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Structuring, Negotiating and Documenting Mezzanine, Junior Debt and Unitranche

2 Part Course  |  A toolkit for lawyers, advisers and borrowers on the commercial and legal issues in structuring and documenting junior debt & unitranche

Structuring, Negotiating and Documenting Mezzanine, Junior Debt and Unitranche Training

A one-day course presented in two half-day live webinars

  • The trainer has over 20 years’ experience in mezzanine and junior debt providing valuable insight into the legal, structuring and practical challenges which arise in using junior debt
  • The trainer was on the advisory panel for the IIR Mezzanine conference in 2006/7 and a speaker at the conferences so has a deep understanding of mezzanine product
  • The trainer is a senior consultant to Reorg Debt Explained so has insight into the trends in second lien and PIK
  • The trainer is also a Senior Consultant to Grant Thornton in Debt Advisory so has visibility into current trends in the (opaque) direct lending / unitranche market and challenges in structuring capital structures
  • The trainer’s career also includes stints in commercial and investment banking, accountancy, tax and law providing insight from a wide range of perspectives

 

NOTE THIS IS AN INTENSIVE PROGRAMME & MAY NOT BE SUITABLE FOR BEGINNERS

  • Overview - Understand the dynamics of the junior debt spectrum and the various types of junior debt on offer
  • Structuring the deal – the programme provides a framework or toolkit for participants (from all jurisdictions) to identify the critical structuring issues that the parties need to address in structuring junior and senior debt. Participants will be able to use this toolkit to determine how to structure deals in any jurisdiction (or not as the case may be!)
  • Subordination and ranking – Ranking and subordination are critical in deals with junior debt to all parties, senior enders, the equity providers and the junior lenders themselves. Moreover, is not clear whether contractual subordination (i.e., Intercreditor Agreements) is legal or effective in many jurisdictions and the programme considers ways in which this may be overcome
  • Debt Financing – There is a very wide range of junior debt funding instruments each with its own pros, cons and application. Participants will learn about the various instruments, their use and application and the key terms and conditions which attach to each instrument
  • Equity Kickers – Equity matters to junior lenders as it helps the overall return. Understand. Participants will review the various ways equity-kickers can be structures for both sponsored deals and also corporates where warrants are usually not a viable option
  • Managing the investment – junior lenders invariably need and require a greater degree of visibility into their investment. The programme reviews the various options open to the lenders and considers the pros and cons of each
  • Intercreditor issues in Unitranche vs mezzanine deals – these become live in distress however there are significant and material differences between the intercreditor used in traditional junior debt products (e.g. mezzanine and second lien) and unitranche intercreditor not least in relation to the instructing group (i.e. who controls the enforcement) and standstills. The programme reviews the current state of play in the market in this dynamic field

 

NOTE THIS IS AN INTENSIVE PROGRAMME & MAY NOT BE SUITABLE FOR BEGINNERS

Part One

NOTE THIS IS AN INTENSIVE PROGRAMME & MAY NOT BE SUITABLE FOR BEGINNERS

 Introduction to the junior debt spectrum

  • Overview of the market
  • The role of direct lenders
  • Review of the various products
  • Mezzanine
  • PIK, PIYC & Toggles
  • Second Lien
  • Unitranche
  • Preference shares

Structuring parameters – how much senior and how much junior debt

  • Typical approaches to gauging debt capacity/capital structure
  • What are the key criteria to consider
  • Multiples vs Capital approach
  • Key ratios (covenants where relevant) used to right-size the debt
  • How Jurisdiction can affect debt capacity (and how to mitigate)

 CASE STUDY: Calculate the total funding uses and sources for a deal based on the management case

 Types of Mezzanine: use and key issues

  • Warrantless mezzanine – return structure
  • Fixed vs floating rate
  • Cash pay
  • PIK
  • Redemption premia – stepped vs linear
  • Other tools for achieving the target IRR
  • OID to enhance returns
  • Using Libor/Euribor floors
  • Fees
  • Call protection - hard vs soft call protection
  • Equity Kickers
  • Warranted mezzanine
  • Convertibles pros & cons
  • Equity strips – why they make sense
  • Other forms of structured equity carry
  • Issues for junior lenders
  • What is an ‘exit’ – hard vs soft
  • Information rights – what are the options
  • Board / Observer status – risk and how to mitigate them
  • Other (better) options
  • Other variants of mezzanine
  • Senior mezzanine
  • Junior mezzanine
  • Hybrid mezzanine

 CASE STUDY: Calculate and comment on the equity value on exit, the return (IRR/cash multiple) required by the mezzanine, the return of the equity and return for the management

