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Who should attend
Case studies and exercises are drawn from a range of industries and regions and will focus on sub-investment grade companies. One of the case studies will cover a highly leveraged financing solution of a corporate acquisition sponsored by a private equity investor.
About the course
This two-day course is designed to provide participants with the framework to identify appropriate candidates for leverage and the skills to structure a leveraged or sponsored finance transaction. This is a highly interactive and practical course where participants will be able to apply the principles learnt to case studies and exercises.
Key Learning Outcomes:
- Apply analytic tools to identify suitable candidates for leverage and use forecasts of the key cash flow drivers to determine an appropriate debt quantum and the relationship between amortizing and non-amortizing debt
- Structure transactions combining different debt instruments used in leveraged finance
- Understand the key elements of an inter-creditor agreement and how the inter-relationships of the debt providers are governed
- Appreciate the importance of safeguards to enable early intervention in deteriorating credits and the correlation between early intervention and ultimate recovery rates in distressed credits.
Features of Leveraged Finance and Buy-Outs
- Market trends: leveraged debt market, leverage multiples, capital structures and parties
- Distinction between ‘ordinary’ leveraged finance, primary buyouts, secondary buyouts etc
- Sources of demand and supply for leveraged transactions
- Current market condition; default and recovery rates
- Key parties to a leveraged transaction and their motivations and how this impacts transaction structures
- Features of equity fund sponsored acquisitions:
- Rationale behind leveraged buy outs
- Acquisition price and valuation methods: multiples and DCF
- Private equity investment horizon and exit strategies
- Dividend recapitalizations and debt buy backs
- Application of analytical tools to determine what kind of company makes a suitable candidate for high leverage
- Illustration case study: assess a company’s suitability for leverage
- Repayment sources and structures of different classes of debt
An overview of corporate funding strategy and on the key characteristics and features of the main funding instruments used in leveraged transactions
- Corporate funding strategy and its impact on choices for company capital structure and funding instruments
- Shareholder considerations and measuring return on equity in leveraged finance
- Overview of the structural features, required market conditions and pricing of LBO instruments and how these are changing
- Senior bank and DCM products used in leveraged transactions: alphabet loans, revolvers, working capital, bridge finance, acquisition, restructuring and capital expenditure lines
- Intermediate capital and hybrid products: high yield bonds, warranted and warrantless mezzanine, second lien, vendor notes, PIK Hold Co notes
- Equity: types of equity and their impact on debt providers
- Application: worked examples relating to several funding products
- Forecasting company cash flow with a view to assessing sustainable leverage
- Set cash flow assumptions, sensitize forecasts and benchmarking against sector peers using a prepared forecast excel model
- Illustration case study: check case study assumptions and run sensitivity analysis
Structuring Leveraged Transactions
Participants will learn how to structure leveraged transactions including identifying the appropriate amount of debt, using different debt instruments and understanding characteristics and relationships of the various debt instruments.
Capital structures in Leveraged Finance
- The use of cash-flow forecasts to determine debt capacity
- Balance amortizing and non-amortizing debt structures
- Quantifying and pricing acceptable levels of refinancing risk
- How exit strategies (trade sales, IPOs, secondary and tertiary buyouts and recapitalizations) influence capital structures
- The impact of funding structures on issuer default and recovery ratings
- Recycled credits (refinancing and secondary/tertiary buyouts)
- Structuring debt: amount, currency, tenor, drawdown and amortization profile
- Impact of the institutional investor
- Capital expenditure, acquisitions, working capital
- Use of securitizations, sale and leaseback, borrowing base facilities to maximize debt quantum
- Borrowing base structures - asset quality and assigning ‘haircuts’ to determine loan amounts
- Bridge facilities: risks associated with repayment sources
- Combining bank debt with intermediate capital
- Illustration case study: structuring a buyout
- Define ranking: contractual (legal), structural and constructive subordination
- Super senior, First, Second Lien and unsecured tranches
- Key terms of an inter-creditor agreement and their impact on senior and junior creditors
- Exercise: structural subordination/bond structures
- Senior bank debt covenant packages: ‘Standard’ terms and conditions, establishing headroom
- The rise and fall of ‘covenant lite’: the need for warning signals and the impact on lenders of different control mechanisms
- The terms and conditions of subordinated debt
- Cross default and cross acceleration
- Stress testing to ensure appropriate levels of attainment and trigger covenants
- Exercise: set appropriate financial covenants
- Pricing conventions in the leveraged market: fees, cash and deferred margins, warrants etc.
- Risk~return profiles
- Exploit value in the capital structure
Application to illustration case study: set appropriate package of terms and conditions
Final Case Study
The final case study will be undertaken in small groups. Participants will be expected to apply key points from the course to appraise and structure a leveraged (re)financing
Videos and materials
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We are happy to help you find a suitable online alternative.