Leveraged Loans in Private Equity and Corporate Transactions

£695.00 +VAT

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This course can also be presented face to face in-house or via live in-house webinar.

Leveraged Loans Course Objectives:

Participants will:

  • Get an overview of the market trends affecting corporates and PE borrowers
  • Gain an appreciation of the important aspects of debt service
  • Learn about mandatory prepayments (cash sweeps & disposal proceeds)
  • Be appraised of the key negotiating strategies from the borrower’s viewpoint
  • Get to grips with specific issues for revolving credit facilities
  • Be taught about the importance of covenants and undertakings
  • Master the issues financial covenants and equity cures
  • Gain a strong appreciation of baskets in the loan market, their use and relevance

Leveraged Loans Course Content:

Overview of the market trends affecting corporates and PE borrowers

  • Bifurcation of the leverage loan market
  • Trends larger syndicated deals
  • Trends in club loans
  • Influence of high yield bond market trends
  • Impact of New York style documentation
  • Corporates vs PE – what’s the difference

Key negotiating strategies – the Borrower’s view

  • Criteria for selecting the most appropriate lender – Banks vs Direct lenders
  • Key differences in approach between banks and direct lenders
  • Pros and cons of Banks vs Direct lenders
  • Some banks (and branches) are different
  • Can direct lending applicable for corporate borrowers?
  • Strategies for negotiating the key commercial terms
  • How to approach the term sheet
    • Hard or soft terms?
    • Focus on everything or only a few “critical” issues
  • Do debt advisors offer value for money – Getting the best from your advisors
  • What about the fees
  • A Checklist for borrowers

The Lender’s perspective

  • Beware Commitment letters – reflections post Novus Aviation
  • The role of the information covenants – do they really matter
  • If financial covenants don’t matter, what does?
  • What to focus on in the collateral package
  • Problems with non-guarantor restricted subsidiaries

Scope of the Loan

  • Concept and composition of the “Covenant (Restricted) Group”
  • Matters affecting Material subsidiaries
  • Matters affecting Immaterial subsidiaries
  • Dormant subsidiaries – why they matter
  • Issues re Joint Ventures & Equity

Changes to the Lenders

  • Transferring a loan – methods, pros and cons
    • Novation
    • Assignment – legal and equitable
    • Sub-participation
  • Ability to transfer – Consent vs Consultation
    • Trends in the leveraged market
    • Why transferability is important for lenders
    • Potential problems for borrowers
  • Restrictions on Transferability
  • White / approved lists vs disqualified lenders

Voting thresholds

  • Key voting thresholds & why they matter
  • Different problems for PE and corporate lenders
  • Different approaches in syndicated vs club loans
    • Majority lenders
    • Unanimous consent
    • Super-Majority lenders – “typical” scope & thresholds
  • Potential pitfalls for lenders
  • Impact of Yank the Bank
  • Role of Snooze & Lose
  • Treatment of Hedge counter-parties

A word about baskets – how and why they matter

  • Role and application of baskets in the loan market
  • Types of baskets, structure use and application
    • Grower baskets
    • Builder baskets
    • Scalable baskets
  • Reclassification and splitting between baskets

“Permitted” definitions – how & why they matter

  • Role and relevance of the “Permitted” definitions
  • Synchronising the “Permitted” baskets
  • Permitted Acquisitions
    • Typical carve-outs- hard vs soft baskets
    • Additional restrictions
  • Permitted Financial Indebtedness / Security / Guarantees
    • Scope – Financial Indebtedness defined (typical exclusions)
    • Incremental debt- scope and coverage
    • Accordion facilities
      • Typical terms & conditions
      • Pricing – MFN & sunset periods – what’s market
    • General & other debt-related baskets
  • Permitted Payments – typical carve-outs
    • What payments are permitted
    • Basket carve outs – amounts, caps, carry forward/back
    • Subordinated debt, equity & equity substitutes
    • Management/monitoring fees
  • Permitted Disposals
    • Scope & typical conditions

Debt Service

  • Differences between banks and direct lenders to amortisation
  • Interest and default interest periods
  • Libor/Euribor floors
  • Original issue discount (OID) – use in the deal, market trends
  • Margin and margin ratchets
  • Increased costs & gross up clauses

Specific issues for Revolving Credit Facilities (“RCFs”)

