The market in Europe has bifurcated into two main approaches for 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 springing financial covenants in leveraged loans and real estate deals and includes specific references and covenants analysis, terms and definitions in the LMA Senior Facilities Agreement for Leveraged transactions and LMA Real Estate precedents. The programme uses information from the Reorg 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 breach of financial 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 over ebidta ecures or require prepayment of loans from equity cure cash). Direct lenders, which typically use the LMA springing leverage covenant precedent as a starting point, also tend to adopt a more borrower-friendly approach to the terms in the loan to value covenant and the financial covenants for banks.
Financial covenants and loan to value covenant are arguably one of the most heavily negotiated aspects of the Financial Covenants in Loan Agreement.
Too often; some parties fail to understand the key negotiating issues that really matter, for example, they view the breach of 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 springing financial covenants ratios. 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 breach 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 Reorg Debt Explained loan to value convents 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 covenants 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 by covenant financial consultant will appeal to practitioners involved in leverage, real estate and infrastructures, 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 by covenant financial consultant 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 by covenant financial consultant, 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 flow covenant 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 by covenant financial consultant.
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.
Case Study: 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 covenant headroom calculations are relatively simple and are designed to explain the basic principles and reinforce learning