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Loan Documentation & Security Issues

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

Loan Documentation & Security Issues Training Course

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

  • The 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 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

  • Analyse the key commercial aspects of the Senior Facility Agreement (“SFA”)
  • Understand the key issues which affect the various facilities in the loan including 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 syndicated & club deals (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 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 it role in syndication. The case study seeks to offer perspectives from both borrowers and lender’s perspective.

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 (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 lesson 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 to 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 facilities – what to look for
  • Revolving Credit Facilities
    • Fee /margin structure – what’s 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
  • Mandatory Prepayments (Cash sweeps) - key areas
    • Excess cash flow
    • Disposal proceeds
    • Other sweeps 

Margins & fees

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

Part Two

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 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 Urvasco case 

Default vs. Events of Default vs Mandatory Prepayments

  • Overview 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 clauses
    • Can lenders invoke these?
    • Carve-outs for borrowers going forward
  • RCFs
    • Can market disruption 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 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.

This 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 documentation was 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 the programme 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
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£695.00

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