European Term Loan “B”

£695.00 +VAT

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Negotiating and analysing the key commercial terms and trends in non-LMA style syndicated TLBs, large club TLBs and unitranche loans

European Term Loan “B” Course Objectives:

Participants will:

  • Be introduced to the key concepts including the different variations of European Term Loan “B”
  • Get an overview of baskets, and the use and application of them.
  • Have explained to them voting thresholds, amendments and waivers
  • Master yield, margins, ratchets, call protection and hedging
  • Gain an understanding of the permitted acquisitions & investments and the permitted asset sales
  • Learn about debt incurrence including the structure of incremental debt basket and types of debt basket     
  • Be appraised of MFN & Sunset provisions that relate to incremental facilities
  • Be taught about restricted payments (distributions), including about the investor payments leverage basket
  • Have an overview on sponsor fees & sub-debt payments
  • Understand negative pledge, permitted liens / security
  • Be taught about mandatory prepayments (cash sweeps)
  • Get to grips with financial maintenance covenants and covenant suspension

This course can be presented in-house via live webinar.

Background of the trainer:

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.

European Term Loan “B” Course Content:

Key concepts

  • Different variations of European Term Loan “B”
    • English law Term Loan “B”
    • New York law Term Loan “B”
    • European “high-yield” style Term Loan “B”
  • The Restricted Group
    • Inclusions and exclusions
    • Approach used in high yield bonds & why it matters
    • Re-designation of subsidiaries to and from the Restricted Group
    • Typical requirements
  • Material subsidiaries
    • What constitutes at material subsidiary – market approach to the threshold %
    • The various tests: EBITDA and other approaches
    • Relevance and application in the SFA
    • Date and manner of determination- Certificate (LMA vs market approach)
  • Information and financial reporting
  • Term Loan “B” vs LMA approach
    • Treatment of unrestricted group
    • Presentations
    • Access rights

A word about baskets

  • Use and application
  • Key variables and their ramifications
    • Lender vs Borrower friendly
  • Fixed baskets
    • Life time vs annual limit
    • Carry forward and back
  • Grower
    • Application
    • Key variables
  • Application
    • Key variables
    • Scalable
  • Builder
    • Application
    • Key variables
  • Are baskets refillable, can amounts be split, restrictions

Case: review of use and application of different types of baskets

Voting thresholds, Amendments & Waivers

  • LMA / EUK thresholds vs NY style thresholds
  • Majority lenders
  • Super-majority
    • Thresholds
    • Typical matters
  • Entrenched rights
    • “Unanimous” consent? – Typical matters
  • Facility change / Structural adjustments (or equivalent)
    • Approval Requirements
    • Major vs minor vs payables
    • Matters affected
  • Snooze you lose – timing
  • Yank the bank
    • Required consent threshold
    • Non-consenting trigger
    • Can non-consenting lenders be prepaid or bought at par
    • Required ource of funds
  • Debt buy-backs
    • Permitted
    • Cap on amount
    • Disenfranchisement

Yield / Margins, Ratchets & Call protection & Hedging

  • Trends in LIBOR/Euribor floors
    • Differences in NY law vs English law
    • Matters affecting the Floor
  • OID – market trends
  • Margin ratchets
    • Incidence – Application to facilities & step downs
  • Commitments fees on RCFs etc
  • Call protection
    • Application & Scope – Repricing Events
    • Specific carve-outs (Specifc Asset Sales or Significant Acquisitions, CoC, IPO, EBITDA increase, other)
    • Basis of calculation of the Call protection (effective yield)
  • Hedging required

