Giddy | Euromoney Acquisition and Leveraged Finance Workshop

Euromoney Training
www.euromoneytraining.com
3-Day
Acquisition & Leveraged Finance Workshop
Instructor:
Prof. Ian Giddy
New York University

Acquisition finance refers to the valuation and financing of strategic and financial acquisitions. Leveraged Finance is the use of debt financing to effect management buyouts and to bridge-fund acquisitions. Today many companies are looking at leveraged finance as a broader tool, including the use of leverage for share buybacks and special dividends or to consolidate ownership, or as an alternative to a trade sale or IPO for exit, or for refinancings.

The Workshop

This workshop on acquisition and leveraged financing techniques will be taught around several major topics employing in-depth group work on case studies, financial analysis and deal documentation. The focus will be on identifying acquisition 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 include private equity 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.

This workshop explains why and when corporations and financial institutions employ leveraged funding in acquisitions, and in what form. In three information-packed days of instruction and application, we offer an economic analysis of the valuation and price negotiations in acquisitions, an insight into when LBOs succeed and when they fail, paydown and exit strategies, methods of cash-flow modelling, and a framework for choosing 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 main strengths and risks of each structure or proposed deal.

The workshop includes case studies of actual financings and sample documentation. It offers hands-on exercises, and will give participants the opportunity to augment their understanding of deals through group work, presentations and discussions.

Who Should Attend?

The seminar is of relevance to potential corporate borrowers, to lenders, and to those involved in buyouts and acquisitions. This includes corporate officers, commercial and investment bankers, securities analysts, private equity specialists, asset managers, and other individuals whose professional future may be enhanced by an understanding of acquisitions and leveraged and mezzanine finance techniques.

Materials

Participants will be provided with a package of materials useful to the structuring and analysis of specially tailored leveraged financing techniques, including pertinent articles, rating agency reports and sample documentation from actual deals done in North America, Europe and elsewhere.

Key Issues

Some of the issues to be explored:

What is the acquisition target worth? How can we negotiate the price and form of payment?
What financing techniquers are available? What is the role of leveraged finance in acquisitions?
How can senior and mezzanine debt be used to facilitiate an acquisition? How can one assess a company's borrowing capacity?
What are the key credit, pricing and rating issues surrounding leveraged and acquisition financing?
Leveraged recapitalizations: how do they really work, and what are their advantages and disadvantages?
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 leveraged buyout?
How can collateralized debt obligations be used to manage a leveraged loan portfolio?

