Download It
Upcoming SlideShare
Loading in...5
×
 

Download It

on

  • 1,160 views

 

Statistics

Views

Total Views
1,160
Views on SlideShare
1,158
Embed Views
2

Actions

Likes
1
Downloads
26
Comments
0

1 Embed 2

http://www.slideshare.net 2

Accessibility

Categories

Upload Details

Uploaded via as Microsoft PowerPoint

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

Download It Download It Presentation Transcript

  • Structured Financing Prof. Ian GIDDY Stern School of Business New York University
  • What is Structured Finance?
    • Tailored financing solutions
    • Financing with hybrid securities
    • Asset-backed securitization
    • Leveraged and acquisition finance
  • Debt? Equity? What kind?
  • When Debt and Equity are Not Enough Value of future cash flows Contractual int. & principal No upside Senior claims Control via restrictions Assets Liabilities Debt Residual payments Upside and downside Residual claims Voting control rights Equity What if... Claims are inadequate? Returns are inadequate?
  • Equity-Linked Eurobonds
    • Convertible Eurobonds
      • Korea Tobacco
    • Eurobonds with warrants
      • Keppel
    • Index-linked Eurobonds
      • Credit Agricole Indosuez
  • Convertibles
        • Conversion
        • Value
    • Straight
    • Bond Value
    Market Value Market Premium V a l u e o f C o n v e r t i b l e B o n d ($) 0 Price Per Share of Common Stock
  • Warrants Theoretical Value Market Value Market Premium V a l u e o f W a r r a n t ($) 0 Price Per Share of Common Stock ($)
  • Index-Linked PRINCIPAL REPAYMENT
  • Breaking Down a Convertible: Unisys
  • Motivations for Issuing Hybrid Bonds
    • Company has a view
    • There are constraints on what the company can issue
    • The company can arbitrage to save money
    • Always ask: given my goal, is there an alternative way of achieving the same effect (e.g., using derivatives?)
  • Case Study: Banpu Convertible
    • How did this work?
    • Why did Banpu use this technique?
    • Why did investors buy it?
  • Banpu Convertible Huh?
  • Thai Time
    • 1994
    • 1997
    • 1999
    • 2004
  • Why Use a Hybrid? Motivations for Hybrids Linked to business risk Linked to market risk Cannot hedge with derivatives Driven by investor needs Company hedges Company does not hedge Debt or equity are Not good enough
  • Asset-Backed Securities
  • Asset-Backed Securities: The Typical Structure FORD (SPONSOR) SPECIAL PURPOSE VEHICLE LOANS. ISSUES ASSET-BACKED CERTIFICATES SALE OR ASSIGNMENT LOANS. Servicing Agreement
  • The Alternative: Synthetic ABS DB (Originator) SPECIAL PURPOSE VEHICLE REFERENCE POOL OF LOANS (Stay on balance sheet) ISSUES ASSET-BACKED CERTIFICATES CREDIT SWAP AGREEMENT TOP QUALITY INVESTMENTS
  • Case Study: Finance Company Bhd
    • Finance company whose growth is constrained
    • Has pool of automobile receivables
    • Has track record
    • Plans to use this as an ongoing source of financing
  • Case Study: Initial Exchanges Finance Co. Ltd (Seller) Finance Co.’s Customers Hire-Purchase Agreement
  • Case Study: Initial Exchanges Finance Co. Ltd (Seller) FCL 1997-A (Special Purpose Co.) Investors Proceeds Proceeds Finance Co.’s Customers Hire-Purchase Agreement
  • Case Study: Initial Exchanges Finance Co. Ltd (Seller) FCL 1997-A (Special Purpose Co.) Investors Servicing Agreement Proceeds Sale of Assets Proceeds Asset-Backed Securities Trustee Trust Agreement Finance Co.’s Customers Hire-Purchase Agreement
  • Case Study: Initial Exchanges Finance Co. Ltd (Seller) FCL 1997-A (Special Purpose Co.) Investors Servicing Agreement Proceeds Sale of Assets Proceeds Asset-Backed Securities Rating Agency Top Rating Trustee Trust Agreement Finance Co.’s Customers Hire-Purchase Agreement
  • Case Study: Ongoing Payments Finance Co. Ltd (Seller) FCL 1997-A (Special Purpose Co.) Investors Monthly HP Payments Trustee Trustee Responsibilities Monthly ABS Payments Servicing Fees Finance Co.’s Customers Hire-Purchase Payments
  • Credit Enhancement: Guarantee Method Finance Co. Ltd (Seller) FCL 1997-A (Special Purpose Co.) Investors Financial Guarantee Provider (if required) Servicing Agreement Proceeds Sale of Assets Proceeds Asset-Backed Securities Guarantee Agreement Rating Agency Top Rating Trustee Trust Agreement Finance Co.’s Customers Hire-Purchase Agreement
