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Loan Documentation & Security Issues

2 Part Course | Learn the key commercial aspects of leverage loans and also provides lenders with a toolkit on how to construct a watertight security package

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A one-day course presented over two-half days in a virtual class from 9:15am to 1:00pm UK time

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Download: Course Category Brochure | Course Outline

Part One

The key precedents in the loan market

Investment-grade vs leveraged/high yield - key dividing line in credit markets, why & how it matters
LMA Leveraged Facilities Agreement
LMA Real Estate Multi-Property Investment Transactions
LMA Real Estate Development Transactions
Review of the 4 segments of the European leveraged loan market agreement (key differences)
Case Study: Review key aspects of a term sheet in the context of a relevant deal including the market flex

The key players in a loan & their roles

Bilateral, clubs & syndicated
Dramatis personae in the loan
The mandated lead arranger
Origination & syndication departments
Credit Department
Portfolio department
The facility agent & security agent
key lessons from the Stabilus case
Case Review Stabilus case - what are the lessons for Security and Facility Agents, Credit bidding

Issues relevant to syndicated (and club) deals

The various types of Lenders & what they want
- Banks vs Institutions vs Direct lenders
Role and importance of “The Instructing Group”
Critical voting thresholds for lenders and borrowers too (including the super-majority)
How ‘yank the bank’ and ‘snooze you lose’ clauses can be used to manipulate the syndicate
Transfer Restrictions
- When can the lender transfer their loan (triggers)
- Who can they transfer to (White and Blacklists)
- What about sub-participations – restrictions

Anti-net short (‘Windstream’) provisions

Background and rationale of ‘Windstream’ provisions
What is a ‘Net Short Provision”
Who is a “Net Short Lender”
Exceptions
- ‘Affiliates’ and how to deal with them
- ‘Unrestricted Lenders’
Net Short Representations – when must they be provided?
Implications for Net Short Lenders

How to approach the Credit Agreement

Understanding the Borrower’s aims
Three key aspects to consider first
The interplay of the various “financial scenarios”
How to “read” the SFA – where to start
Negotiating tactics in handling the banks
- What do the lenders want – the 3 key areas
- Knowing where to focus your negotiating firepower
- How to handle the lenders when things “go wrong”

Different types of facilities – use and key issues

Review the typical facilities in the SFA
Overview of Accordion / Incremental facilities
Capex facility – what to look for
Revolving Credit Facilities
- Fee /margin structure – what’s the market for committed amounts
- Rollovers & cashless rollovers (lessons from Lehman)

Scope of the Loan

“The Restricted Group” - coverage
What is a Subsidiary
Material Subsidiaries – what material and where it matters
Immaterial subsidiaries (where & how they matter)
Non-Guarantor Restricted Subs (“NGRS”)
Unrestricted subsidiaries

The “Permitted baskets” and Cash sweeps

Traditional LMA ‘hard-capped” baskets
Grower baskets -
- Types of baskets (problems with the RCF basket)
- Basket structure
- The specified variable - what does it cover (EBITDA, Assets?)
- Debt reclassification - Key risks for lenders
Builder baskets (which deals and where are these used)
Permitted Indebtedness
- Accordion vs Incremental facilities
- MFN – key aspects
- Sunset periods
- Key negotiating issues
Permitted Disposals
- LMA approach vs Cov-lite approach
- Potential problems with fair market value and designated non-cash consideration
Permitted Security & Guarantees
- Securing additional debt - senior, junior, pari passu
- Permitted Liens and Permitted Collateral Liens - how it can dilute/subordinate lenders
Synchronising the baskets – why it matters for borrowers

Margins & fees

Arrangement & Commitment fees
“Typical” margins
Original Issue Discount (role and rationale)
Libor/Euribor Floors
Margin ratchets - which facilities should it apply to, and when should it kick in?

Part Two

Mandatory prepayments (Cash Sweeps)

Disposal proceeds / Asset sales

Standard LMA approach
Cov-lite approach

Excess Cashflow
Change of Control
Sale of all or substantially all of the assets/business
Other sweeps

Insurance proceeds
IPOs
Change of control
Acquisition proceeds

Covenants generally

Information – why they matter
General undertakings - The Guarantor Coverage test
- Percentage coverage?
- Which commands are included ('material' vs ‘non-material')
- What type of collateral must be provided?
Financial covenants
- Typical LMA covenants for Leveraged deals
- Springing leverage covenants (use and application)
- Headroom – what’s market
- Equity cures – what’s the market, what are the key negotiating points
- Deemed cures – where and why they matter
Problems (manipulating) with EBITDA (what to watch)
- How EBITDA inflates risk Credit Agreements
- Exceptional add-backs
- Business synergies
- Proforma adjustments
MAC clauses post the recent Urvascocase

Default vs. Events of Default vs Mandatory Prepayments

Overview of the key EoDs
What is a Default?
Insolvency & Insolvency proceedings (in light of Urvasco case)
Change of Control - what does it mean & what should it mean?
Which events should be Mandatory Prepayments & not EoDs