 Permitted Acquisitions & Investments

  • Structure of ‘Permitted” acquisitions
  • Permitted Acquisitions – LMA vs Term Loan “B” approach
  • Ability to acquire Majority interests & applicable requirements/ conditions
    • Type and structure of basket lifetime or annual limit
    • Typical tests & thresholds
    • Similar or complemetary business
    • Leverage test applicable to Target
    • Due diligence requirement – Third party / Independent certification
    • Other restrictions (jurisdiction)
  • Treatment of pro-forma synergies
    • Can management add synergies to the test
    • What synergies qualify, time limits?
  • Limits on non-guarantor entities
  • Must target accede to the collateral package
  • Ability to acquire minority stakes
    • Applicable requirements/ conditions

Permitted Asset Sales

  • Requirements for assets sales
  • Threshold amount
  • Nature of the consideration received
  • Other requirements
  • Fair market value – certificates?
  • Payment waterfall & de minimis amounts

Debt incurrence

  • Incremental / additional debt generally
    • “Accordion–style” facilities
    • Permitted Alternative debt
  • Structure of incremental debt basket
    • Ratio debt vs hard vs soft caps
    • Grower cap
    • Ratio & hard cap
    • Hard and grower caps
    • High Yield Bond style
  • Accordion facilities
    • Terms and conditions
  • Intercreditor accession
  • Types of debt baskets
    • Free and clear baskets
    • General basket
    • Acquired debt basket
    • Acquisition debt basket
    • Contribution debt basket

 Case: review of use and application of different approaches to incremental (and accordion) debt

 MFN & Sunset provisions that relate to Incremental Facilities

  • MFN provisions – scope
    • Incidence in deals
    • Scope – application to specific facilities
    • Method – margin cap vs all-in-yield cap
    • Other requirements and exclusions
    • Structuring the yield cap to avoid being gamed by borrowers
    • Issues for lenders
  • Sunset provisions
    • Incidence
    • Duration
    • Effective date?
    • Differences in NY law vs English law

 Case: review of approach to MFNs and sunset provisions

 Restricted payments (Distributions)

  • Permitted / Restricted Payments General Basket(s)
    • Hard vs soft caps
    • “Source of funds” condition
    • “Builder basket” approach
  • Investor Payments Leverage Basket
    • Typical range
  • Available Amount (“AA”) / Cumulative Credit (“CC”) – Leverage compliance test
  • Investor payments – Leverage Basket Funding Sources (other than AA/CC)
  • Other conditions for Investor Payments Leverage Basket (other than AA/CC)

Sponsor fees & Sub-debt payments

  • Types of fees and their caps
    • Holding Co / Admin fees
    • Sponsor / Monitoring fees
    • Advisory fees
    • Other material fees
    • Parent Debt Servicing / Fees/ Expenses
  • Aggregate of hard capped equity and sub debt related payments
    • Equity repurchases
    • Employee benefits

Negative Pledge, Permitted liens / security

  • Can incremental debt be secured & if so what assets are available
    • Existng collateral
    • No colateral assets
    • Non-Guarantor Restricted Subsidiaries
    • Restrictions on securing incremental debt
  • Availability of general and other baskets
  • Hard vs soft “grower” permitted lien baskets
  • Intrecrediotr accession

 Mandatory prepayments (Cash sweeps)

  • Excess cash
    • Opening percentage
    • Step down
    • Step down mechanism – linear or stepped
  • IPO
    • Applicable repayment percentage
  • [Available amount vs Cumulative Credit basket]
  • The five main basket combinations
  • CNI and “out of the box” amount
  • Build up basket start date – when does this start?
  • Ratio test
    • Leverage
    • FCCR
    • Other
  • Change of control
    • Is this treated as an EoD or mandatory prepayment
    • Six approaches – automatic exit, Lender has option etc

Transferability & Portability

  • Transferability
    • Whitelists
    • Approved lenders
    • Blacklist / Disqualified Institutions List present
    • Specific affected parties
      • Industry competitors
      • Loan to own investors
    • Consent, Demmed consent & “Resonablnesss requirement
    • Consultation
    • Carve-outs
    • Minimum transfer & hold sizes – interaction with Related/ Exisiting lenders
  • Matters affceting the RCF
  • Portability
    • Ratings test
    • Ratio – Leverage or Enterprise value ratio
  • Timing periods/limits & Frequency
  • Additional requirements

