Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Loan Syndications
Chris Droussiotis
Spring 2010
Table of Contents
1.
2.
3.
4.
5.
6.
7.
Lecturers Biography
$229 Billion
$692 Billion
$245 Billion
(Continued)
$33.0
Hi Yield $11.25
$28.4
Hi Yield $11.3
$22.3
Hi Yield $13.22
Other (CMBS)
$7.25
$11.3
Hi Yield $6.03
$8.0
Hi Yield $3.0
Leveraged Loan
$5.0
28 Mar 05
Leveraged Loan
$11.3
20 Nov 05
Leveraged Loan
$26.65
Leveraged Loan
$15.185
Leveraged Loan
$21.7
Leveraged Loan
$9.0
24 Jul 06
2 Oct 06
26 Feb 07
30 Jun 07
Source: LoanConnector
Over time, institutional investors have replaced banks as lenders with over 75% of demand
coming from institutional investors as of LTM 6/30/07
$620
$620
$95 (15%)
$45 (
14.5%
$120 (19.3%)
(3)
$33 (
9
$95 (15%)
$50 (
1
$620
$50 (
$10 (
$310 (50%)
$350
$162
B (46
.3%)
Capit
(4)
Abso al Require
rb Ex
d
t
o
ce ss
Supp
ly
$50
Cross
-o
ver In
Distre vestor /
ss B
Op p o
rtunit uyer /
y Fu n
ds
.4%)
Hedg
e
4.3%
)
Fund
s
Othe
r
(3)
Bank
s
CLOs
(2)
(2)
D em a
Liqui
d
Colla ation /
teral
Calls
/ HY
14.3%
)
3.5%
)
$350
nd
Prima
ry
Issua
nc e ( 5 )
$ 300
Supp
ly
(2)
Demand assumptions: Banks and Other at 35% consistent with LTM 6/30/07; CLO, Hedge Fund and New Capital amounts Wall Street estimates
Supply assumptions: Primary Issuance based on current estimated forward calendar; Liquidation / Collateral Calls amounts Wall Street estimates
(3)
(4)
(5)
10
Underwritten deal
Best-efforts syndication
Club deal
11
Arrangers guarantee the entire commitment, then syndicate the loan to reduce their exposure.
If the arrangers cannot fully subscribe the loan, they are forced to absorb the difference.
New Terms:
Flex Language
The Arranger commits to underwrite less than the entire amount of the loan.
If the loan is undersubscribed, the deal may not close unless the terms/pricing/structure are changed.
Best-efforts syndications were used for risky borrowers or for complex transactions.
As in the case of underwriting, for preferred customers, the banks tend to hold higher exposure
justifying it by additional products offered going forward (an important variable in the banks
profitability calculations (RAROC).
13
Typically a smaller loan (usually $25 million to $200 million but as high as $500 million)
The arranger is generally a first among equals, and each lender gets a full cut of the fees.
For preferred customers, the banks tend to hold higher exposure justifying it by additional
products offered going forward (an important variable in the banks profitability calculations
(RAROC).
14
Issuer /Company
Administrative Agent
Bookrunner Bank #1
Bookrunner Bank #2
Bookrunner Bank #3
Syndication Agent
Documentation Agent
Documentation Agent
Co-Mgr
Co-Mgr
Co-Mgr
Co-Mgr
Co-Mgr
Co-Mgr
Bank #1
Bank #2
Bank #3
Bank #4
Bank #5
Bank #6
Bank or
Institution
Bank or
Institution
Bank or
Institution
Bank or
Institution
Bank or
Institution
Bank or
Institution
Bank or
Institution
Bank or
Institution
Bank or
Institution
Bank or
Institution
Bank or
Institution
Bank or
Institution
Bank or
Institution
Bank or
Institution
Bank or
Institution
First Tier
Second Tier
Retail Level
15
(Continued)
Arrangers will outline their syndication strategy and their view on the way the loan will price in market.
The arranger will prepare an information memo (IM) describing the terms of the transactions.
The IM typically will include:
As part of the
Executive Summary
syndication process
Investment Considerations
we will discuss in
Summary of Terms and Conditions (Term Sheet)
detailed these two
Transaction Overview
Company
items following this
Management and Equity Sponsor Overview
page.
Industry Overview
Financial Model
Timing for commitments, closing, as well as fees on level of commitments
Bank meeting is scheduled at which potential lenders hear the management and the Investor group.
A deadline is given for the banks to send their commitment levels subject to final documentation
Each Bank analyzes the deals credit and assess the pricing (RORA). Each Issuer is assigned an internal rating.
The Arranger collects all commitments different amounts from each Bank
Allocations are given and Legal Documentation is sent for their final review.
If the Deal is Oversubscribed, the allocation of each bank will most likely be reduced
If the Deal is Undersubscribed, depending on the FLEX language, the pricing could be Flexed up.
After Review of Legal Documentation by each lender and signatures are sent, the Deal closes and funds.
16
(Continued)
17
(Continued)
The Quantitative Analysis for establishing the Internal rating which measures the probability
of default is based on the following parameters (each component is weighted at a specific
level of importance):
Leverage Ratio - the relationship between debt and earnings (i.e. DEBT / EBITDA)
Capitalization Ratio the relationship between the bank debt and the rest of the capital
(Capital Leases, Bonds, Equity)
Coverage Ratio - Issuers Cash Flow covering its debt obligations (interest and principal
payments)
Variance of Projections based on the projections, the model typically assumes a certain
haircut (10-30%) to the managements projections and it tests its ability to pay its debt
obligations.
The Quantitative approach adjusts up or down based on industry characteristics (Recession
resistance, cyclical, or event driven).
The Qualitative Analysis is subjective based on each banks internal policy. The Analysis
would include strength of management, support from the equity sponsor, recovery analysis 17
(asset collateral) and outlook.
20
(Continued)
3. Money Terms:
Amount / Tranches
Revolving Credit
Term Loans
Pricing
Maturities
21
(Continued)
4. Non-Money Terms:
Financial Covenants
Negative Covenants
Affirmative Covenants
22
(Continued)
Green Shoe
23
(Continued)
Mandatory Prepayments
Events of Default
Indemnification
Cross Default
24
(Continued)
Fee Letter
Expenses
25
(Continued)
i.e.
26
(Continued)
27
28
29
30
Aggressive Structure??
31
32
33
34
35
36
37