Finance is the strategic use of debt, equity and mezzanine
instruments to achieve a specific
acquisition or refinancing objective. These technique have become
used to effect management
buyouts and refinancings, and to bridge-fund acquisitions. Today
companies are looking at leveraged and mezzanine finance
as a broader tool,
including the use of leverage for share buybacks and special dividends
or to facilitate ownership transition in distress, or as an alternative
trade sale or
IPO for exit.
Barclays Capital workshop on leveraged financing techniques will be
around several major topics employing in-depth group work on case
financial analysis and
documentation. The focus will be on identifying situations that call
for highly leveraged finance solutions, and the design and pricing of
the high-spread loans and high-yield bonds as well as the equity
instruments that support the leverage. Examples of such situations
and leveraged buyouts, financing acquisitions,
defensive financial restructuring, recapitalizations, and asset-based
techniques such as leveraged leasing. A
catalyst for leveraged buyouts is so-called mezzanine finance that
falls between senior debt and pure equity.
workshop we consider why and when corporations
employ leveraged funding, and in what form. In two
information-packed days of instruction
and application, we offer an economic analysis of
the techniques and their pricing, an insight into when LBOs succeed and
when they fail, paydown and exit strategies, methods of cash-flow
modelling, and a framework for
among alternative leverage and mezzanine techniques. One
goal for participants is to develop a checklist of the key criteria in
a leveraged finance deal. This will help them to identify the credit
risks as well as the strengths of each
structure or proposed deal.
case studies of actual financings and sample documentation. It offers
exercises, and will give participants the opportunity to augment
understanding of deals through group work, presentations and
will be provided with a
useful to the structuring and analysis of specially tailored leveraged
pertinent articles, rating agency reports and sample documentation from
actual deals done in North America, Europe and elsewhere.
Issues to be Explored
- What is leveraged finance? Why and how should companies
add substantial debt to their balance sheets?
can senior and mezzanine debt be used to facilitiate a
management buyout or other forms of ownership transition? How can one
assess a company's borrowing capacity?
- What are the key credit, pricing and rating issues
surrounding leveraged financing?
recapitalizations: how do they really work, and what are their
advantages and disadvantages? How can recaps be used for stock
repurchases, dividends and as shark repellants?
- What is the right pricing and covenant structure for
leveraged acquisition lending?
- How do mezzanine financing techniques such as warrant notes
work, and when does it make sense to use them? How
are they priced?
- How can one model the cash flows and debt paydown in a
- When should a company or bank issue hybrid and subordinated
"capital note" financing insturments?
|| Leveraged Finance: Debt Restructuring
- The global market for leveraged
- Leverage: the good, the bad and the
- Performance-driven leveraged finance
- Defensive leveraged finance
- Deal-driven leveraged finance (ISS)
- Leverage in ownership transition
corporate debt restructuring opportunities
The owner of a private company is looking for leveraged finance.
Participants estimate the company's debt capacity and the owner's
- Establishing required rates of return: the
"Fierce Creatures" method and others
- Adjusting the costs of debt and
equity for leverage
taxation and capital structure
- Leverage optimization through WACC
study: Oracle. We compute the effective cost of
capital for a company with
various degrees of leverage, and consider how leverage fits in with the
company's business and financial strategy.
valuation for acquisiitons
- Example: Tropical Paper Products. A
example of valuations applied to an acquisition.
in a leveraged finance context, with a changing capital structure,
higher costs of debt and
high private equity required returns
- The "VC
Method" -- Valuation driven by private equity IRR
- Types of acquisitions and how
they are financed
- Sponsor vs trade acquisitions:
comparing valuation analysis
finance as a temporary capital structure: entry, paydown. exit
- Implementing a leveraged acquisition:
and equity finance
- Case study: Madras
evaluate a variety of creative
financing techniques in the
context of this challenging acquisition situation.
