Unitranche & Alternative / Direct Lending

Transcription

1 Unitranche & Alternative / Direct Lending Reviewing Key Trends, Structures, Documentation & Topical Issues for Direct Lenders, Banks & Borrowers This Course Can Be Presented In The Following Formats: Public Course Dates: 13 th May th November 2019 Standard Price: 675 Membership Price: 540 Timings: 09:00 17:00 Location: London Face to Face In-House This course can be tailored and presented inhouse at your location for 5 or more participants Live In-House Webinar This course can be tailored and presented exclusively via live webinar for your company for a group of participants. Participants are given a link and login and the trainer presents the course to a maximum of 20 participants. Participants can login and participants from different offices. Pre-Recorded In-House Webinar The trainer records the course exclusively for your company in one session or in bitesize video files. We provide access to our Learning Management System, the whole course and all supporting course materials for an agreed amount of time (6 or 12 months) for an agreed number of participants (30 1,000). Trusted By: The Banking and Corporate Finance Training Specialist

2 What Makes This Course Different The trainer is a Senior Consultant to Grant Thornton in Debt Advisory so has visibility into current trends in the (opaque) direct lending / unitranche market and challenges in structuring capital structures from the borrower s perspective Through his dialogue with Proskauer Rose, the trainer has obtained additional information and insight into granular aspects of unitranche structures which are not Through his training/ consultancy practice he has exposure to a wide range of parties around Europe Course involved Overview in the direct lending market including both funds e.g. Muzinich (Paris), Ardian and banks e.g. Berenberg, Nordea, HSBC and BNP so gains additional insight into market trends from those varied sources The trainer has over 20 years experience in junior debt providing valuable insight into the legal, structuring and practical challenges which arise in using junior debt especially the intercreditor issues The trainer s career also includes stints in commercial and investment banking, accountancy, tax and law providing insight from a wide range of perspectives Course Objectives Understand the market and market players Review the key trends and developments in direct lending products (e.g. Holdco PIK) Review the key commercial terms such as margins/fees/call protection, covenants and headroom, equity cures using a database from a leading law firm Proskauer Rose Discover how traditional bank lenders respond to the challenges posed by alternative lender Differentiate how unitranche is used in sponsored and non-sponsored deals Discuss and analyse the key commercial terms (e.g. yields and call protection) Review the relevant loan, collateral and security documentation Analyse key aspects of the LMA s Senior/Super Senior Intercreditor for Unitranche deals Compare and analyse unitranche vs other forms of financing (loans, bonds) is it a viable alternative Course Content Direct Lending review of lenders and the market Introduction to direct lending & unitranche Overview of the basic unitranche product The direct lending market in Europe where does it fit in? Review of direct lending fundraising The changing landscape of direct lending providers Review of market trends and developments in direct lending How are traditional bank lenders responding? Can traditional bank lenders work with funds Banks and direct lenders creating a symbiotic relationship Three ways banks can structure their relationships with direct lenders Formal JV - pros and cons Framework agreements - pros and cons Ad-hoc - pros and cons Other strategies banks can adopt to retain market share

3 Review of unitranche and direct lending structures Overview of direct lending spectrum Original Unitranche the US product European Unitranche - The classic structure Structured unitranche Review of recent deal structures Bifurcated unitranche Dual tranche unitranche Parallel unitranche Junior unitranche JV structures Syndicated unitranche Bilateral vs. Clubbed unitranche Holdco PIK the next wave in the evolution of direct lending Unitranche vs Senior+Mezz/2L vs SSHYB Interaction with the bank-led facilities - RCF, Acquisition, Capex Direct lending vs other forms of financing a viable alternative Facility size and leverage Facility size and application how small or large can it go? Leverage ratios Is there a typical range? Comparison with separate senior/junior facilities - senior/mezz and senior /2L Tenor what s market Bullets vs amortising impact on the deal Role play: Traditional senior / mezz vs Unitranche structure Margins & Call protection Where s the market now - current trends Approach to margin ratchets Other margin protection measures OID and floors Structuring the coupon Cash vs PIK & Warrants Warrants which investors want these and why? Why these matter to investors Key issues for lenders (information, representation) Issues for borrowers Hard vs. soft call-protection Why it matters Typical terms Terms where unitranche differs from standard LMA terms Permitted actions M&A Additional borrowing, security & guarantees Permitted payments (to equity) Cash sweeps Approach of the funds What about the banks Covenants generally Guarantor coverage Financial maintenance covenants