The potential impact of Covid-19 on Loan terms

MAC(Material adverse change) clause on agreement
- Can lenders invoke these?
- Carve-outs for borrowers going forward
RCFs(Revolving Credit Facility)
- Can market disruption be used to draw-stop borrowers?
- Dangers for lenders
Market disruption clauses – what to look for
Financial covenants – Does Covid-19 = an Exceptional item?
Repeating Reps
Cessation of business – is this an EoD?
Force Majeure ‘style’ clauses (not an English legal concept)

A Lender’s Toolkit (techniques for preventing subordination/dilution)

Taking and perfecting security varies across jurisdictions, this section provides an analysis of the key tools lenders should consider to maximise recovery and minimise dilution or subordination in distress:
The two cost dangerous words for Lenders
- What does “Senior” mean
- What does “Secured” mean
Key security principles – the “first-in-time first-in-line” rule
Security is important but control of security is critical
The importance of having a “single point of enforcement”
How to create a “comprehensive” security package for lenders
The Negative Pledge – the good news and the bad
Guarantees
- How they help
- Problems with guarantees
Security over the Borrower’s assets – helps but only half the story
- Problems in civil jurisdictions (e.g. Germany)
The Pledge over the Borrower’s shares (why this is essential)

Forms of security (UK)

Debentures
- What is a debenture – review cases and definitions
- What does it cover – all monies vs specific monies
- Types of security available in English law
Fixed vs floating charges - Key differences; relevant cases
- The Qualifying Floating Charge Holder (“QFCH”)
- Who is the QFCH – why and when it matters
Quasi Security
- Defined - LMA approach vs Companies Act
Registering & perfecting security
Methods of perfecting security

The loan documentation and security issues course trainer is a consultant, public speaker and author with expertise in private equity, debt advisory,debt covenants 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 its 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.

Analyse the key commercial aspects of the Senior Facility Agreement (“SFA”)
Understand the key issues which affect the various facilities in the loan including the market approach to Accordions, MFN and sunset periods
Understand the key parties in the Restricted Group and identify sources of value leakage
Learn about the key voting thresholds in club deal syndicated loan (what is a super-majority and why it matters)
Discuss the main "Permitted” baskets structured on a fixed and grower basis and identify problems created by debt reclassification
Discuss the role of the Financial Covenants - which one matter and what’s the market for large vs smaller deals
Review the various techniques in which lenders can take security and prevent dilution and/or subordination by other parties
Discuss the different types of security that will be applied in UK and civil jurisdictions in Europe and how lenders can construct a protective shield around the lender
Review the impact of Covid-19 on Loan Terms from Lenders’ & Borrower’s perspective

Case Studies: A case study will focus on the key commercial terms of the loan agreement. Aspects covered include, inter alia, the Restricted Group, information and financial covenants and general undertakings (including guarantor coverage test), fees pricing, margins and margin ratchets, cash sweeps and the "permitted" baskets. Consideration is also given to the market flex clause and its role in syndication. The case study seeks to offer perspectives from both borrowers and lenders’ perspectives.

The loan documentation and security issues course trainer is a senior consultant to Reorg Debt Explained so has insight into the trends in documentation and terms in large cov-light deals
The trainer is a Senior Consultant to Grant Thornton in Debt Advisory so understands the requirements of borrowers for small, mid-cap and large loans for both corporate and sponsored deals
The trainer has experienced debt from the perspective of lenders whereby from his experience of being on various credit committees in commercial banking
Having trained as a lawyer, he has a legal perspective in understanding the nuances of loan documentation
The varied experience of the trainer and his exposure to the market means he understands the key commercial loan agreement issues affecting both lenders and borrowers in the current market
The trainer has a global perspective on loans in different jurisdictions having presented programs or advised on debt products, to clients in Europe, Africa, North America, Asia and Australasia

This loan documentation and security issues training course covers the key commercial aspects of loan documentation. In view of the standardised approach to lending across Europe, the course is presented so that it has a pan-European relevance.

Historically, loan security documentations were based on LMA precedents however this has changed over the last few years, in mid-market and larger deals, in response to competition from the high-yield bond markets and direct lenders who now play a major role in mid-market lending. These twin pressures have given rise to the introduction of various innovations such as grower and builder (Permitted) baskets, incremental (accordion) facilities and cov-loose/lite facilities.

Security is a major issue for lenders but taking and perfecting security varies across jurisdictions. Although this loan documentation and security issues training does cover security under English law, it also provides participants with a toolkit creating a comprehensive security package for lenders to maximise value in distress and minimise dilution.

Furthermore, syndicated (and club) loans raise additional issues such as voting thresholds and transfer restrictions as well as white and blacklists.

The course had very relevant and interesting content
I liked the fact that the course was a mix of commercial and legal points.
Lots of helpful background, context and real-life examples
I started reviewing loan agreements a few months ago and I wanted to have a course in order [to] better understand the Loan Agreement. The explanations in general were great and very helpful.
I'll feel a lot more confident and comfortable while dealing with syndication documentation and handling other routine issues. The trainer educated us about the core terms and important clauses of documentation. It was a fully loaded session with so much information and practical examples.

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(min. 50 participants)