Finance is the strategic use of debt financing to achieve a specific
objective. The technique has become widely used to effect management
buyouts and refinancings, and to bridge-fund acquisitions. Today
South African 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 black empowerment ownership, or as an alternative to a
trade sale or
IPO for exit.
RMB workshop on leveraged financing techniques will be taught
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 levered 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 and recapitalizations. A
catalyst for leveraged buyouts is so-called mezzanine finance that
falls between senior debt and pure equity.
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 Europe, South Africa, 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
- Leveraged finance in the credit crunch
- Leverage: the good, the bad and the
- Performance-driven leveraged finance
- Defensive leveraged finance
- Deal-driven leveraged finance
- Leverage in ownership transition
corporate debt restructuring opportunities
study: Ubuntu Properties.
The owner of private KNZ company is looking for acquisition 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: UPS. 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 in a leveraged finance context, with higher costs of debt and
high private equity required returns
useful data sources and other resources
- Implementing a management buyout:
and equity finance
finance as a temporary capital structure
- Spreadsheet-based Debt Capacity
for leveraged finance
versus cash flows as support for leverage
Study: Nukem Security Services. How can this LBO be financed?
- Focus: synthetic ratings and debt
- How to structure and price the
funding for an acquisition.or buyout
study: The LBO
of ISS. Teams undertake a step-by-step analysis of the
company's debt capacity and the LBO financing possibilities.
the relationship between the partners
- Post-acquisition refinancing and
and exit analysis
to Leveraged Finance
A Note on LBOs
Finance and Debt
Leveraged Recapitalizations and Build-Ups
High Yield and Hybrid Bond Financing
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 Swedish leveraged dividend recapitalization.
- Leveraged defensive recaps
- Leverage and exchange offers
study: Roadshow. We evaluate a proposed leveraged exchange offer
to give management more control of a company.
in covenants, pricing and defaults
- Example: Piaggio high yield bond
The US high yield market for non-US issuers
review of pricing and other key terms and their negotiation
- Hybrid bonds and capital
note finance: debt or equity?
study: Reclamation Group. In this example of a company using
effect a change in control, we discuss the financing options.
- 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
- Senior leveraged lending: terms and
- Case study: Funding Marsh Diagnostics.
Delegates examine the
pricing and syndication structure of a term acquisition loan and
- Institutional investors and CDOs as
- After the crunch: changes in spreads
- 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
- Case study: Sealy PIK
- Warrant notes
study: Woodstream. Who gets the warrants, and what are they
- The mezzanine termsheet
- Convertible notes and preferred
- Four forms of mezzanine for emerging
markets: performance-participation notes, subordinated debt with
warrants, convertible notes, and preferred stock
study: Maputo Fruit. What are the advantages and disadvantages
of the Contingent Payment Unit in this deal? What are the exit
but not least: Restructuring and recovery
study: Dole's Debt
Diagnostics Term Sheet
Second lien term
Value of Loan Covenants
Mezzanine Finance 1
Mezzanine Finance 2
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
Wildcliff, a nature reserve in the Western Cape.