Intercreditor (& AAL) Issues in Leveraged, Real Estate and ABL Transactions

£695.00 +VAT

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Discusses the critical legal and commercial issues in leveraged, real estate and high yield Intercreditor agreements

The Intercreditor Course Objectives:

Participants will:

  • Understand the intracacies of ranking and subordination techniques
  • Why Price vs Value matters in distress & the intercreditor – did the 2012 LMA amendments help or hurt junior lenders – (c.f. IMO Carwash and Stabilus cases)
  • Distinguishing between non-distressed disposals and distressed disposals – review the intercreditor release mechanism (q.v. European Directories case)
  • Can junior lenders ever acclerate and will it actually help them?
  • How does hedging impact the intercreditor
  • Does the ‘option to purchase’ really help junior lenders
  • Why, How and where (which jurisdictions) the turnover clauses matters
  • Get to grips with the key differences between leveraged and real estate intercreditor situations
  • Agreements Amongst Lenders (“AAL”)– use in Europe (Unitranche), key issues and interaction with the Intercreditor
  • Master the intercreditor issues in ABL structures and intercreditor issues arising from US parties / security
  • How to accommodate Asset Based Lending with other debt (Bonds, Unitranche, Loans)

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 Explained, 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.

The Intercreditor Course Content:

Introduction to Ranking and Subordination techniques

  • Summary of key terms of relevant Junior debt instruments
    • Mezzanine
    • Second Lien Loans & Notes
    • Subordinated/Unsecured Notes
    • PIK Loans & Notes
  • Methods of creating ranking/subordination
    • Taking collateral / security
    • Contractual
    • Structural
    • Temporal
    • Equitable subordination (US, Germany, Spain, France, Italy)

Relevant LMA precedents and market documentation

  • 2012 Leveraged precedent
  • SSRCF 2013 version for pari Loan Bond structures
  • The Real Estate intercreditor precedents – Structural & Contractural
  • The LMA ICA as a point of departure for negotiations
  • Agreement Amongst Lenders (“AAL”) – no standard approach!

Review of relevant deal structures

  • “Traditional” senior loan vs. mezzanine, shareholder loans
  • Legacy deals – senior, 2nd lien loans, mezzanine, shareholder loans
  • Pari-Senior Loan/Bond structures (“Loan and Note”)
  • Real Estate transactions
  • Unitranche structures / direct lending structures
  • Asset Based Lending structures

Ranking & the Waterfall / Cascade: general approach

  • Who should be a party to the ICA
  • Problems with Shareholder Loans
  • Ranking of the various “layers” of debt
    • Typical ranking
    • Position of hedge liabilities
    • Dealing with intra-Group & parent liabilities
    • Issues arising in re Loan notes, Equity substitutes, Vendor loans
      • Rationale for inclusion as parties to the Intercreditor
      • Rationale for exclusion as parties in the Intercreditor
  • Position in pari Loan / Bond structures
  • Ranking as to Payment
    • Permitted Payments on Hedge Liabilities
    • Permitted payments & restrictions on Mezzanine
    • Mezzanine Payment “Stop Notice”
    • Potential abuse and cure
    • Mezzanine Debt purchase by sponsor
  • Ranking as to Proceeds of Enforcement of Transaction Security
  • Senior Facility Liabilities – Restrictions and Permissions
  • Security and guarantees/indemnities – Senior Lenders

Enforcement of Security

  • Who can Enforce – importance of the “Instructing Group”
    • Instructing Group in Senior loan v Mezz structures
    • Instructing Group in pari Loan / Bond Structures
    • Role of the “Security Agent”
  • Timing of Enforcement standstills
    • Enforcement standstills
      • Senior loans vs. mezz
      • pari Loan / Bond structures
    • When can Mezz and other junior lenders Enforce?
  • Problem areas re Enforcement
    • Timing, manner of Enforcement
    • Role of the Security Agent in Enforcement
    • Lessons from Saltri v MD Mezzanine (Stabilus) case

Non-Distressed disposals

  • Application and scope – “Non-Distressed” defined
  • Interaction with the Senior Facilities Agreement
  • Interaction with the Mezzanine Agreement
  • Release of Security
  • Waterfall of “Disposal Proceeds”
  • Position in pari Loan / Bond structures
    • Covenants in High Yield Bonds affecting Disposals
    • Reconciling conflicts in pari Loan / Bond structures

