Advanced Negotiation & Structuring Issues In High Yield Bonds

Transcription

1 Advanced Negotiation & Structuring Issues In High Yield Bonds This course is presented in London on: 4 July, 14 October, 20 January 2017, 3 July 2017, 9 October 2017 The Banking and Corporate Finance Training Specialist

2 Course Overview After a torrid start to 2016, on the back of poor macroeconomic climate, sentiment improved as Q1 wore on. Mid-March saw record weekly inflows of $5.8bn, Leaseplan s 1.5Bn dual currency offering closed; Solera s $1.73Bn issue crept over the line after one of the most protracted marketing periods on record. April showers brought further relief and Numericable was able to upsize it s offering from an initial $2.25Bn to a staggering $5.19Bn, the largest single tranche to date. Altice also Course Overview joined the party with a massive 10 year $2.75Bn at 7.5%. Both deals took advantage of the more attractive dollar pricing despite swap costs. High Yield Bonds are invariably structured incompliance with N.Y. Sate Law and whilst the covenants tend to follow a similar pattern the variations between different Indentures can, cumulatively, provide investors with very different rights. This, coupled with the complexity of understanding how the various covenants operate in practice, mean that investors and analysts can find themselves grappling with how the covenants work in practice. An excellent (and current) illustration of these difficulties relates to the merger between Algeco Scotsman s North American business with Modular Space Corporation and how it affects Algeco s 2018 Senior Secured Notes; investors are querying to what extent the deal affects the Restricted Payments and/or the Asset Sales covenants. The deal is complicated by the fact that Algeco is one of the few European HYB to include ABL lines which are each cross-collaterised into each other and, additionally, that the structure include a significant tranche of PIK Notes. Covenant protection continues to erode and a recent report from DebtXplained highlighted the major areas under attack which included aspects of Leverage; EBITDA add-backs which are becoming increasing aggressive, creeping acceptance of grower baskets; value leakage via dividends and affiliate deals which are being eroded in numerous ways including larger free and clear basket for restricted payments, reclassification of restricted payments and permitted investments and distribution of asset sales proceeds; finally dilution of security through a greater number of baskets being secured on the collateral. The programme will use data from DebtXplained to highlight the areas under attack. The continued which touches on various aspects of particular concern and also requires greater transparency and disclosure and the course will include a summary of the key requirements. The programme will appeal to other parties. High yield bonds have witnessed a number of high profile restructurings, largely in oil and gas and extractive industries, but also in other sectors (e.g. Abengoa). Restructuring high yield bonds requires a thorough understanding of the covenants in the indenture and restructuring processionals will find the insights into these matters indispensable. Similarly, the terms of syndicated loans are increasingly converging bond covenants (cov-light being but one example and grower baskets another area); in this context practitioners active in the syndicated loan markets will find knowledge gained in this course of direct application to their own market. This programme provides a toolkit for issuers, investors, advisors, restructuring professionals and others seeking to understand the key aspects of bonds particularly how they differ from loans. It analyses the standard covenants in the Notes but also focuses on the current topical negotiating areas in the covenant package. For Issuers, the programme identifies the key structuring & documentary issues to ensure that they are able to achieve maximum operational flexibility post issuance. It also provides some guidance on what is required to be able to access the capital markets.

3 Course Content Professionals involved in larger loans will also benefit from the programme as an understanding of the structure of bond covenants is essential in understanding as many syndicated loans include high yield style bond covenants. During the programme, current market trends are illustrated with reference to extracts from Offering Memoranda and selected data from DebtXplained (the key provider of information to the European high yield community) providing guidance on what is, and is not, market standard. Case Studies: Participants will be required to (1) analyse the pros and cons of various structures currently used in the market (2) identify some of the key areas of value leakage and (3) discuss the role and impact of subordination. Summary of the key terms of High Yield Notes High yield Funding spectrum; Senior Loans, Notes (senior & junior), Mezzanine, 2nd Lien & PIK Types of Notes & coupons: Fixed & FRNs Typical yields & maturities Which Companies can access the market: market considerations Typical Debt capacity metrics Issue size Other market-related factors Small is beautiful? Reporting requirements, Offering venue & Listing & Credit ratings Covenants - why and how they matter to investors (overview) Upside protection Call protection /redemption (current examples) Equity claw-backs market trends Downside protection CoC put Default risk Debt incurrence Asset sales Affiliate transactions Merger covenants Impact on recovery in distress Anti-layering Permitted liens and Permitted collateral liens AFME s wishlist Key areas of focus in 2016 A template for risk assessment Review of Corporate and Financing Structure The Restricted Group - why and how it matters (q.v Bakkavor) How/when can Restricted Subsidiaries become Unrestricted Jurisdiction of Guarantors, Issuer, Borrowers Impact on recovery in distress (q.v. Thomas Cook) Use of proceeds Subordination to other (Senior / existing) debt (Hapag)