 Mezzanine in Emerging markets – specific problems and how to resolve them

  • The different role to developed markets
  • Legal risk – why and how it matters
  • Tools for mitigating legal risk
  • How to structure the deal & collateral to overcome
  • Reputation issues
  • Recourse / PGs?
  • Other tools

 Second Lien

  • Use and application
  • Market trends / recent deals
  • Documenting the 2nd Lien - composite or separate facility agreement
  • “Typical” terms, leverage, pricing and call protection
  • Pros and cons of 2L vs unitranche, high yield bonds
  • Other tools for achieving the target IRR

 CASE STUDY: Calculate the percentage of equity/warrants required by the mezzanine lenders to achieve their target return

 PIK (PIYC, PIYW, Toggles)

  • Pay-in-Kind (PIK) generally
  • Different types PIK
  • PIYW
  • Toggle
  • PIYC
  • “Typical” terms, leverage and pricing
  • Call protection - hard vs soft call protection
  • Market trends / recent deals

 Preference shares

  • Prefs defined – key features
  • How to structure Prefs to maximise value creation and preserve yield
  • Potential features
    • Convertible into equity (including Ratchets)
    • Redeemable (at par or a premium)
    • Participating - in profits
    • Cumulative (yield protection)
    • Voting rights
    • Security
  • Worked example

Part Two

NOTE THIS IS AN INTENSIVE PROGRAMME & MAY NOT BE SUITABLE FOR BEGINNERS

 Review of direct lending structures 

  • Overview of the direct lending spectrum
  • Direct lending structures
    • The “classic” structure
    • “Structured” Unitranche
    • Bifurcated Unitranche
    • “Dual” tranche Unitranche
    • “Junior” Unitranche
    • Bilateral vs. Clubbed Unitranche
    • Holdco PIK
  • Review of ranking in different deals
    • SSRCF, Unitranche A, Unitranche B and Hedge
  • Use and application of direct lending
  • Interaction with the bank-led facilities - RCF, Acquisition, Capex and ABL
  • The basic deal structures – senior, Unitranche, other
  • Review of recent landmark deals (Daisy Group)

Facility size and leverage

  • Facility size and application – how small or large can it go?
  • Review of data on tranche sizes
  • Review data on leverage metrics
  • Tenor – what’s market?
  • Bullets vs. amortising – impact on the deal
  • Roleplay: Traditional senior / Mezz vs Unitranche structure

Coupon structure, Margins, ratchets, fees & call protection Tenors

  • Structuring the coupon
    • Cash vs PIK & Warrants
  • Review data on margins for Unitranche and RCF
  • Review data on arrangement fees
  • What’s ‘market on floors’
  • Approach to margin ratchets
  • Warrants – which investors want these and why?
    • Why do these matter to investors?
    • Key issues for lenders (information, representation)
    • Issues for borrowers
  • Hard vs. soft call-protection
    • Why does it matter?
    • “Typical” terms

Permitted Actions, Cash Sweeps

  • What are “grower” baskets
  • How prevalent are grower baskets
  • Permitted Indebtedness
    • Accordion facilities
    • What’s market in terms of caps on incremental debt?
    • How prevalent is MFN?
    • Right of first refusal vs right of first offer
  • Permitted Disposals
    • What are the ‘market’ limits and where do they kick in
  • Other Permitted actions
    • Distributions – how are these policed?
    • Sponsor fees – limits
    • HoldCo admin fees – market approach
  • Mandatory prepayments (Excess cash)
    • How prevalent are they
    • How many step downs
    • A different approach- Banks vs Funds
  • Mandatory prepayments (Disposal proceeds)
    • The risk for super senior lenders
    • The three market-based approaches
    • Impact on mid-market deals

Unitranche Credit Agreements - protection for the Super Senior lenders

  • Potential problems for Super Senior Lenders (“SSL”) in Unitranche
  • Market solutions for the Super Senior Lenders
    • Controls (veto rights) on Amendments and Waivers (“A&Ws”)
    • Review the list of A&Ws which require separate SSLs approval
    • Which A&Ws are problematic for the Unitranche
    • Disenfranchisement of Sponsors
  • Material Events of Default (“MEDs”)
    • What are the MEDs and how do they work
    • What MEDs will the SSLs typical seek?
    • Which MEDs are problematic for the Unitranche?