- Retail securitisations as an acquisition
- Raising the money: Debt Capacity Analysis
- How to
structure and price the
- Focus: shadow ratings and debt pricing
Study: Nukem Security Services. A management team hopes to
acquire the company's security services division. How much of the
purchase cost could be financed with debt?
- Debt paydown & refinancing
- Role of mezzanine, sponsor equity,
management equity, "envy factor"
- Exit timing, methods and valuation
Exercise: The LBO
of ISS. Teams undertake a step-by-step analysis of the
company's debt capacity and the LBO financing possibilities.
to Leveraged Finance
A Note on LBOs
Finance and Debt
Recapitalizations and Roll-Ups
leverage: roll-ups and recaps
of high leverage on business efficiency and shareholder risk
recaps with share buybacks or special dividends to enhance shareholder
study: Sealed Air Corporation. Delegates learn how a company with stable and growing free cash flows
can exploit its debt capacity, and discuss the
risks it takes in doing so.
- Leveraged recaps for ownership transition
study: Ahlsell's Leveraged Recap. We look at the tiering of
funding instruments in this leveraged dividend recapitalization.
- "Stapled-on finance"
- Leveraged defensive recaps
study: Houston Exploration. Do you
agree with all the recommendations of Jana Partners?
- Leveraged roll-ups: The funeral
Financing Techniques: Mezzanine and More
- Survey of leveraged finance
techniques, and when it makes sense to use them
the optimal financing mix: debt, equity or mezzanine?
- The players and the market today: LBO
funds, private equity houses, advisory firms and others
- Syndicated acquisition lending
versus cash flows as support for leverage
- Sale leaseback
and other asset-based funding
- Case study: CUSA Busways. How
second-lien lending contributed to the leveraged buy-out of a bus
lien termsheet analysis
the relationship between the partners
- Case study: Sealy PIK
study: Jefferson Smurfit. Participants identify the factors that
determine the rating of this "Holdco PIK"
- Warrant notes
study: Woodstream. Who gets the warrants, and what are they
worth? What is the effective cost of financing to the company?
- Analysis of a mezzanine termsheet
- Convertible notes and preferred
- The high-yile bond market
- Performance-linked participation
debt: an alternative form of mezzanine
study: Suriname Hydropower. Exit without an exit event?
including hybrids in acquisition finance (US Bancorp, Lottomatica)
case study: Cognis Refinancing. The post-LBO refinancing of this
German chemicals company illustrates the legal relationship among debt
Bancorp Hybrid Bond
Value of Loan Covenants
Mezzanine Finance 1
Mezzanine Finance 2
Sources: damodaran.com, Bank of America
Business Capital, and others
- Valuation Models
(xls) - Rough calculation for choosing the correct valuation model.
Finance and Debt
Capacity Tables - Ratios and comparables to
estimate normal gearing and valuation
Calculation (xls) - Estimates a rating and cost of debt based on
the coverage of debt by an organization.
- LBO Valuation
(xls) - Analyzes the value of equity in a leverage buyout.
Leveraged Loan Market
Role in Leveraged Debt Financing
- Sample documentation for
leveraged loans, leases, etc
Giddy, a native of South Africa, has taught finance at NYU,
Columbia, Wharton, Chicago and
in over forty countries worldwide for the past three decades. He was
Fixed Income Research at Drexel Burnham Lambert from 1986 to 1989. The
author of more than fifty articles on international finance, he has
at the International Monetary Fund and the U.S. Treasury and has been a
consultant with numerous corporations and financial institutions in the
U.S. and abroad. As a banker and consultant he has been involved in the
growth of the leveraged and mezzanine markets in the USA, Europe and
emerging markets. He is the author
or co-author of The International Money Market, The Handbook
of International Finance, Cases in International Finance,
Global Financial Markets, Asset Securitization in Asia and The
River Watertrail Guide. He and his wife are the founders of
Cloudbridge, a nature reserve in Costa Rica.