Distressed Disposals

  • Release of Guarantees and Security
    • What can be released?
    • Circumstances in which the junior lender’s claims can be “discharged”
    • Lessons from the European Directories case
  • Valuation issues – Price vs Value
    • Lessons from IMO Carwash case – what went wrong (and how to fix it)
    • A closer look at Stabilus – is this more instructive?
    • Valuation approach – going concern vs. liquidation
    • Valuation method – problems with “traditional approaches” in distress
    • “Fair value” defined
      • Approaches per the 2012 LMA ICA
      • Potential problems with “Fair Value” (why “fair” may not be “fair”)
      • What is a “Competitive Sales Process”?
  • Solutions for Junior lenders re “Fair Value”
  • Form of consideration; cash vs. non cash consideration
  • Credit bidding
    • Is it available under the Intercreditor (2009 vs 2012)
    • The Stabilus position
    • Credit bidding in action
    • Potential pitfalls

Interaction of cross-default vs. cross-acceleration between senior & junior

  • Implications for EoD under the SFA on the Mezzanine
  • Trigger options for Mezz EoD
    • SFA EoD, Default or Acceleration
  • Limit to specific Events/covenants
    • Typical carve-outs
  • Position in pari Loan / Bond structures
    • Potential solutions

Issues with Hedging & Hedge parties

  • Definitions relevant to Hedging
    • “Close-out Netting”
    • “Senior Credit Participation”
  • Voting pre-close out – key issues
  • Post close out – inclusion in “Majority Senior Lenders”

Option to Purchase & Turnover

  • Key terms
  • How effective is this remedy: Examples in practice
    • Lessons from IMO Car Wash
    • Does Stabilus change things
  • Approach in pari-Loan/Bond structures
    • Is it workable solution?
  • Current market trends / wish-list for Mezzanine
  • Turnover per and post enforcement

Key differences between the Leveraged and Real Estate Intercreditor

  • Differences in deal structure and ramifications
  • Approach to security
  • Issues with the Security Agent
  • Dealing with Hedging
  • Acquisition of shares in the mezzanine borrower
  • Cure rights – a different approach
  • Release of security and disposals

Intercreditor issues in Asset Based Lending structures

  • Key concerns of ABL lenders
  • Key concerns of the other finance parties (high yield, unitranche, Loans)
  • Interaction with ABL Facilities (Algeco Scotsman)
  • Intercreditor issues in ABL
    • Standstills
    • Enforcement
    • Dealing with “pools” of collateral
  • Possible solutions in the European context

Issues in Agreement Amongst Lenders

  • Use and application (lessons from America?)
  • Intercreditor vs AAL
  • Issues in the AAL
  • Problems for borrowers

Inter-creditor issue re additional debt

  • Should the new debt be subject to an intercreditor
  • Issues with Secured Debt
  • Accordions vs Incremental Equivalent Debt
  • Issues with Unsecured debt
  • Documentary options – upfront ICA or deferred?

Intercreditor issues arising from US parties / security

  • Terms to include in LMA / European Intercreditor
    • Bankruptcy waiver
    • Automatic Acceleration
    • Separate security
  • EU terms to include in NY style Intercreditor
    • Release / Assignment of claims on sale or enforcement
    • Payment subordination

The Intercreditor Course Summary:

Intercreditor Agreements come to the fore in distress and restructurings. In essence their aim to provide lenders with the tools to implement an orderly restructuring by mimicking some (but not all) of the features available under Chapter 11. In particular, ranking/priority available under the “Absolute Priority rule (recently reaffirmed in the Jevic case), enforcement standstills (especially junior lenders), payment stop notices, turnover process and the ability to sell assets free of collateral (the so-called “intercreditor release mechanism which featured in the European Directories case).

The Intercreditor course reviews the key aspects of typical Intercreditor agreements, especially the various LMA precedents for leverage loans, pari-loan/bond deals and real estate transactions. However, as the LMA acknowledges, their precedents are simply a point of departure so the programme also reviews other approaches found in the market. Moreover the LMA does not yet boast a precedents for transactions which include ABL or Unitranche deals (although the latter is in the works at present). Dovetailing ABL with other forms of debt has proved problematical outside the EU so the course calls on the presenter’s expertise to consider some solutions to this issue.

This Intercreditor course will provide participants with an understanding of the role of the key intercreditor and how these tools are used in practice. The Intercreditor course also covers related aspects of topical issue of value and price which was central in both the IMO Carwash and the Stabilus cases. The role and importance of the Facility And Security Agents is also considered.

 

What Redcliffe’s clients are saying about the Intercreditor training course;

“A very energetic trainer who provided references to key deals & cases”

“The course was divided up well & had continuous themes that made it interesting throughout”

“Very well delivered; I never felt sleepy at all unlike other courses I have attended. A good use of live deals”

“Excellent examples used, particularly the case studies. Very well presented. Super engaging! ”

“Good discussion around recent case and commercial market positions”

“Extremely informative!”

“Really strong on current market practice and getting us to think about solutions to potential Issues (e.g. ABL)”

“Excellent overview of a number of ICA principles as applied to different types of finance. Very good use of real world examples”

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5/5 (1 Review)
Select-your-course-date

18 June 2018, 1 October 2018, 30 November 2018