4 Overview of the key areas of the Covenant package Limits on Debt: Ratio Debt Basket & Permitted Debt baskets Security & Subordination (Liens) Value Leakage Review of topical negotiating areas / aggressive terms in 2013 Leverage / coverage risk EBITDA add-backs Increasing basket flexibility Value Loss, Dividends, Sales Restricted Payments / Permitted investment reclassification Asset sales leakage Sponsor fees / (q.v SSB Telemach) Dilution / Subordination Permitted lien capped baskets Reclassification between permitted Liens and Permitted collateral Liens Redemption & Portability Now approaches Permitted Holder issues PIK & Subordinated debt issues PIK toggles Midco carve-outs Limitations on Debt (Ratio Debt basket & the Permitted baskets) Limitation on Debt / Ratio Debt Basket: key ratios & issues Fixed Charge Cover & Coverage ratio: Constituents & range Which Group companies can use: (typical inclusions & exclusions, non- Guarantor subs) Leverage & Secured Leverage ratio Constituents of the ratios and typical range in market The various Permitted Debt ( Capped ) baskets Summary of the various baskets (Liens, Collateral Liens, Restricted Payments, Permitted Investments) Baskets & why they matter Approach to capping What to look for at the outset Issues to watch EBITDA add-backs (summary) Debt reclassification issues (q.v. Phones4u, Ontex, Kabel BW) Other topical issues re the baskets dumping, one-time vs revolving baskets Payment waterfall & Hedging issues Maintenance covenants in High Yield Notes (e.g. BAA & Anglian Water) Key Accounting definitions & impact on covenants Definition of Indebtedness Typical exclusions: Operating Leases & related issues (Fixed or Frozen GAAP) Unusual exclusions Definition of EBITDA & related issues The categories of add-backs EBITDA add-backs per Management discretion vs. GAAP/IFRS compliance Pro-forma adjustments in M&A The 5 categories Management good faith test

5 Security, Liens, Guarantees & Subordination The main issues Security package generally Topical issues: CoMI & Restructuring Guarantees & issue of Non-Guarantors Liens, Permitted Liens & Permitted Collateral Liens What to look for at the outset Issues to watch Refinancing debt issues Liens: equal or rateable Review Guarantor & non-guarantor issues Case: Covenant analysis of Algeco s 2018 Senior Secured Notes in light of the proposed Modular Space Corporation merger Value leakage: The Restricted Payments basket: who & what is covered What to look for at the outset Build-up basket Carve-outs Build-up basket issues (q.v. Eco-Bat) Valuation issues (Fair Market Value) Non-cash considerations Payment waterfall (sales) Affiliates Transactions (sweetheart deals) When are they relevant Key areas of leakage Permitted Investments Asset Sales: the new battleground The main area of leakage Other aspects where leakage can occur Call protection: Change of control & Equity Claw The historical Change of Control (CoC) position The portability issue the 3 variations on the standard CoC position Topical cases: Ziggo, Odeon, Com Hem, Hastings Standard call protection (absent CoC)- Fixed vs FRNS Equity Claw Investor issues Issuer matter What Redcliffe s clients are saying about the course Provided an in-depth knowledge of High Yield documentation & the types of issues to be taken into consideration A lively & focused course with a good impact from real life cases A broad overview, strongly presented & highly relevant Very current and relevant to market conditions and terms. The course simplifies high yield in a coherent and understandable way but also focuses on complicated aspects and current trends in market Very interesting to see/learn more about the differences between US / European offerings and Norwegian bonds (and the differences in Structuring)

6 09:00-17:00 London 695 +VAT ( 834) Discounts available for multiple participants: 3-4 participants: 15% discount per participant 5-6 participants: 20% discount per participant 7-8 participants: 25% discount per participant 9 or more participants: 30% discount per participant Delivering this course in-house for you to a number of participants could be very cost effective. enquiries@redcliffetraining.co.uk +44 (0)