Outline of Workshop

Date	Topics	Resources
Day 1	Acquisitions: Valuation and Finance The keys to M&A finance: Valuation of the target, valuation of the synergies, assessment of debt capacity The gains from acquisitions: Operational and control synergies Case study: Goldfields. Led by the instructor, delegates attempt a valuation of this mid-cap company from a financial sponsor's viewpoint. How much is the target worth? How should we pay? A review of valuation tools for acquisitions Asset-based valuation Using comparables Enterprise value and EBITDA Discounted cash flow analysis Example: Valuing Actavis using comparables and the DCF method Sponsor vs trade acquisitions: comparing valuation analysis Measuring the synergies Pricing and financing an acquisition Case study: MTC-Celtel. Should the acquirer be willing to pay more than the IPO value for this mobile communications company and if so, how will the acquisition debt be repaid? Leveraged Buyout Finance Leveraged finance as a temporary capital structure Getting the deal done: bridge finance Case study: A Bridge Too Dear. How should the bridge loan be priced? And the senior debt? Capital market refinancing: ISS bonds example Equity bridge lending Implementing a management buyout: senior, mezzanine and equity finance Spreadsheet-based Debt Capacity Analysis for leveraged finance Focus: synthetic ratings and debt pricing How to structure and price the funding for an acquisition.or buyout Case study: The LBO of ISS. Delegates undertake a step-by-step analysis of the Danish company's debt capacity and the LBO financing possibilities. Structuring the relationship between the partners Paydown and exit analysis Case study: Reykjavik Fleet Leasing. What value should we place on this company at exit? Post-acquisition refinancing and asset sales Paydown and exit analysis	Presentations alf-valuation alf-buyouts Case Studies Goldfields Valuing Actavis MTC-Celtel A Bridge Too Dear The LBO of ISS iss_financials Reykjavik Fleet Leasing Articles Methods of Valuing a Business Introduction to Leveraged Finance A Note on LBOs Debt-to-EBITDA LBO Legal Checklist Spreadsheets wacc.xls beta.xls actavis_valuation.xls mtc-celtel_case.xls leverage_effect.xls lbocapacity2.xls iss_financials.xls iss_solution.xls lbo_exit.xls
Day 2	Leveraged Build-Ups and Leveraged Recapitalization Proactive leverage: roll-ups and recaps Impact of high leverage on business efficiency and shareholder risk Leveraged recaps with share buybacks or special dividends to enhance shareholder value Case 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 or cash-out Case study: Ahlsell's Leveraged Recap. We look at the tiering of funding instruments in this Swedish leveraged dividend recapitalization. Stapled finance Leveraged defensive recaps Leveraged rollups (or buildups) Case study: Ubuntu Properties. The owner of a private company is looking for acquisition finance. Delegates estimate the company's debt capacity, its cost of capital and the owner's options. Mezzanine Financing Techniques Survey of leveraged finance techniques, and when it makes sense to use them Finding 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 Assets versus cash flows as support for leverage Case study: Funding the Valvex Acquisition. Delegates examine the pricing and syndication structure of a term acquisition loan and revolver. Second lien financing Case study: Cognis. How second-lien lending contributed to the leveraged refinancing of a German chemicals company. Negotiating a second lien termsheet Pay-in-kind (PIK) notes Case study: Sealy. When do the investors get repaid? How much? Structural subordination in PIKs Case study: Jefferson Smurfit. Delegates identify the factors that determine the rating of this "Holdco PIK" Mezzanine and more Senior sub debt Warrant notes Case study: Woodstream. Who gets the warrants, and what are they worth? Convertible notes and preferred stock Mezzanine pricing and other key terms and their negotiation Subordinated vendor financing Participation mezzanine finance Case study: Suriname Hydropower Services. Teams seek to structure a performance-linked mezzanine note for a private emerging-market company.	Presentations alf-recaps alf-mezzanine Case Studies Sealed Air Ahlsell's Recap Ubuntu Properties Leveraging Self Storage Funding the Valvex Acquisition Cognis Second Lien Jefferson Smurfit Woodstream Mezz Woodstream Termsheet Suriname Hydro Articles Leveraged Rollups Leveraged Recaps The Value of Loan Covenants Second Lien Loans Mezzanine Finance 1 Mezzanine Finance 2 Europe's High-Yield Debt Market Spreadsheets ubuntu.xls woodstream.xls financing_abc.xls
Day 3	Financing a Buyout: Cash Flow Modelling Modelling a LBO: key corporate numbers Modelling a LBO: key predictions Modelling a LBO: financing assumptions Case study: Jordan Cement. This case offers a framework to explore the power of cash flow modelling and sensitivity analysis in a leveraged buyout. High Yield and Hybrid Bond Financing Trends in covenants, pricing and defaults Example: Piaggio high yield bond. Delegates consider a high yield bond issue by an Italian company. What terms and conditions would such a bond require, and what pricing and fees would be involved? Focus: The US high yield market for non-US issuers Note issuance under 144A and subsequent registration Case study: The Hertz High Yield Bonds. Participants consider a high yield bond issue used for part of the funding of a leveraged buyout. What terms and conditions did this bond require, and what pricing and fees would be involved? How did the terms and pricing differ from those of term loan funding? Comparison of US and Eurobond market Use of subordinated capital financing Undated debt (example: KB Bank) Preferred stock (example: Capitec) Hybrids (example: US Bancorp) What are Hybrid Securities? Case Study: Lottomatica. We debate the use of deeply subordinated hybrids, from the point of view of issuer and of investor. Credit Derivatives and CDOs in Leveraged Finance: Instruments and Pricing Credit derivatives and leverage: the market and instruments Structure and pricing of credit default swaps Case study: Chase Secured Loan Trust Notes. Delegates analyze a private-placement risk transfer instrument. Leveraged finance in the CDO market Case study: KKR Financial CLO. Why did KKR get involved with the CDO market? How did it achieve an AAA rating on a portfolio of leveraged and mezzanine debt? Leveraged synthetic CDOs and super-senior credit default swaps Case study: Noname Bank Synthetic CLO. Delegates learn the role of the super-senior unfunded tranche in a synthetic CDO. Exercise: Using CDS and CDO techniques to lay off the risk in of a portfolio of leveraged loans. Summary and Recap	Presentations alf-cashflow alf-highyield alf-CDOs Case Studies Jordan Cement Hertz High Yield Bonds Lottomatica KKR Financial CLO Noname Bank Articles Europe's High-Yield Debt Market Hybrid Bonds Synthetic ABS Spreadsheets Jordan_LBO_model.xls noname_synthetic_clo.xls
More Resources Valuation Models (xls) - Rough calculation for choosing the correct valuation model. Corporate Finance & Debt Capacity Tables Rating 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 Finance articles Sample documentation for leveraged loans, leases, etc Sources: damodaran.com, Bank of America Business Capital, and others
The Instructor Ian Giddy has taught finance at NYU, Columbia, Wharton, Chicago and in over forty countries abroad for the past three decades. He was Director of International Fixed Income Research at Drexel Burnham Lambert from 1986 to 1989. The author of more than fifty articles on international finance, he has served 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 ABS market in the USA, Europe and Asia. 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 Hudson River Watertrail Guide. He and his wife are the founders of Cloudbridge, a nature reserve in Costa Rica.