Unitranche & Alternative / Direct Lending

Transcription

1 Unitranche & Alternative / Direct Lending Reviewing Key Trends, Structures, Documentation & Topical Issues for Direct Lenders, Banks & Borrowers This course is presented in London on: 19 June 2018, 09 November 2018 The Banking and Corporate Finance Training Specialist

2 Course Objectives Participants will: Gain an appreciation of lenders in the market currently Learn about the availability of other forms of funding Be appraised of how traditional bank lenders respond Get to grips with Unitranche and other types of direct lending structure Have explained to them its use and application in non-corporate deals Be taught about margins and call protection in these situations Gain an understanding Course Overview of the relevant documentation, collateral and security Master the issues pertaining to the corresponding Intercreditor agreements 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 Overview Direct lending in general, and unitranche in particular, continues to make significant inroads across Europe. The offering has received a further boost from the relaxation on direct lending in France, Germany and Italy whilst the ECB guidance on leveraged transactions, which is expected to come into effect mid 2017, will hamper bank lending providing further impetus to direct lenders. Initially unitranche structures competed mainly with traditional senior/junior structures; however, the ability and willingness of direct lenders to lend increasingly larger amounts means the offering now competes with the high yield bond market as evidenced by the recent 475m unitranche backing Bridgepoint s acquisition of Zenith. At the smaller end, direct lenders are providing increasingly smaller tranches with Beechbrook s 7.1m unitranche and equity co-invest indicating that all but the smallest deals are now within reach. Geographically, direct lending continues its advance inside the three main markets (UK, France and Germany) while Scandanavia, Italy, Spain and Ireland are all seeing strong growth and demand for the product. Unitranche recently appeared on the radar in Asia in the shape of the $480m unitranche backing Carlyle s bid for Australian based pharma company, inova, so the product seems set to grow in those markets too. Unitranche continues to evolve as a highly bespoke product offered in a wide variety of forms including; clubbed, bifurcated, dual-tranche and even junior 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).

3 Some funds have elected to ride the risk curve in search of higher yields whilst others have gone back to their roots in the mezz market and are using equity to enhance returns; a few are creating mezz funds through the back door. 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. 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, however, the evolution of US-style clubbed (and syndicated?) deals has introduced a further complication via the introduction of the Agreement Amongst Lenders between the parties in some deals although some practitioners question whether these AALs are necessary. Last, direct lender s hurdle rates have prevented them from targetting more traditional, unleverage credits leaving a funding gap in the bps space. With this in mind, capital formation is taking place to address this, hitherto, neglected sector of the market although providers are having to find other, traditional ways of meeting their target returns; such as warrants. On the restructuring front, Unitranche has avoided the landmines so far. However the volume of issuance over the past few years means that defaults have occurred with ICG s investment in Courtepaille the most high-profile restructuring to date but market chatter suggests other deals are already experiencing distress. The course considers how the market has and will address these issues. 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. The programme will review the impact of the draft ECB guidance on leveraged transactions and its potential impact on direct lending 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? Reviw of direct lending fundraising The changing landscape of direct lending providers Review of market trends and developments in direct lending Impact of the ECB guidance on leveraged transactions Direct lending vs other forms of financing Direct lenders approach to the unitranche o Are all lenders the same o What do they want o General approach pricing & terms

4 The borrower s perspective Direct lending vs traditional bank-led finance Unitranche vs Senior / junior structures (mezz/2l) o Pros and cons Direct lending vs High Yield Bonds o Pros and cons o Review of Zenith 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 stuucture their relationships with direct lenders Formal JV - pros and cons Framework agreements - - pros and cons Ad-hoc - - pros and cons Other stratagies banks can adopt to retain market share Review of Unitranche and direct lending structures past, present, future? 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 Unitranche vs Senior+Mezz/2L vs SSHYB Bond structure Rationale, use and application in other EU jurisdictions Interaction with the bank-led facilities - RCF, Acquisition, Capex 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 measure 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)

5 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 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 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 Transferability, Assignment and Portability Transferring / selling post completion Who is the Lender of Record does it matter

6 Methods of selling down - impact Assignment Sub-participation Other structure methods What borrower controls might apply Role play: Borrower vs lenders negotiating selected aspects in the term sheet Inter-creditor issues and Agreements Among Lenders ( AAL ) 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 Problems when things go wrong How will dual or bifurcated structures affect Schemes of Arrangement Potential problems with class where lenders are in both RCF and unitranche When unanimous consent is no longer unanimous

7 9:00-17:00 London Standard Price: 725 +VAT Membership Price: VAT In-House Training Delivering this course in-house for a number of 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. E-Learning This course can also be presented as a bespoke e-learning programme created by you to fit your exact requirements.