Unitranche intercreditor - Enforcement Rights & Standstills

  • Who is the Instructing Group?
  • Enforcement Standstills on the Super Senior Lenders
    • Why are they needed
    • How long are they (market)?
  • When can the SSL take enforcement action?
    • Review the main circumstances when this applies
    • What controls / protection does the unitranche have?
  • Step-in rights for the SSL
    • What is the current market position?
  • The Option to Purchase
    • Potential problems
    • Alternative solutions in practice 

Unitranche intercreditor - Distressed disposals

  • Position when the Unitranche is the Instructing Group
    • Steps the SSL can take to protect their interests
  • Position when the SSL is the Instructing Group
    • How does the Unitranche protect their interests
    • Fairness opinions – who provides these
    • Competitive sales process – what does this mean
    • Other methods to protect the Unitranche position

Mezzanine Intercreditor issues

  • Relevant Documentation – the LMA Precedents
    • The Leverage intercreditors (2009 & @012)
    • Real Estate intercreditors
  • Payment Stop Notices
  • Option to Purchase (theory vs practice)
  • Enforcement Standstills
  • Turnover clause
  • Step-in rights for the junior lenders
  • Protection for junior lenders
  • Information & Fees
  • Valuation issues
  • Case Studies: Stabilus & IMO Carwash

The trainer is a consultant, public speaker and author with expertise in private equity, debt advisory, restructuring and infrastructure. He is a Senior Advisor to KPMG Finland, a Senior Advisor to Reorg EMEA Covenants, the leading provider of information to the European High Yield community, and a Senior Consultant to Grant Thornton UK.

Training programmes are provided to a wide range of blue-chip clients in Europe, Africa, the Middle and Far East, North America and Australasia. In-house clients include banks (BNP Paribas, Société Générale, ING, Barclays Capital, Bank of China, RBS, SEB); lawyers (Baker & McKenzie, Skadden Arps, Sullivan & Cromwell, Cadwalader, Latham & Watkins, Weil, White & Case); advisory firms (Lazard, PWC, M&A International, KPMG, EY, Deloitte); PE firms (Cinven, Advent, Barings Asia, Waterland); corporates (Siemens, Airbus, Turkcell, Candy Crush, Gunvor, Statkraft) and governmental bodies (the UKLA, the EBRD, the ECGD, Omani Oil Corp.)

He qualified in South Africa both as a Chartered Accountant, with Deloitte, and as a lawyer with Hofmeyr where he was involved in structuring a number of high-profile project financings including BMW 3 Series, Ford Sierra, GM, Sappi and Mondi.

When he moved to London and joined Lazard Brothers as a corporate finance executive he was involved in a wide range of public and private transactions. Subsequently he joined Hoare Govett as an assistant director where he acted as an advisor to smaller listed companies and was involved in several syndicated Euro-Equity Initial Public Offerings.

In 1991 he joined ABN Amro’s cross border M&A team prior to being transferred to MeesPierson Corporate Finance as a Director in Cross-Border M&A where he was also involved in a number of deals in Central Europe. During this time he was a member of the EU-PHARE programme and advised the Estonian government on their privatisation programme.

He is the Programme Director at the City Business School, London, for Infrastructure Finance for the M. Sc. programme in Business Administration and Finance.

He is a member of the Institute of Chartered Accountants in England & Wales and the South African Institute of Chartered Accountants. He completed a BA and an LLB at the University of Natal and a B. Compt. (Hons) at UNISA.

The programme provides participants with a though understanding of the various junior debt products, their terms and conditions, how they are documented and also the key issues which arise in a restructuring scenario.

The last few years have witnessed copious amounts of liquidity in the credit markets and senior debt has been readily available. The coronavirus has and will have a dramatic effect on the global economy not least that it is likely to lead to a contraction in bank lending.

If history is anything to go by, then we can expect junior debt to come to the fore to fill the funding gap. In addition, the presence of direct lenders, who were absent after the global credit crisis, stand ready to fill the funding gap albeit at a price!

This programme examines the range of junior debt loan products available in the market, their use and application, the typical terms and conditions, market pricing and returns. The program also considers the various techniques junior lenders can adopt to structure their credit ab initio (via Intercreditor issues), how they can monitor their credit thereafter (and have advanced warning of impending distress) and finally how they can maximise recovery in distress. The course is highly practical and interactive and will include case studies which will first, require participants to devise appropriate junior debt structures and second, to consider the various Intercreditor and other matters which can protect their position in distress.

 

NOTE THIS IS AN INTENSIVE PROGRAMME & MAY NOT BE SUITABLE FOR BEGINNERS

  • The trainer is a well motivated and committed instructor
  • A comprehensive and effective summary view of Mezzanine, Junior Debt and Unitranche.
  • A lot of practical examples. The trainer obviously had a very good knowledge of the subject together with practical experience which made the course very interesting. Also the interactive way of giving the seminar made it a very nice seminar.
Number of places:
Part 1
Number of places:
Part 2

£895.00

Per participant per part
Discounts available for multiple place booking find out more
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