Structuring Debt Instruments - Covenants, Collateral and Subordination Issues

Fitch Learning

How long?

  • 1 day
  • online

Fitch Learning

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Full disclaimer.

Who should attend

The programme has been designed to suit professionals working in a finance-based environment, who have a need for a better understanding of how credit documentation can be effectively structured. It is assumed that participants will have a working understanding of debt products and credit analysis skills.

About the course

Since 2003, Fitch Learning’s industry experts have been delivering world-renowned virtual training programs to learners across the globe. Benefits include:

  • World-class video conferencing technology
  • Fully interactive, engage and network with peers using break out rooms, quizzes and polls
  • On-hand technical support team throughout
  • Attend from anywhere, across four time zones
  • Save time and costs on travel

Course Objectives

The aim of this one-day programme it to give participants a thorough overview of credit documentation through the lens of a variety of different debt products. Areas of focus include how the debt investor/lender might be protected with effective instrument structuring through the use of covenants, collateral and assessment of subordination.

Key Learning Outcomes:

  • Describe the critical differences between the typical credit documentation associated with loans & fixed income products
  • Explain the purpose of covenants in credit documentation and provide an overview of the 2 broad covenant groups
  • Advise whether a covenants package has been effectively structured
  • Describe the benefits and potential pitfalls in taking collateral to support borrowing
  • Illustrate the different types of subordination that arise in different lending structures & how they might be mitigated

Course Content

An Overview of Credit Documentation:

  • Understanding the importance of structuring credit documentation effectively
  • Debt products compared – bilateral & syndicated loans; investment grade & high yield bonds
  • How debt instrument structure impacts recovery
  • An overview of the 3 ports of protection for a debt investor: covenants, collateral & subordination

Understanding Covenants

  • The purpose & definition of covenants
  • Conditions precedent, Representations & Warranties
  • An overview of incurrence and maintenance covenants
    • Incurrence covenants: restrictive clauses and their key objectives
    • Pari passu: the covenants that support the status quo
  • Understanding cross acceleration and cross default
  • Maintenance covenants: an overview of the critical areas: leverage and cash flow
    • How to design effective maintenance covenants; common pitfalls & problems
  • The covenant timeline – how effective is your covenant package?
  • Investor’s rights upon breach - Events of default
  • What no covenants?! An overview of the Cov-Lite loan and the associated problems & potential life lines
  • How covenants have adapted during Covid-19

The World of Collateral

  • How collateral effects the absolute priority order in liquidation
  • Features of ‘ideal’ collateral
  • Understanding the language of collateral: from lien to pledge, from charge to mortgage – an appreciation of the subtle differences
  • The liquidity spectrum of collateral – challenging the fixed view of collateral types
  • Understanding the merits of fixed vs. floating charges
  • Hazards in taking collateral – common pitfalls, past examples
  • The role of collateral during Covid-19

Subordination

  • A definition – an overview of legal, structural and constructive subordination
  • A closer examination of constructive subordination & the payout distribution order
  • How structural subordination arises – topical examples
  • Mitigating structural subordination – best practices
  • Cashflow-based subordination – example of a typical LBO structure

Structuring Debt Instruments - Covenants, Collateral and Subordination Issues at Fitch Learning

From  GBP 995$1,402

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Full disclaimer.

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