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Similar to Innovative corporate finance solutions szecskay freshfields am cham 15 september 2015
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Innovative corporate finance solutions szecskay freshfields am cham 15 september 2015
- 1. Innovative Corporate Finance Solutions: Guide and Legal Risk Analysis Szecskay Attorneys at Law & Freshfields Bruckhaus Deringer 17 September 2015
- 2. Gàspàr Bagamèry Senior Associate, Szecskay Attorneys at Law Welcome & introduction 2 Florian Klimscha Partner, Vienna Agnes Molnar Senior Associate, English law finance, Vienna Katalin Szecskay Partner, Szecskay Attorneys at Law Judit Budai Partner, Szecskay Attorneys at Law
- 4. Enhanced Range of Funding Sources Credit Environment • Beneficial credit environment leading to enhanced liquidity • But reduced bank capacity due to regulatory requirements and structural weaknesses Traditional Funding Sources • Banks • Mezz Investors • Pension Funds/Insurance Companies New Funding Sources • Debt Funds • CLOs/CDOs (including growing European CLO market) • Specialist Investors Requirements of new investors • yield • transferability/liquidity • rating 4
- 5. Products Traditional Products • Senior bank debt (covenanted) • Senior/mezz debt • Eurobonds • US private placement Limitations on New Products • Term Loan B: deal size/liquidity, leverage v terms • Senior/second lien: leverage, 2LF investor capacity, mezz style terms/structure • High yield bonds/FRNs: deal size, ratings • Euro PP: smaller market, less liquidity • Unitranche/PIK: smaller deal size, higher pricing New Products • Term Loan B debt (cov-lite/cov-loose) • Senior/second lien debt • European FRNs • PIK Financings • High yield bonds (including bank/bond structures) • Euro private placement • Unitranche/direct lending Common Issues • Deal structure/subordination • Restrictions on security • Variance in intercreditor/insolvency treatment • Debt capacity 5
- 6. ALTERNATIVE LENDING OPPORTUNITIES Dynamics driving the lending market 6 Bank market in retreat Capital to deploy from private equity and institutional investors
- 8. Section Innovative products Amend & Extend 2
- 9. What is an Amend & Extend? (A&E) Historically, an extension of maturities by some or all lenders under an existing credit agreement • A response to the challenges that illiquid markets presented to looming maturities and financial reporting on a going- concern basis In today’s markets, pro-active borrowers/sponsors are using A&E techniques to achieve: • Re-pricings • Dividend re-caps • General amendments / enhancements to the certain areas of the SFA (e.g. Permitted Acquisitions) • Pre-IPO amendments • Covenant resets • Restructurings (e.g. together with a UK scheme of arrangement) 9
- 10. How could an A&E be implemented? Structural adjustment/facility change • Provision allowing structural amendments, which would ordinarily require unanimous or super-majority consent, to be made for specified purposes with only the consent of (typically) (i) the Majority Lenders and (ii) each affected lender • Agent/security agent can make changes to effect the structural adjustment • May be combined with ‘snooze’ and ‘yank’ provisions, if available. Hollow tranche • Introduction of a new tranche into an existing facility agreement using the amendments regime • Extending lenders agree to ‘roll’ into the new tranche, non-extending lenders stay in the original tranche (with the original repayment profile) • If no structural adjustment clause, can be difficult to implement around the all-lender reserved matters 10
- 11. How could an A&E be implemented? (2) Forward start facility (FSF) Provision of new, separately documented facility to refinance existing facility (EF) • Need to consider existing restrictions on Financial Indebtedness (i.e. on agreeing to incur indebtedness) • FSF may also need to co-exist alongside other facilities if only one EF tranche / facility is being repaid by the FSF • Fee structure to be considered to EF lender if amend is required and to FSF Lenders 11
- 12. Section Innovative products Bank debt v Bonds 3
- 13. Covenated Bank Loans vs. High Yield Bonds 13 High Yield Bonds Senior Bank Debt Avoids ‘maintenance’ covenants / restrictive terms Lower “all in” cost and currency flexibility Longer term debt Prepayment flexibility No amortisation Greater control over syndicate Broad and deep investor base, accepts higher leverage Committed acquisition & capex lines Limited prepayment flexibility “Maintenance” financial covenants Higher ‘all in’ cost (less currency flexibility) More restrictive covenants / terms Rating (and public financial disclosure) required Amortisation typically required Minimum size (although reducing) Market capacity limitations Note: Term loan B/Cov.-Lite loans have moved the market away from orthodox position
- 14. First lien / second lien and mezzanine facility Second lien • European experience - has many common features with Mezz position (seperate document/standstills) • Same document as first lien (i.e. Priority secured tranche) • “European” vs. “US” second lien • Voting with 1L except 1L entrenched rights • Secured but rank behind • Security – guarantees + share pledge Mezzanine • European style – at same borrower as lender • Same covenants on Senior other than financial covenants • Shares security with Senior but subordinated under an intercreditor agreement 14