Financial maintenance covenants & covenant suspension

  • Financial covenant package type
  • Review of current market approach: Traditional vs Cov-lose vs Cov-lite
  • “Springing” leverage covenants
    • What are they
    • Typical terms
  • Aggressive add-backs to EBITDA
    • Synergies and other add-backs
    • Por-forma ajustments – Scope
    • Additional requirements and time limits
  • Equity cures
    • Current market approach – what can be cured; how often, over-cures?
    • Deemed cures – what are they and are they widely used
  • Deal outliers
    • Introduction of minimum EBITDA covenant
    • Maintenance covenants tested at greater intervals
  • Covenant suspension
    • Trigger
    • Availability and scope

 Case: review of Equity cures

 Guarantor coverage

  • Incidence of guarantor coverage
  • GCT percentage (where present)
  • Exclusion of Material subsidiaries & materiality threshold
  • Other market exclusions

 Events of Default

  • LMA EoDs and typical market exclusions
  • Clean-up period
  • Cross-default or cross-acceleration
  • Right to accelerate
  • Grace periods
    • Non-payment
    • Other obligations
    • Commencement of grace period
  • MAC
    • Review of market variations

Course Summary:

The European leveraged loan market saw issuance rise to €135 billion (an 85% increase vs the corresponding prior period) significantly outpacing high yield bond issuance of €86.8 billion. This trend is expected to gather pace in 2017 as issuers, particularly PE sponsors, appear set to prefer loans over bonds for a number of reasons. First, loans are currently enjoying lower spreads (E+350 + 0% Floor) than bonds (c. 6.6% all in); second, loans offer greater flexibility to sponsors in terms of the ability to both refinance (q.v. Flint Group, Cooper, B&B Hotels) and reprice existing facilities (q.v. Douglas €1.37 Term Loan “B”) whilst offering sponsors enhanced flexibility (and lower cost) in terms of their exit options.

Most, if not all, of the syndicated loans and many of the larger club deals (e.g. Independent Vetcare’s £180m Term Loan “B”) bear little resemblance to the traditional LMA precedents and include many features imported from high yield bonds or New York-style credit agreements (e.g. grower and builder baskets which apply inter alia to; debt incurrence, liens/collateral, restricted payments). The high yield bond and leveraged loan markets have been converging for some years (indeed the trend in Europe stared before the credit crisis with the arrival of the first cov-lite deals) but this convergence accelerated in 2016 in the face of the continuing benign conditions in credit markets caused by an imbalance of demand and supply and magnified by QE as well as the preference for increasingly influential U.S. lenders and sponsors for (more familiar) U.S. style documentation.  

Whilst these Term Loan “B”s share many common features there are significant and subtle variations between them such that European Term Loan “B” market has fragmented into four different “styles”; first, English law cov-lite Term Loan “B” (typically for larger and better credits); secondly, English law covenanted Term Loan “B”s (typically or smaller or less attractive credits); thirdly, New York cov-lite Term Loan “B” and finally, High Yield style Senior Secured Term Loan “B”s generally used for very large transactions.  The course will refer to current trends in the market by referring to the DebtXplained Loan Database which tracks the key terms in these Term Loan “B”s; including restrictions on transferability, MFN and sunset periods, equity cures.

The programme will appeal to practitioners involved in larger leveraged loan market such as lawyers, bankers in lending, PE professionals, corporate financiers, M&A advisors, debt advisors and restructuring. Investors in larger loans and direct lending will also benefit from an understanding of these topics since some of these features have begun to appear in much smaller deals (e.g. grower baskets in deals sub €50m).

What Redcliffe’s clients are saying about the course

“A lot of knowledge & practical exercise ”

“Covered the key points of TLB documentation”

“Very up to date with current market terms”

 

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26 September 2018