4 Standard LMA? Cov-lite vs cov-loose Springing covenants Aggressive borrower-friendly terms - EBITDA add-backs Use and application for non-sponsored corporate deals Review of the US market examples European examples deals we have seen A viable option for corporate deals what s changed Pros and cons of using unitranche in corporate deals Typical use and application for European corporates Documentation Overview of the loan structure LMA Loan precedents as a point of departure Documenting bifurcated deals: who is the lender of record? various approaches Hedging facilities Who provides this Ranking (always first?) Handling large RCFs Voting issues & thresholds The traditional LMA approach Will it work in clubbed or dual tranche deals Is it time for a change? Collateral & Security Collateral in the UK & Europe Financial assistance Separate Facility agents are they necessary? Separate Security Agents why and how Role play: Borrower vs lenders negotiating selected aspects in the term sheet Inter-creditor issues and Agreements Among Lenders ( AAL ) Key terms in the LMA s Senior/Super Senior Intercreditor for Unitranche Who are the Lenders of Record pre and post sell-down? Who are the parties to the ICA Who are the key parties to the AAL Should the Borrower be a party to the AAL - Pros and cons What is the typical ranking Hedge facilities are they always super senior? Deciding which aspects go in the ICA or the AAL Amendments and Waivers What is controlled and by whom Dual consent structures a viable solution? Enforcement and Standstill issues Who is the Instructing Group what happens in dispute Reconciling the unitranche and the RCF tensions Reconciling tensions in split unitranche Standstill periods The concept and application of Material Events of Default What does it cover When does it matter Are there other solutions

5 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 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 Direct lending in general, and unitranche in particular, continues to make significant inroads across Europe over the last 12 months reporting YOY growth of 22% (source: Deloitte, Alternative Deal Tracker). Growth has been driven by numerous favourable factors. First, the relaxation on direct lending in France, Germany and Italy; second, the ECB restrictions on leveraged debt (which affects mainly banks but not direct lenders) and third, the large amounts of capital which continue to make their way into funds which is often augmented by fund-investors willing to co-invest in large-ticket individual deals. Together these trends have seen direct lending carve out nearly 50% market share of mid-market deals in the UK and Germany whilst France is second in terms of number of deals*. Moreover, direct lenders are gaining traction in other European markets, particularly the Netherlands, Spain and Italy*. However, the funds have not had it all their own way as debt markets have remained highly liquid with copious amounts of funding available from both the traditional bank-driven loan markets and the high yield bond market. Together these forces have exerted downward pressure on both margins and terms for all lenders across all sectors. In response, funds have scaled up their activities in terms of fund size in order to fund ever larger transactions and loans in the 300 to 600 million range are now routinely underwritten putting unitranche in direct competion with funding from those sources. Unitranche continues to evolve as a highly bespoke product offered in a wide variety of forms including; clubbed, bifurcated, dual-tranche and even junior (HoldCo PIK) unitranche, all of which seem to beg the question of whether the term unitranche adequately describes these various structures. Direct lenders are being forced to develop a wider range of strategies and products in an effort to differentiate their offering from other providers and some are increasingly willing to offer undrawn facilities as part of the financing (q.v. the 50 million undrawn capex line provided by Goldmans as part of unitranche financing for Zenith). Traditional bank lenders, initially slow to recognise the challenge from these new providers, have developed various strategies to partner up with direct lenders and are willing and able to provide the first out portion of unitranche. More recently, banks have started to find their feet in the mid-market by providing loans to companies on reasonable levels of leverage topped up by a Holdco PIK loan from a fund. This combination has been described by some as a unitranche killer but is in fact simply a further evolution of the market. Documentation continues to adapt to the myriad of structures in the market but liquidity in high yield bond market and the syndicated loan market is also having an impact on terms in the mid-to-larger unitranche-style deals. The complex nature of these structures means that Intercreditor issues have become a key negotiating area for lenders and borrowers, and the recent publication of the Senior/Super

6 Senior Intercreditor precedent for Unitranche deals recognises both the evolution in the market and also the desire to achieve standard terms. Participants will receive various models (including a professionally designed LBO model which measures debt capacity and exit returns) along with a market report from Debt Explained on trends in the loan market.