- 15. Holdco financing 15 Refinancing using holdco financing • as part of “all new money” refinancing including new first lien tranche/NY bonds • as part of partial refinancing to take out certain existing debt (e.g. maturing junior tranche) and/or in combination with amend/extend of existing first lien debt, funding the pay down of a portion of existing first lien • outside Senior Group consolidated accounts Credit support - Holdco financing vs. first lien debt: range of options: (1) unsecured and un-guaranteed with no recourse other than to Holdco and its shares and (with/without intercreditor with first lien) - (2) “silent second lien” with no independent security enforcement rights over shared security with first lien, just 2L recovery - (3) secured subordinated (on terms akin to HY sub notes) – e.g. 179 days standstill in respect of enforcement of shared security - (4) senior/mezz style – including shorter standstill (90,120,.150 days) in respect of enforcement of shared security • Interest – PIK, PIYC, toggle • Portability of CoC in first lien? - Covenant protection - Transfers of 1L Target Midco Holdco2 Senior Facilities share pledge Holdco Financing OPCO share pledge Holdco-only share pledge and security over Topco loan Potential independent credit support for Holdco financing? OTHER OPCOs Holdco1 OPCO
- 16. Unitranche • Akin to a senior “club” deal • Senior, secured facility with no separate senior/junior tranches for borrower’s purposes • Can be sub-tranched between lenders or for purposes of single institutional lender to enable different funds managed accounts to invest • No syndicate dynamics; no intercreditor issues – transfer restrictions on lenders • Generally more expensive on weighted average basis than all senior facility or first / second lien 16
- 17. Section Innovative products Bank debt & Bonds 4
- 18. Key Features Senior notes share the guarantee and security package pari passu with senior banks Bank piece has “standard” banking maintenance covenants Bond piece has incurrence covenants Examples – Schmolz, Schaeffler, Techem, Com Hem, KBW, Sunrise 18 Senior Notes Sponsor Holdco Parent Issuer Opcos Senior Banks 1. Structure 2. Priority Common Equity/ Shareholder Loan Unsecured HY Notes Senior Secured Bank Loan Senior Secured Notes Unsecured HY Notes Bank/Bond Structures:Structure 1: Pari Passu Bank/Bond
- 19. Bank/Bond Structures: Structure 2: All Bond + Super Senior RCF Key Features • High Yield capital replaces bank term debt • RCF provided for general corporate / working capital purposes • Bonds and RCF share same guarantees/security – RCF is on a ’super senior’ basis (usually means equal ranking but with a priority position in the waterfall re enforcement proceeds and often guarantee claims) • RCF has a mixture of bond/bank style covenants • Recent examples – Stork, Arrow, Aston Martin 19 Sponsor Holdco Parent Issuer Opcos 1. Structure 2. Priority Common Equity/ Shareholder loan Senior Secured HY Notes Super Senior RCF HY Notes RCF Lenders
- 20. Bank/Bond Structures: Structure 3 Key Features • SPV Issuer on-lends note proceeds through a new loan tranche (created using a facility change) • Noteholders rely on Indenture / Covenant Agreement – rely on SFA only for certain voting and entrenched rights • Intercreditor left largely unchanged • Separate collateral granted over SPV shares, SPV on-loan receivable and SPV bank accounts – in favour of SPV Creditors, governed by Collateral Sharing Agreement • Examples – VGG, Kion, Ziggo, Numericable, Expro, Ono 20 Holdco Parent Borrower Opcos Sr Secured Bank Tranches New SPV Tranche Sponsor Senior Banks Senior Banks SPV Issuer Senior Secured HY Noteholders Common Equity/ Shareholder Loan Subordinated Debt Senior Secured Bank Facilities SPV tranche Facility Agreement Covenant Agreement
- 22. Private Placements “Placement of debt with a small group of selected sophisticated investors, often non-bank institutions” (LMA) Established or developing debt private placement markets • US Private Placements • German Schuldschein • Euro PP (developed in France and UK) LMA / Pan-European Private Placements • 2014: Desire to standardise documentation to reduce barriers to market development • 2015: two different formats – loans and bonds, but derive from existing LMA templates 22
- 23. LMA / Pan-European Private Placements Documentation highlights • Aimed at investment grade • Unsecured • Make Whole Amount/Prepayment Fee • Commitment Fees and Increased Costs • PEPP Subscription Agreement contains additional representation that the offering is made as a private placement • More favourable terms undertaking • Ability to transfer only with consent of Borrower/Issuer 23
- 24. Freshfields Bruckhaus Deringer LLP is a limited liability partnership registered in England and Wales with registered number OC334789. It is authorised and regulated by the Solicitors Regulation Authority. For regulatory information please refer to www.freshfields.com/support/legalnotice. This material is for general information only and is not intended to provide legal advice. © Freshfields Bruckhaus Deringer LLP 2015 Questions
- 25. Freshfields Bruckhaus Deringer LLP is a limited liability partnership registered in England and Wales with registered number OC334789. It is authorised and regulated by the Solicitors Regulation Authority. For regulatory information please refer to www.freshfields.com/support/legalnotice. This material is for general information only and is not intended to provide legal advice. © Freshfields Bruckhaus Deringer LLP 2015 Thank you 25