Negotiating & Issuing High Yield Bonds

Transcription

1 Negotiating & Issuing High Yield Bonds High Yield Bonds Trends in issuance, structuring, covenants, pricing & documentation This course is presented in London on: 17 May 2018, 08 October 2018 The Banking and Corporate Finance Training Specialist

2 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, and 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 Course School Overview in London. Course Objectives Participants will: Gain an appreciation of the key terms of high yield notes Understand why and how covenants matter to investors Explore a template for risk assessment Understand the limitations on debt financing, including the use of baskets Get to grips with the key accounting definitions & impact on covenants Master the issues pertaining to security, liens, guarantees & subordination Explore the issues surrounding value leakage, with the help of a case study Review deal outliers and aggressive terms used over last 12 months Gain and understanding of call protection, change of control & equity claw Be taught about the relevant intercreditor issues (LMA SSRCF) Gain an understanding of specific issues re Junior (PIK) Notes Pr Course Content Summary of the Key Terms of High Yield Bonds High yield spectrum; First Lien Notes, 2 nd Lien Notes & PIK Notes Types of notes and coupons: Fixed & FRNs Typical yields and 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 Review of pricing Key issues that affect pricing Theory vs practice 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

3 Affiliate transactions Merger covenants Impact on recovery in distress Anti-layering Permitted liens and permitted collateral liens A Template for Risk Assessment Review of Corporate and Financing Structure The Restricted Group why and how it matters How/when can restricted subisdaries become unrestricted Jursidiction of guarantors, issuer and borrowers Impact on recovery in distress Use of proceeds Overview of the key areas of the Covenant package Limits on debt: ratio debt basket & permitted debt baskets Security and subordination (liens) Value leakage Limitations on Debt (Ratio debt basket and the permitted baskets) Limitation on debt/ratio debt basket: key ratios & issues Fixed charge cover & coverage ratio Constituents and range Which group companies can issue debt Problems with NGRS (Non-Guarantor Restricted Subsidaries) 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 and why they matter Approach to capping Issues to watch EBITDA add-backs Debt reclassification issues Other topical issues re: the baskets dumping, one-time vs revolving baskets Payment waterfall and hedging issues 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 Run-rate EBITDA (q.v review Nidda/Strada HYB) Security, Liens, Guarantees & Subordination The main issues Security package generally Topical issues: CoMI & Restructuring Guarantees and issue of non-guarantors Liens, permitted liens & permitted collateral liens What to look for at the outset

4 Issues to atch Refinancing debt issues Liens: equal or rateable Review guarantor and non-guarantor issues Value Leakage: The restricted payments basket: who and what is covered What to look for at the outset Build-up basket issues Carve-outs 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 main area of leakage Other aspects where leakage can occur Review of current deal outliers/aggressive terms Uncapped EBITDA addbacks & pro-forma adjustments & synergies Aggressive EBITDA add-backs Ratio definitions applied differently leverage vs other corporate actions Flexibility for Limited Conditional Acquisitions Narrower numerators for leverage ratios Enhanced Basket flexibility for Leverage & EBITDA grower caps Upfront free & clear basket credit in build-up basket Asset sales available for dividends Looser Affiliate transactions Equity clawbacks what market Redemption & Special optional redemption/non-call diluted Call Protection: Change of Control and Equity Claw The historical change of control (CoC) position The portability issue the 3 variations on the standard CoC position Standard call protection (absent CoC) Fixed vs FRNS Equity Claw Investor issues Issuer matter Intercreditor Issues (LMA SSRCF) Overview of key provisions Assumed Funding Structure Security Structure Ranking Payment waterfall Restricted Payments Enforcement Specific Issues re: Junior (PIK) Notes Specific issues relating to Junior notes Review of Veralia PIK Notes (using Report from Debt Explained) Review of Schaffler PIK (using Report from Debt Explained) Review of key differences in PIK covenant packages vs Senior Secured Notes covenants Intercreditor issues in PIK deals enquiries@redcliffetraining.co.uk +44 (0)

5 Included in the Appendices Overview of the issuance process Initial preparation Preparation phase Targeting the investors (framing the issue) Execution phase The Pricing discovery process Course Summary A recent article in the Financial Times ( Tensions over junk bond covenants start to boil over ) highlighted the enhanced risk to high yield bond investors as a result of the increasing erosion of lender protection in European high yield bond indentures which will magnify losses when the credit cycle turns or issuers experience distress. Whilst high yield bond indentures are precedent based, the devil is hidden in the detail which can be discovered only through an in-depth analysis of the Indenture. The battleground has now shifted to subtle changes to the various carve-outs which cascade through the various covenants and which allow issuers to extract cash and increase debt. The J Crew Trapdoor being perhaps the most notorious example whilst the removal of just two words in the proposed Lowell bond would have allowed the Issuer to continue to pay dividends after missing an interest payment had the market not pushed back. This programme is designed to provide participants with an in-depth guide to negotiating an appropriate covenant package for New York-style high yield bonds and identifying if not avoiding these pitfalls described above. It will also benefit players in the syndicated loan / TLB market whose terms increasingly mimic those found high yield bonds (e.g. grower/builder baskets and other HYB-style features imported to the loan market). The high yield incurrence based approach to covenants affords issuers with a much higher degree of financial and operational flexibility than traditional loans whilst simultaneously seeking to provide investors with an appropriate level of protection through the credit and business cycle. The complexity of the high yield covenant flows from the fact that many terms in the documents apply in different areas and are often inter-dependent. For example, distributions to investors also depends on the restricted groups ability to incur debt whilst (grower) baskets which cascade through the indenture are governed by EBITDA, which itself is the subject of increasingly issuerfriendly add-backs (e.g. sponsor payments to use a trite example) During the programme, the covenant package will be discussed with reference to extracts from recent Indentures. Current market trends will be illustrated with selected data from Debt Explained (the key provider of information to the European high yield community) providing guidance on what is, and is not, market standard. Against this background the course now includes a number of new sections; first, specific aspects that relate to PIK notes using analysis from Debt Explained; second, some of the intercreditor issues that flow from the super-senior RCF structures which dominate market issuance; third, to provide participants with greater visibility into the market, an overview of the issuance process and finally, how issuers approach the issue of pricing and last; a comparison of the pros and cons of bonds vs loans. 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.

6 Participants will be provided with a recent High Yield indenture prior to the course which will be used to referred to during the programme to explain the various covenants. Additionally, data from Debt Explained will also be used during the course to illustrate current trends. 09:00-17:00 London Standard Price: 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.