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  • 05/04/10 12:46
  • 05/04/10 12:46

    1. 1. Introduction to the Bank Debt Portfolio Group Presentation to January 13, 2006
    2. 2. Agenda <ul><li>Introduction </li></ul><ul><li>Introduction to the Bank Loan Market </li></ul><ul><li>The GS Bank Loan Franchise </li></ul><ul><li>Q&A </li></ul>
    3. 3. I. Introduction
    4. 4. What is the Bank Debt Portfolio Group (BDPG)? A joint venture between…
    5. 5. II. Introduction to the Bank Loan Market
    6. 6. Bank Loan Market Overview <ul><ul><li>Goldman Sachs (GS) is a major participant in the bank loan market </li></ul></ul><ul><ul><ul><li>GS originates both investment grade and non-investment grade bank debt </li></ul></ul></ul><ul><ul><ul><li>The non-investment grade market for bank debt is called the Leveraged Loan Market </li></ul></ul></ul><ul><ul><ul><li>GS originates leveraged loans for leveraged buy-out (LBO) and merger transactions, as well as for corporate borrowers </li></ul></ul></ul><ul><ul><li>Leveraged loans are typically senior secured obligations of the borrower </li></ul></ul><ul><ul><ul><li>GS syndicates leveraged loans to institutional investors such as loan funds (prime rate funds and CLO’s) and hedge funds </li></ul></ul></ul><ul><ul><ul><li>GS actively trades bank debt in the secondary market </li></ul></ul></ul><ul><ul><ul><li>Par loans are loans that trade at or around 100 cents on the dollar; stressed and distressed loans trade at discounts to par (i.e., 70%) </li></ul></ul></ul>
    7. 7. U.S. Syndicated Loan Market Source: LPC Source: LPC and Bloomberg
    8. 8. Leveraged Bank Loan Market Larger than U.S. Equity Market $534bn Leveraged Loan Market Source: GS Debt and Equity Capital Markets, Loan Pricing Corporation and Bloomberg (1) U.S. new equity issuance $145bn U.S. Equity New Issue Market 1 $684bn Investment Grade Loan Market
    9. 9. Structural Considerations (1) 2 nd lien loans have a second priority interest in pledged collateral; high yield bonds are usually unsecured and/or subordinated. Liabilities 40 - 60% 20 - 30% 20 - 30% Sr. Secured Loans (1 st Lien) 2 nd Lien/ High Yield (1) Equity <ul><ul><li>Current Assets </li></ul></ul><ul><ul><ul><li>Cash </li></ul></ul></ul><ul><ul><ul><li>Accounts Receivable </li></ul></ul></ul><ul><ul><ul><li>Inventory </li></ul></ul></ul><ul><ul><li>Property </li></ul></ul><ul><ul><li>Plant </li></ul></ul><ul><ul><li>Equipment </li></ul></ul><ul><ul><li>Intangibles </li></ul></ul><ul><ul><li>Subsidiary Stock </li></ul></ul>Assets <ul><ul><li>Loans are the most senior debt in the typical leveraged capital structure </li></ul></ul>% of Total Capitalization Pledged to:
    10. 10. U.S. Leveraged Loan Investors Domestic Banks 32.8% Asian Banks 14.1% Canadian Banks 4.7% Insurance Cos. 6.2% European Banks 19.1% Loan & Hybrid Funds 16.4% Finance Cos. 3.4% Leasing Cos. 1.7% Securities Firms 1.4% Thrifts 0.3% Banks 24% Non-Banks 76% Source: S&P Leveraged Lending Review Domestic Banks 14.4% Insurance Cos. 4.6% European Banks 6.5% CLOs & Prime, Hedge & High-Yield Funds 62.0% Finance Cos. 9.2% Canadian Banks 1.6% Asian Banks 1.1% Securities Firms 0.6% Banks 71% Non-Banks 29% 1995 2004
    11. 11. The Power of Leverage Simple Mortgage Example <ul><li>Use little equity and borrow funds (leverage) to buy asset </li></ul><ul><li>Pay down debt over time </li></ul><ul><li>All excess returns accrue to the equity </li></ul>Today 5 years later $100 $100 IRR = 25% Debt $75 Equity $25 Debt $25 Equity $75
    12. 12. Turbo-Charge the Returns Value Added by the Equity Owners Align the Interests of Owners and Managers + Improve the Asset = Bigger House $200 Today 5 years later $100 IRR = 43% Debt $50 Equity $150 Debt $75 Equity $25
    13. 13. III. The GS Bank Loan Franchise
    14. 14. The GS Bank Loan Franchise <ul><ul><li>Advise clients on strategic and financing alternatives </li></ul></ul><ul><ul><li>Originate financing transactions </li></ul></ul><ul><ul><li>Structure transactions (with Capital Markets) </li></ul></ul><ul><ul><li>Negotiate and execute transactions (with BDPG) </li></ul></ul><ul><ul><li>Monitor market trends and comparable new issues </li></ul></ul><ul><ul><li>Determine likely price for loans </li></ul></ul><ul><ul><li>Identify potential investors </li></ul></ul><ul><ul><li>Market deal </li></ul></ul><ul><ul><li>Execution/Closing </li></ul></ul><ul><ul><li>Market primary new issue to investors </li></ul></ul><ul><ul><li>Ongoing sales and “marketing” for secondary market </li></ul></ul><ul><ul><li>Proprietary trading </li></ul></ul><ul><ul><li>Borrower, Sponsor and Investor Relations </li></ul></ul><ul><ul><li>Manage credit exposure and track operating performance </li></ul></ul><ul><ul><li>Manage workouts </li></ul></ul><ul><ul><li>Update sales and trading desk on company events </li></ul></ul><ul><ul><li>Assist in negotiation and execution of loans </li></ul></ul><ul><ul><li>Execute amendments, waivers, additional financings </li></ul></ul>Primary Market Secondary Market Senior Bank Debt Operations Risk Mgmt/Client Service Bank Debt Portfolio Group Sales and Trading Leveraged Finance Capital Markets Origination Marketing / Syndication Trading
