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  • 05/04/10 12:46
  • 05/04/10 12:46
  • Transcript

    • 1. Introduction to the Bank Debt Portfolio Group Presentation to January 13, 2006
    • 2. Agenda
      • Introduction
      • Introduction to the Bank Loan Market
      • The GS Bank Loan Franchise
      • Q&A
    • 3. I. Introduction
    • 4. What is the Bank Debt Portfolio Group (BDPG)? A joint venture between…
    • 5. II. Introduction to the Bank Loan Market
    • 6. Bank Loan Market Overview
        • Goldman Sachs (GS) is a major participant in the bank loan market
          • GS originates both investment grade and non-investment grade bank debt
          • The non-investment grade market for bank debt is called the Leveraged Loan Market
          • GS originates leveraged loans for leveraged buy-out (LBO) and merger transactions, as well as for corporate borrowers
        • Leveraged loans are typically senior secured obligations of the borrower
          • GS syndicates leveraged loans to institutional investors such as loan funds (prime rate funds and CLO’s) and hedge funds
          • GS actively trades bank debt in the secondary market
          • 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%)
    • 7. U.S. Syndicated Loan Market Source: LPC Source: LPC and Bloomberg
    • 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. 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
        • Current Assets
          • Cash
          • Accounts Receivable
          • Inventory
        • Property
        • Plant
        • Equipment
        • Intangibles
        • Subsidiary Stock
        • Loans are the most senior debt in the typical leveraged capital structure
      % of Total Capitalization Pledged to:
    • 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. The Power of Leverage Simple Mortgage Example
      • Use little equity and borrow funds (leverage) to buy asset
      • Pay down debt over time
      • All excess returns accrue to the equity
      Today 5 years later $100 $100 IRR = 25% Debt $75 Equity $25 Debt $25 Equity $75
    • 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. III. The GS Bank Loan Franchise
    • 14. The GS Bank Loan Franchise
        • Advise clients on strategic and financing alternatives
        • Originate financing transactions
        • Structure transactions (with Capital Markets)
        • Negotiate and execute transactions (with BDPG)
        • Monitor market trends and comparable new issues
        • Determine likely price for loans
        • Identify potential investors
        • Market deal
        • Execution/Closing
        • Market primary new issue to investors
        • Ongoing sales and “marketing” for secondary market
        • Proprietary trading
        • Borrower, Sponsor and Investor Relations
        • Manage credit exposure and track operating performance
        • Manage workouts
        • Update sales and trading desk on company events
        • Assist in negotiation and execution of loans
        • Execute amendments, waivers, additional financings
      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. BDPG Functionality Bank Debt Portfolio Group (BDPG)
    • 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. BDPG Analyst Responsibilities
        • Monitor portfolio credits
          • Prepare in-depth analyses on companies in the portfolio
          • Review company performance and quarterly covenant compliance
          • Confer with management/sponsor
        • Post internal and external clients on borrower performance/developments
          • Post bank loan sales & trading desk on developments with portfolio credits via e-mail and morning sales meetings
          • Coordinate and dialogue with bank loan investors about company performance and amendment requests
          • Write periodic credit updates for discussions with capital markets/sales & trading, credit and leveraged finance
          • Organize and participate in meetings and calls with bank loan investors
        • Support other client service initiatives with portfolio companies, including ratings advisory, refinancing, and other matters
    • 18. BDPG Analyst Responsibilities, cont.’d
        • Help to structure and execute amendments/waivers (including refinancings and add-on financings) for portfolio credits
          • 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
          • Participate and assist with new loan origination and execution
          • Coordinate with counsel on preparation of documentation
    • 19. Bank Loan Execution Group
        • The Bank Loan Execution Group (“BLE”) was initially established to help support, streamline and improve Goldman’s loan negotiation and marketing process
        • BLE has two elements:
          • Bank Loan Negotiation Team: Works with borrowers, investors and co-arrangers to draft and negotiate commitment papers, credit agreements and associated items
          • Bank Loan Transaction Team: Works with clients, advisors and sponsors to build rating agency presentations, bank offering circulars, investor slides and internal sales memos
        • BLE’s mission has been expanded to coordinate bank loan execution efforts throughout the financing process:
          • Build and communicate investment rationale to the market
          • Responsible for the marketing materials for new financings
          • Serve as a common point of contact for issuers and investors
          • Coordinate the efforts of capital markets, leveraged finance, credit and legal
    • 20. BDPG: A Unique Opportunity
        • Great learning opportunity
          • Exposure to leveraged loans, LBO’s, and primary and secondary sales and trading
          • Opportunity to work directly with a variety of clients
            • External clients: financial sponsors, hedge funds, loan funds, well-recognized companies
            • Internal clients: industry investment banking teams, leveraged finance, sales and trading, capital markets, credit risk management & advisory, PIA / merchant banking
        • Small team
          • Flat organizational structure: work directly with senior people
          • Exposure to numerous industries
        • Broad range of experiences
          • Build fundamental credit and analytical skills
          • Coordinate disclosure between management teams, sponsors and investors
          • Model different capital structures for a company
          • Develop a view on what drives a company or an industry
          • Blend of portfolio management and transactional experiences
          • Execute new financing transactions
    • 21. BDPG Sample Portfolio Companies Coleto Creek
    • 22. IV. Q&A