  • Credit Enhancement: An Alternative Approach Finance Co. Ltd (Seller) FCL 1997-A (Special Purpose Co.) Senior Proceeds Sale of Assets Rating Agency Top Rating Subordinated More Subordinated Lower Rating No Rating Financial Guarantee Provider (if required) Guarantee Agreement
  • Example: Ford Credit Owner Trust 1999-A
  • Ford Structure Ford Ford Motor Credit Ford Credit Auto Rec. Two LP Ford Credit Auto Owner Trust Receivables
      • Class A-1 to A6
      • Class B
      • Class C
      • Class D
    Class D Sale Sale
  • Rating Process Deal documentation List information requirements Due diligence & Meeting with management Issuer/Banker Requests rating Pool credit analysis Legal analysis Stress testing Credit enhancement negotiation Rating committee Presale report Final report Surveillance “ Rating CLOs” (Fitch) on Workshop Website giddy.org/abs-hypo.htm
  • Trade Receivable Backed CP
    • Over $500 billion outstanding in US alone
    • Key feature is pooling of different companies’ trade receivables, allowing smaller companies to take advantage of ABS market
    • Need two-tier legal structure – SPV at level of each company’s receivables pool, and at multi-company program (the “conduit”)
  • Trade Receivable-Backed Commercial Paper (ABCP) Corporation A Corporation B Corporation C SPECIAL PURPOSE VEHICLE “ CONDUIT” Credit enhancement facility provider Liquidity facility provider Sponsor/ administrator Legal owner INVESTORS Payments on maturing ABCP Fees Fees Fees Nominal dividends Pool A Pool B Pool C Trade receivables Trade receivables Trade receivables
  • The Process Is the company ready? Are the assets suitable? What pool? What legal structure? What credit enhancement?
  • Korea Asset Funding
    • What is the loan portfolio?
    • What is the legal structure of this deal?
    • What are the assets in the SPV?
    • What is the form of credit enhancement?
    • How does the put option work? Is this a strength or a weakness of the structure?
    • What is the “stress testing” done by Fitch?
  • Korea Asset Funding
  • Korea Asset Funding
  • Leveraged Finance
  • Leveraged Finance
    • Leveraged buyout?
    Company has unused debt capacity
    • Leveraged recapitalization?
    • Takeover?
  • Typical LBO Sequence Company gets bloated or slack and stock price falls LBO offer made LBO completed
    • Restructuring
    • Efficiencies
    • Divestitures
    • Financial
    ? years 3-9 months 5-7 years IPO or sale of company LBO financing lined up
  • M&A and Leverage
    • Leveraged buyout?
    Company has unused debt capacity
    • Leveraged recapitalization?
    • Takeover?
  • LBO: A Temporary Capital Structure COST OF CAPITAL DEBT RATIO Stage 1: Pre-LBO Stage 4: Debt paydown Stage 2: LBO financing Stage 3: LBO re financing
  • 12-Step Method
    • Evaluating cost of deal
    • Estimating borrowing capacity
    • Estimating cash costs of funding
    • Estimating growth rates of sales, expenses, etc
    • Projecting cash flows (FCFF and FCFE)
    • Projecting debt amortization
    • Calculating terminal value of FCFE and FCFF
    • Estimating costs of capital to find PV
    • Making sense of the deal
  • Cost of the Deal lbocapacity.xls
  • Borrowing Capacity From table lbocapacity.xls
  • Cost of Debt lbocapacity.xls
  • Capital Structure lbocapacity.xls
  • LBO Financing NEWCO Cost of purchasing the business Equity $25 Senior debt $457 What securities? What returns? What investors? Mezzanine
  • Mezzanine
    • Asset-backed or cash flow-backed debt
    • Senior debt
    • Subordinated debt with high yield
    • Subordinated debt with upside participation
    • Subordinated debt with equity option
    • Preferred equity with warrants or conversion options
    • Restricted shares
    • Common stock
  • Case Study: Cap des Biches (B)
    • The LBO Proposal
    • Devise a recommended financing plan
    GTI (owner) Buyers Other Investors
  • Cap des Biches Friday: Financial Restructuring Ashanti-Bogoso Feng-Shui
  •  
  • Contact Info Ian H. Giddy NYU Stern School of Business Tel 212-998-0426; Fax 212-995-4233 [email_address] http://giddy.org