the Lenders & relevant thresholds Key voting thresholds & why they matter Super-Majority lenders typical thresholds Matters requiring Unanimous consent Facility Change/Structural Adjustment Treatment of Hedge parties Ability to transfer - Consent vs Consultation Methods Carve-outs from Restricted transfer Minimum transfer sizes Part 2: Key Permitted definitions & Additional facilities Permitted Acquisitions What is Permitted Aspects re the Baskets Additional restrictions: Impact on financial covenants pro forma synergies? Permitted Disposals What types of transactions are affected / carved-out Which Group companies affected Aspects re the Baskets Carve-out for non-obligors Permitted Financial Indebtedness Scope - Financial Indebtedness defined (typical exclusions) Issues re the Baskets General & other baskets Size and availability Automatic increase in Basket Carry forward and Carry back (rare) Accordion Facilities Availability Which Facilities are affected (RCF, New, M&A) Committed at signing Existing lenders right of 1st refusal Lender consent requirements Specified purpose (Capex, Restructuring, JVs) Cap on Additional facilities Basket erosion Reclassification of baskets Splitting of deals over baskets Part 3: Interest & Yield Protection & Availability Debt Service Interest and default interest periods Libor floors Margin and margin ratchets Increased costs - Basel 2 and 3 (silent, included, carver-out, one/both) Interaction with Financial covenants

4 Specific issues for Revolving Credit Facilities ( RCFs ) Clean-downs re RCFs, Ancillary Outstandings, LCs Clean-down amount Periods fixed Annual, Borrower s election Periods - timing, one or more Cashless rollovers why they matter Problems with Headroom Part 4: Exit, Acceleration and Prepayments (Sweeps) Change of Control Pre and Post IPO Change in ownership chain Various thresholds that apply voting control Sale of all or substantially all of the assets of the Group single or series Mandatory Repayments (Cash Sweeps) Disposal proceeds What is a Disposal Baskets to sale proceeds Annual - individual deal amount Annual basket carve-out Excluded Disposal proceeds Acquisition Proceeds What are Acquisition Proceeds Excluded Acquisition proceeds Basket annual and individual Insurance Proceeds Excluded Insurance Proceeds Basket annual or per deal Retention periods Listing Proceeds Does Listing trigger full repayment Does covenant grid cover repayment Application of IPO proceeds leverage grid? Application of retained funds Potential tests that can be used Relevant period Excess Cash Excess Cashflow defined Excess Cashflow typical deductions De minimis basket Use of Retained Excess Cash flow Voluntary Prepayment, Trapped Cash & illegality Can Borrower prepay voluntarily Are there minimum / max. amounts Circumstances when Borrower can avoid mandatory prepayment Tax - Trapped Cash (amounts) Impact of illegality lender s commitment Prepayment Fees and Order Prepayment fees Does Borrower have option to vary prepayment order Can borrower prepay next four TLA amortisations Designated prepayment order

5 Part 5: Dividends, Share Redemption and Subordinated Debt Payments Limitation on Dividends and Share Redemption What types of distributions / redemptions are covered Investor equity related payments e.g. dividends / distribution Management or advisory fee Retirement of share capital Redemption, repurchase or similar payment in respect of any of share capital Share premium reserves Exceptions Permitted Payments Permitted Transactions Permitted Payments What payments are permitted Basket carve outs amounts, caps, carry forward/back payments in re Equity & equity substitutes, Management/monitoring fees Subordinated debt Basket carve outs conditions precedent Basket Carve-out categories Restrictions on source of cash to fund sponsor distributions The Orange issue permitted payments to service debt from Midco Part 6: Covenants & Undertakings & Events of Default Covenant Overview Covenants generally Function Covenants in Loans vs Covenants in Bonds Covenant Suspension/Loosening Triggers - Qualified Listing and/or I- Grade Rating Available to Borrower Scope of covenants affected Material event reporting - scope Access Rights for Lenders Triggers for Access rights EoD, Agent suspects EoD Financial covenants and Equity cures The main covenants per the LMA Cash flow cover Leverage Interest cover Capex restrictions Equity cures Current market practice Cures in practice Recent case law General Undertakings Permitted Security Basket Amount Availability Automatic increase in basket

6 Permitted Guarantees & carve-outs The Guarantor Coverage Test Core carve-outs sought by Sponsors Other exceptions sought by Sponsors Default and Events of Default Default vs Event of Default Grace periods Sensitive EoDs Cross default to financial Indebtedness Cross-default defined Sponsor friendly exclusions MAC / MAE clause Arguments for and against inclusion Objective or subjective test Impact of Reasonably Likely Scope of MAE clause Security / Security Documents Finance documents Business, operations or financial condition of the Group enquiries@redcliffetraining.co.uk +44 (0)