    15. 15. BDPG Functionality Bank Debt Portfolio Group (BDPG)
    16. 16. BDPG’s Principal Constituents BDPG Investors Legal Counsel Other Advisors Credit Legal Operations Other IBD Leveraged Finance Bank Debt Cap. Mkts. Bank Debt Sales & Trading Borrowers Sponsors
    17. 17. BDPG Analyst Responsibilities <ul><ul><li>Monitor portfolio credits </li></ul></ul><ul><ul><ul><li>Prepare in-depth analyses on companies in the portfolio </li></ul></ul></ul><ul><ul><ul><li>Review company performance and quarterly covenant compliance </li></ul></ul></ul><ul><ul><ul><li>Confer with management/sponsor </li></ul></ul></ul><ul><ul><li>Post internal and external clients on borrower performance/developments </li></ul></ul><ul><ul><ul><li>Post bank loan sales & trading desk on developments with portfolio credits via e-mail and morning sales meetings </li></ul></ul></ul><ul><ul><ul><li>Coordinate and dialogue with bank loan investors about company performance and amendment requests </li></ul></ul></ul><ul><ul><ul><li>Write periodic credit updates for discussions with capital markets/sales & trading, credit and leveraged finance </li></ul></ul></ul><ul><ul><ul><li>Organize and participate in meetings and calls with bank loan investors </li></ul></ul></ul><ul><ul><li>Support other client service initiatives with portfolio companies, including ratings advisory, refinancing, and other matters </li></ul></ul>
    18. 18. BDPG Analyst Responsibilities, cont.’d <ul><ul><li>Help to structure and execute amendments/waivers (including refinancings and add-on financings) for portfolio credits </li></ul></ul><ul><ul><ul><li>Coordinate with external constituents (borrowers, sponsors and investors) and internal parties (capital markets, sales & trading and credit) in connection with structuring and executing amendments and refinancings </li></ul></ul></ul><ul><ul><ul><li>Participate and assist with new loan origination and execution </li></ul></ul></ul><ul><ul><ul><li>Coordinate with counsel on preparation of documentation </li></ul></ul></ul>
    19. 19. Bank Loan Execution Group <ul><ul><li>The Bank Loan Execution Group (“BLE”) was initially established to help support, streamline and improve Goldman’s loan negotiation and marketing process </li></ul></ul><ul><ul><li>BLE has two elements: </li></ul></ul><ul><ul><ul><li>Bank Loan Negotiation Team: Works with borrowers, investors and co-arrangers to draft and negotiate commitment papers, credit agreements and associated items </li></ul></ul></ul><ul><ul><ul><li>Bank Loan Transaction Team: Works with clients, advisors and sponsors to build rating agency presentations, bank offering circulars, investor slides and internal sales memos </li></ul></ul></ul><ul><ul><li>BLE’s mission has been expanded to coordinate bank loan execution efforts throughout the financing process: </li></ul></ul><ul><ul><ul><li>Build and communicate investment rationale to the market </li></ul></ul></ul><ul><ul><ul><li>Responsible for the marketing materials for new financings </li></ul></ul></ul><ul><ul><ul><li>Serve as a common point of contact for issuers and investors </li></ul></ul></ul><ul><ul><ul><li>Coordinate the efforts of capital markets, leveraged finance, credit and legal </li></ul></ul></ul>
    20. 20. BDPG: A Unique Opportunity <ul><ul><li>Great learning opportunity </li></ul></ul><ul><ul><ul><li>Exposure to leveraged loans, LBO’s, and primary and secondary sales and trading </li></ul></ul></ul><ul><ul><ul><li>Opportunity to work directly with a variety of clients </li></ul></ul></ul><ul><ul><ul><ul><li>External clients: financial sponsors, hedge funds, loan funds, well-recognized companies </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Internal clients: industry investment banking teams, leveraged finance, sales and trading, capital markets, credit risk management & advisory, PIA / merchant banking </li></ul></ul></ul></ul><ul><ul><li>Small team </li></ul></ul><ul><ul><ul><li>Flat organizational structure: work directly with senior people </li></ul></ul></ul><ul><ul><ul><li>Exposure to numerous industries </li></ul></ul></ul><ul><ul><li>Broad range of experiences </li></ul></ul><ul><ul><ul><li>Build fundamental credit and analytical skills </li></ul></ul></ul><ul><ul><ul><li>Coordinate disclosure between management teams, sponsors and investors </li></ul></ul></ul><ul><ul><ul><li>Model different capital structures for a company </li></ul></ul></ul><ul><ul><ul><li>Develop a view on what drives a company or an industry </li></ul></ul></ul><ul><ul><ul><li>Blend of portfolio management and transactional experiences </li></ul></ul></ul><ul><ul><ul><li>Execute new financing transactions </li></ul></ul></ul>
    21. 21. BDPG Sample Portfolio Companies Coleto Creek
    22. 22. IV. Q&A