Yankee Loans A half day course This course can be presented in-house for you on a date of your choosing The Banking and Corporate Finance Training Specialist
Course Overview Yankee loans (or TLBs as they are also known) refer to senior syndicated facilities provided to European borrowers which, initially, were sold to mainly U.S. based investors or were governed by New York law and drafted in line with U.S.style credit documentation. Yankee loans have experience strong growth in Europe over the last 18 months for a variety of reasons. First, an increasing number of European borrowers (most recently Altice) have sought to take Course advantage Overview of the more borrower-friendly terms offered by these loans; second, the globalisation of the debt markets (particularly in leveraged finance) has seen an increasing number of U.S. credit funds tap into the higher yields available from European borrowers (although this spread has narrowed); third, 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. This latter trend has been particularly influential in terms of driving convergence of loan documentation towards incurrence-base high yield covenants and finally, both the U.S based PE firms and U.S. investors understandably prefer more familiar U.S. style credit documentation since this affords them better understanding of the key terms and conditions in the loan both at the time of investment and in terms on on-going monitoring. The trend towards using NY law is supported by data from DebtXplained which indicates that, in 2014, nearly half of all Yankee loans were subject to New York state law and this trend seems to be accelerating in 2015. The greater willingness on the part of U.S. investors to accept bond-style covenants (and thus lower lender protection) has been motivated by two drivers; first, their aversion to reinvestment risk (which explains their preference for bullet structures and antipathy to cash sweeps) and second, their greater focus on liquidity. The depth of the U.S. loan market means these lenders are willing to trade less investor protection in exchange for the liquidity, specifically the ability to trade out prior to distress. The approach of U.S. Investors means that Yankee loans mimic many of the features found in high yield bonds with the same advantages even if these loans are drafted under English law. Specific examples include; reduced financial-maintenance covenants (e.g. either covloose or cov-lite seen in Ceva Sante Animale and more recent deals) together with greater flexibility across a wide range of corporate actions particularly the ability to incur and secure additional debt (via bond-style ratio debt baskets and carve-outs baskets for debt incurrence), the ability to sell assets together with flexibility in dealing with the proceeds, bond-style approach to permitted payments (using restricted payment baskets with carveouts) and, more recently, greater flexibility on exceptions to mandatory prepayments. This seminar examines the typical terms of Yankee loans in the current market and how they differ from traditional European LMA-based senior facilities together with the trends driving these developments.
Course Overview Background & basics Key market drivers and players The different approach of U.S. to European investors The role and influence of High Yield Bonds on loans Incurrence covenants vs maintenance covenants does it matter? Documentation: LMA vs LSTA The Restricted Group Approach used in high yield bonds & why it matters Application to Yankee loans Re-designation of subsidiaries to and from the restricted Group Typical requirements Permitted Acquisitions Permitted Acquisitions LMA approach vs Yankee loans Typical requirements for Permitted Acquisitions Compliance with financial ratios Hard and soft (grower basket) caps Typical ratios used Treatment of pro-forma synergies Other requirements Third party / Independent certification Due diligence Debt incurrence & margins Main sources of additional debt incurrence Prohibition & Ratio Debt Basket Ratio based approach Potential carve-out baskets typical examples & terms Credit Facility basket - hard vs soft caps General basket -- hard vs. soft caps Acquired debt - hard vs. soft caps & other limitations Other baskets (PMOs etc.) Reclassification of debt between baskets and the Ratio Debt basket Specific inclusions and exclusions Incremental facilities Absence of margin ratchets Restricted Payments Prohibition - coverage Proviso main conditions Ability to incur debt Aggregate Caps Calculating the Restricted Payments basket Ratio based approach Additions to the basket Carve-out baskets to the Restricted payments
Collateral & Liens LMA approach TLB approach to Permitted lien baskets Availability of general and other baskets Ratio based lien baskets Carve-outs for Non-Guarantor Restricted subsidiaries Use of grower permitted lien baskets Ability to secure additional ratio-based debt on a pari passu or junior basis Distinction between securing debt on Collateral or on non-collateral 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 Financial maintenance covenants Review of current market approach: Traditional vs Cov-lose vs Cov-lite Cov-loose what does it mean and which ratio are used Cov-lite does it really mean no covenants? 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 Portability & Change of control and Transfer provisions What type of transactions qualify Typical exemptions Leverage ratio Enterprise value ratio Timing periods/limits & Frequency Additional requirements Voting thresholds LMA vs US approach specific thresholds; how and why they matter Majority lenders Super-majority Unanimous consent Snooze you lose
What Redcliffe s clients are saying about the course Deep knowledge of product from the presenter Clear distinctions made between Yankee loans and LMA style docs http://redcliffetraining.com enquiries@redcliffetraining.co.uk +44 (0)20 7387 4484