Syndicated (Leveraged) TLB & Yankee loans This course can be presented in-house or via webinar for you on a date of your choosing

Transcription

1 Syndicated (Leveraged) TLB & Yankee loans This course can be presented in-house or via webinar for you on a date of your choosing The Banking and Corporate Finance Training Specialist

2 Course Overview The syndicated loan market and high yield bond markets continue their race to the bottom. The continued inflows of liquidity from existing and new sources, coupled with the resurrection of the CLO market, continues to create intense competition between these two, historically different forms of finance. The main upshot has been the continuing, if not accelerating, convergence between the terms for loans and high yield bonds. The convergence Course is being Overview driven both on the buy and the sell-side; first, U.S. based Private Equity funds in Europe have been keen synchronise their (pari loan/bond) capital structures, by aligning the terms of their loans more closely with their bonds particular in the larger deals which include both term loans and bonds (e.g. Kirk Beauty /Douglas where the bonds were flexed down to accommodate larger TLBs). The more borrower-friendly-incurrence covenants in bonds are also not unimportant for these borrowers; second, an increasing number of U.S. credit funds who have tapped into the European market and they too are keen to synchronise their documentation. The more liquid secondary loan market in the U.S. means these lenders are more relaxed about the absence of financial-maintenance covenants since their protection comes from the ability to trade when borrowers are in or near distress. One further source of impetus has been the opening of high yield bond markets in Europe to mid-cap issuers with bonds now in the 200 million mark (and lower q.v. Wagamama 150m) increasingly common. In this context, the markets have seen smaller deals, of this size, increasingly arranged on a syndicated basis. These developments also explain the increasing incidence of documentation being drafted according to NY State law which, through no co-incidence also tend to mirror the terminology used in high yield bond indentures. The trend towards using NY law is supported by data from DebtXplained which indicates that, in 2014, nearly half of all TLB Yankee loans were subject to New York state law and this trend seems to be accelerating in This seminar examines the typical terms of syndicated loans in the current market and compares the key differences between LMA-based senior facilities and NY style documentation Course Content Background & basics Review of the funding landscape Impact on loan documentation Increasing use of NY-style loans vs traditional LMA where, who and why? How and why do they differ Incurrence covenants vs maintenance covenants does it matter? Key concepts 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 Typical requirements

3 Course Content 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) Permitted baskets generally Hard & soft caps Soft caps EBITDA, Total Assets, Total Revenues, mix n match Review of data from DebtXplained Other restrictions Permitted Acquisitions Permitted Acquisitions LMA approach vs Yankee loans Hard capped baskets lifetime or annual limit Approved acquisition ratio incidence Typical tests & thresholds Treatment of pro-forma synergies Can management add synergies to the test What synergies qualify, time limits? Third party / Independent certification Due diligence requirement Debt incurrence / Incremental facilities Main sources of additional debt incurrence Typical exclusions; Refinancing debt etc Purposes & limitations for incurring additional debt; M&A, Capex Prohibition & Ratio Debt Basket Ratio based approach Permitted debt / carve-out baskets typical examples, and controls General debt basket Acquired debt basket (no obligation to discharge) Acquisition finance debt basket Attributable debt / Finance leases / PMO debt basket Other baskets Availability to non-guarantor restricted subsidiaries (capped vs uncapped?) Reclassification of debt between baskets and the Ratio Debt basket Debt reclassification among permitted debt baskets (excluding/including credit facility) and ratio debt basket Ability to split an amount or transaction between different baskets or exceptions Other aggressive approaches (e.g. automatic reclassification between baskets) Incremental Facilities Incidence in deals Hard vs soft caps Controls on soft caps Other restrictions yields, tenor etc Restricted Payments / Distributions (to Shareholders) LMA vs TLB approach compared Application dividends, subordinated debt Restricted Payment General baskets Basis of calculation hard vs soft caps Hard caps lifetime vs annual limits Soft caps approach CNI etc Source of payments Available Amount, Cumulative Credit, other Other requirements

4 Leverage basket Typical leverage ratios (q.v. Debtxplained) Additions/Source of proceeds available Other conditions Collateral & Liens LMA approach vs TLB approach to Permitted lien baskets Availability of general and other baskets Hard vs soft grower permitted lien baskets Carve-outs for Non-Guarantor Restricted subsidiaries Guarantor Coverage Test LMA vs. Yankee loans compared Mandatory prepayments (Cash sweeps) Borrower friendly post Excess Cashflow Sweep deductions No mandatory prepayment waiver right Borrower friendly post Excess Cashflow Sweep deductions Carve-out baskets from disposal proceeds not required for making mandatory prepayments if ratings conditions met All or some of mandatory prepayment categories can be applied pro rata to prepay other pari passu debt Absence of mandatory prepayment using insurance proceeds Lender prepayment waiver right only if Borrower elects Mandatory prepayment de minimis and thresholds include a great of hard cap and EBITDA soft cap Margins, MFN & sunset provisions Trends in LIBOR/Euribor floors Matters affecting the floor MFN provisions scope Margins yield vs all-in yield; pricing differentials Other terms and conditions Sunset provisions Incidence and typical periods US vs European approach Governing law Absence of margin ratchets Rationale and incidence (funds!) Fixed rate deals Financial maintenance covenants Review of current market approach: Traditional vs Cov-lose vs Cov-lite Springing leverage covenants What are they Typical terms Aggressive add-backs to EBITDA Synergies and other add-backs Additional requirements and time limits Equity cures Current market approach what can be cured; how often, over-cures? Deemed cures what are they and are they widely used Deal outliers Introduction of minimum EBITDA covenant Maintenance covenants tested at greater intervals

5 Transfer provisions & Portability/ Change of control What type of transactions qualify Consent vs Consultation Carve-outs Other restrictions e.g. minimum transfer sizes Portability Ratings test Ratio - Leverage or Enterprise value ratio Timing periods/limits & Frequency Additional requirements Voting thresholds & Amendments (LMA vs US approach specific thresholds; how and why they matter) Majority lenders - thresholds & typical matters Super-majority - thresholds & typical matters Unanimous consent - Typical matters Snooze you lose timing Yank the bank Structural adjustments Major vs minor vs payables Requirements - each Lender directly and/or adversely affected Sanction & anti-corruption provisions US OFAC vs EU Blocking Statute [Reg 2271/96] reconciling the irreconcilable? Summary of provisions Use of proceeds The range of options Due diligence Limitations on the scope Side letters when to use them Consequences of a breach Solutions in practice Summary of deal outliers Incremental Facility yield cap applies only for the first 12 months of signing / closing ("sunset" provision) Option for each Lender to cancel and accelerate upon a Change of Control and/or sale of substantially all assets Permitted Payment basket based on Annualised EBITDA HYB-style Designated Non-Cash Consideration concept in Asset Disposals (English law SFA) All Permitted Disposals subject to a pro forma total leverage test E-Learning This course can also be presented as a bespoke e-learning programme created by you to fit your exact requirements. enquiries@redcliffetraining.co.uk +44 (0)