  • Clean-downs re RCFs
  • Cashless rollovers – why they matter
  • Problems with Headroom

Mandatory prepayments (Cash sweeps)

  • Excess Cashflow defined
  • Excess Cashflow – typical deductions
  • De minimis basket
  • Cash sweep – step downs (PE vs Corporate)
  • Use and Application of Retained Excess Cash flow

Mandatory prepayments (Disposal proceeds)

  • What is a “Disposal”
  • Baskets to sale proceeds
  • Annual – individual deal amount
  • Annual basket carve-out
  • Excluded Disposal proceeds / Reinvested amounts

Other mandatory prepayments – overview

  • Acquisition Proceeds – overview
    • What are “Acquisition Proceeds”
    • Excluded Acquisition proceeds
  • Insurance Proceeds
    • Excluded Insurance Proceeds
    • Basket – annual or per deal
    • Retention periods
  • Listing Proceeds & change of control

Covenants & Undertakings generally

  • Covenants generally – three categories
  • Information covenants
    • Why and how they matters
    • Issues for lenders issues for borrowers
    • LMA v Market approach
  • General undertakings
    • Guarantor coverage – scope and issues for borrowers
    • Core carve-outs for sponsors
    • Carve-outs for corporate borrowers

Financial covenants and Equity cures

  • The main covenants per the LMA & market
    • Cash flow cover
    • Leverage
    • Interest cover
    • Capex limits
    • EBITDA limits (not LMA)
    • Springing covenants – use, application and triggers
    • Other matters – starting headroom
  • Market trends
    • Number of covenants
    • Headroom
  • Equity cures
    • What do they apply to EBITDA, leverage, cash flow?
    • Terms – How many, consecutive, over-cures, application of the funds
    • Cures in practice
  • Covenant Suspension/ Loosening
    • Use and application
    • Typical triggers
    • Scope of covenants affected

Default and Events of Default

  • Default vs Event of Default
  • What are the key EoDs
  • Grace periods
  • Borrower-friendly exclusions
  • What about cross-default
  • MAC / MAE clause
    • Do they still matter posy recent cases?
    • Different formulations – LMA vs market (what is reasonable)
  • Problems with “Sanctions” clauses
    • How to mitigate conflict between U.S. and EU regulations

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.

Leveraged Loans Course Summary:

This Leveraged Loans course focuses on club and syndicated leveraged loans provided to both corporate and PE borrowers (i.e. typically this covers loans > 2.0x Debt/EBITDA for most sectors).  Loan markets have experienced significant changes over the last few years on a number of fronts; first, larger, syndicated and club deals have seen the importation of terms from the bond markets (e.g. grower baskets and cov-lite, cov-loose packages). Many of these larger deals have also imported N.Y. style language, which is more familiar to U.S. borrowers and lenders.   At the same time direct/alternative lending had made significant inroads into the lending market bringing with them a more eclectic approach to lending (e.g. an preference for bullet, as opposed to amortising facilities).

Whilst there are subtle differences between the objectives of corporate and PE borrowers, both share a common objective of seeking to obtain the optimum terms, pricing and flexibility which will allow them to execute their strategic objectives.  Clearly the larger deals, where borrowers have the option of accessing the high yield bond market, offer borrowers greater flexibility however smaller facilities have also benefitted from stiff competition from direct lenders (which reaches well below that threshold – in some cases 15 million) which has forced banks and other lenders to offer borrowers better terms and pricing (e.g. grower baskets have been seen in facilities below 30 million).

The topics aim to provide participants with an understanding of the trends and key issues affecting loan facilities in both club deals syndicated deals and also provides borrowers and lenders with a template of how to approach the negotiations. The Leveraged Loans course is aimed at borrowers and lenders as well as lawyers, accountants, debt and corporate advisory and other professionals involved in these transactions.

Whilst there are subtle differences between objectives of corporate borrowers on the one hand and PE borrowers on the other; there is a high degree of overlap across.

What Redcliffe’s clients are saying about the course:

 

“Very practical and very current information”

Director, Barclays

Image result for barclays

 

“Detailed information and the term sheet exercise was useful.”

Vice President, Santander

“Great overview of both larger leverage transactions. The trainer had fantastic practical experience.”

Associate, A&L Goodbody

 

 

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04 October 2018, 26 February 2019, 17 September 2019