The loan market in Europe has bifurcated into two main approaches to loan documentation; smaller club and bilateral deals on the one hand, which broadly follow the more lender-friendly LMA approach, and larger syndicated TLB-style deals on the other hand which are increasingly influenced by high yield bonds and invariably are structured on a cov-loose or cov-lite basis. These larger deals also include a far more eclectic approach to the key definitions comprising the ratios with many add-backs taken copied from high yield bonds.
This programme covers financial covenants in leveraged loans and real estate deals and includes specific reference and analysis of the covenants, terms and definitions in the LMA Senior Facilities Agreement for Leveraged transactions and LMA Real Estate precedents. The programme uses information from the Debt Explained database, to review the current trends in the market in the larger syndicated (TLB-style) deals which so often include springing leverage covenants and high-yield-bond style covenant packages.
The larger syndicated TLBs also vary in approach depending on whether they apply English law or NY law (for example, the latter do not usually permit overcures or require prepayment of loans from equity cure cash). Direct lenders, which typically use the LMA leverage precedent as a starting point, also tend to adopt a more borrower-friendly approach to the terms in the loan and the financial covenants.
Financial covenants are arguably one of the most heavily negotiated aspects of the Loan Agreement.
Too often; some parties fail to understand the key negotiating issues that really matter, for example they view the financial covenants in isolation rather than appreciating that they must be seen in the context of the particular capital structure. Secondly, too much time is spent on which covenants apply rather than focusing on the key constituents of the key terms in the financial covenant. Finally, many parties fail to appreciate that, even in cov-lite deals, the financial covenants and/or the components of those covenants play an important role as they also affect a wide range of other critical matters in the loan. This usually includes the various “permitted” actions such as debt incurrence (security and guarantees), sponsor payments, cash sweeps, guarantor coverage and grower, scalable and/or builder baskets where these appear.
This course provides a detailed look at commercial aspects of financial covenants and looks under the bonnet at the critical issues that arise in practice. It provides an in-depth look at the covenants as set out in the Loan Market Association precedent together with other covenants that might be used in practice. Reference is made to the Debt Explained loan database which tracks key terms in the larger syndicated TLB market.
Participants will gain an in-depth view of which covenants should be used together with a detailed analysis of the constituents of the covenants and the sponsor friendly add-backs and other sponsor friendly techniques used by borrowers to manipulate the covenants.
The programme will appeal to practitioners involved in leverage, real estate and infrastructure, such as Lawyers, Private Equity professionals, Bankers in Lending (all departments), Corporate financiers, M&A advisors, Debt advisory and Restructuring. Accounting professionals looking to expand their knowledge of this topic will also benefit as many of the issues embrace legal /documentary considerations. The programme adopts a pan-European approach to the topic but the presenter is able to discuss issues relevant in the USA in view of his exposure to those markets.
To derive full benefit from the programme, it is essential that attendees have a basic understanding of the main / headline elements of a Profit and Loss account (Sales, EBITDA, EBIT etc) and a basic understanding of the differences between P&L /Accrual Accounting and Cash accounting. It is emphasised that participants DO NOT require an understanding of IFRS or GAAP.
A short module summarising the key differences between P&L /Accrual Accounting and Cash Accounting is available on request prior to the programme.
The programme will review the draft ECB guidance on leveraged transactions published in November 2016. The course will examine which type of transactions are covered,which lenders are affected, the approach to EBITDA and the potential implications for players in the debt markets.
An in-depth analysis of financial covenants used in leveraged and real estate loans
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, 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.
Participants will be required to:- (a) calculate how to derive the key elements of the various covenants (b) identify some of the more problematic components in the covenants (c) calculate the various covenants and (d) explain the pros and cons of each of the covenants and why they may be appropriate for one deal but not another. The calculations are relatively simple and are designed to explain the basic principles and reinforce learning.
What Redcliffe’s clients are saying about the course
“An excellent use of case studies & indication of recent trends”
“A good mixture of the sponsor, lender, legal & accountancy perspectives”
“The trainer is clearly very experienced with good market insight which was used to make links to the materials & content”
“Good comprehensive overview of subject”
“Strong use of practical examples to illustrate points”
“Got a view into the top end of market”
“Up to date market information with enthusiastic and knowledgeable trainer.
Clear and useful explanation as to how various components
involved in financial covenants relate to each other”
“Constant Reference to Recent Market Developments and Transactions”
“Encapsulating the Key issues likely to be faced in Negotiation with Sponsors & Borrowers”
As part of our approach to training the financial industry, we ensure all subjects are covered. Please see other related courses within corporate finance.
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