The Banking and Corporate Finance Training Specialist Cov-lite (& Cov-loose) Loans Negotiating and analysing the key commercial terms and current trends in cov-lite and cov-loose loans This course is presented in London on: 20 September 2018 This course can also be presented in-house for your company or via live on-line webinar
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Cov-lite (& Cov-loose) LoansThe Banking and Corporate Finance Training Specialist Cov-lite (& Cov-loose) Loans Negotiating and analysing the key commercial terms and current trends
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The Banking and Corporate Finance Training Specialist
Cov-lite (& Cov-loose) Loans
Negotiating and analysing the key commercial terms and current trends in cov-lite and cov-loose loans
This course is presented in London on:
20 September 2018
This course can also be presented in-house for your company
Acquire a detailed understanding of the key terms in cov-lite (and cov-loose) loans and how these differ from the LMA approach
Review the current market approach to springing leverage covenants in terms of the RCF thresholds, headroom
Review the current approach to equity cure rights – when and how?
Gain an understanding of the key aspects (terms) of high yield bonds which have been imported in the cov-lite loan market
Understand the “grower” and “builder” baskets which are used in the “Permitted” baskets and the variables that drive them (e.g. EBITDA, Total / Tangible Assets)
Analyse the key various “Permitted” baskets and how these vary from the LMA
approach (e.g. debt incurrence, acquisitions and disposals) Analyse how debt can be can reclassified between the various baskets and the
ratio debt basket Review the current trends to the definition of EBITDA with focus on borrower-
friendly add-backs and run rate adjustments
Discuss how the financial covenants and their constituents and how these affect other key terms of the loan (margin ratchets, debt incurrence)
Review lender protection in terms of yields, MFN and sunset periods and how borrowers can (and have) gamed the lenders
Topical issues in the market - restrictions on transfer (White and Black lists) –
when can the lenders sell and to whom? Holding limits and restrictions
Key Concepts Review of the various types of cov-lite and cov-loose loans and how they are
documented Structure of English cov-lite loan Structure of NY cov-liye loan
How to read/approach a New York style credit agreement The Restricted Group
Inclusions and exclusions Approach used in high yield bonds & why it matters
Re-designation of subsidiaries to and from the Restricted Group Non-guarantor restricted subsidiaries
Material subsidiaries
What constitutes at material subsidiary – market approach to the threshold % The various tests: EBITDA and other approaches
Relevance and application in the SFA Date and manner of determination- Certificate (LMA vs market approach)
Information and financial reporting
Term Loan “B” vs LMA approach Treatment of unrestricted group
Presentations Access rights
A Word About Baskets Use and application
Key variables and their ramifications Lender vs Borrower friendly
Applicable repayment percentage [Available amount vs Cumulative Credit basket]
The five main basket combinations CNI and “out of the box” amount Build up basket start date – when does this start?
Ratio test Leverage
FCCR Other
Change of control
Is this treated as an EoD or mandatory prepayment Six approaches – automatic exit, Lender has option etc
Transferrability & Portability Transferrability
Whitelists / Approved lenders Blacklist / Disqualified Institutions List present Specific affected parties
Industry competitors Loan to own investors
Consent, Deemed consent & “Reasonableness requirement Triggers to facilittae sell-down Minimum transfer & hold sizes – interaction with Related/ Existing lenders
Matters affecting the RCF Portability
Ratings test Ratio - Leverage or Enterprise value ratio
Timing periods/limits & Frequency
Additional requirements
Financial Maintenance Covenants & Covenant Suspension Financial covenant package type Review of current market approach: Traditional vs Cov-loose vs Cov-lite
“Springing” leverage covenants What are they
Typical terms Aggressive add-backs to EBITDA
Synergies and other add-backs
Por-forma adjustments - Scope Run-rate adjustments – what does this mean in practice
Equity cures Current market approach – what can be cured; how often, over-cures?
Deemed cures – what are they and why they matter Deal outliers
Introduction of minimum EBITDA covenant
Maintenance covenants tested at greater intervals Covenant suspension
Incidence of guarantor coverage GCT percentage (where present)
Exclusion of Material subsidiaries & materiality threshold Other market exclusions
Events of Default LMA EoDs and typical market exclusions
Clean-up period Cross-default or cross-acceleration Right to accelerate
Grace periods Non-payment
Other obligations Commencement of grace period
MAC
Review of market variations
The trainer is a consultant, public speaker and author. He provides training programmes globally to a blue-chip client base on private equity, debt finance, loan documentation and
restructuring. He is a senior consultant with Debt Explained and as such has access to current market trends and developments in the cov-lite loan market. He is also a Senior consultant to Grant Thornton UK (Debt Advisory) and is also a Senior Advisor to KMPG Finland.
He has spoken at conferences in the UK, Europe, Australasia & South Africa. He provides
training to a wide range of banks, law firms, advisors and other parties involved in the leveraged loan market on a bespoke, in-house basis. Additionally, he is the Programme Director for the infrastructure/project finance module for the MBA programme at the Cass
Business School in London.
The European leveraged loan market has experienced significant changes over the last few years. The market has bifurcated into two segments; larger loans above roughly 200m
which compete with the high yield bond market and smaller loans. The latter continue to follow LMA leverage precedents, however the larger loans have adopted many aspects
imported from the high yield bond market. The most obvious and high profile example is the advent of cov-lite loans. High yield bonds have incurrence rather than maintenance covenants and these larger loans have been forced to follow suit with the result that the
incidence of financial maintenance covenants has declined alarmingly (from the lenders’ perspective); grower and builder “Permitted” baskets have also become a standard feature
(with some even appearing in loans sub 50m) along with the ability to reclassify amounts as between baskets. At the same time borrowers have taken advantage of current borrower-friendly conditions to curb lenders’ ability to transfer their loans and thus limit their
downside. The programme uses data from the Debt Explained database to review the current trends prevalent in this dynamic market.