Giddy | Euromoney Leveraged Finance Workshop in South Africa

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

Leveraged 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 also to "bridge-fund" acquisitions. In today's constrained credit markets, many South African companies are looking at leveraged and mezzanine finance as a broader tool, including the use of leverage and mezzanine for share buybacks and special dividends or to facilitate black empowerment ownership, or as an alternative to a trade sale or IPO for exit.

The Workshop

This workshop on leveraged financing techniques will be taught around seven major topics employing in-depth group work on case studies, financial analysis and deal 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 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, and in what form. In three 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 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 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 leveraged finance? Why and how should companies add substantial debt to their balance sheets?
How can senior and mezzanine debt be used to facilitate 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?
Leveraged 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?
What role can hybrid capital notes play in leveraged acquisitions and in funding a bank?
How can one model the cash flows and debt paydown in a leveraged buyout?
How can credit default swaps and collateralized debt obligations be used to manage a leveraged loan portfolio?

Outline of Workshop

Date	Topics	Resources
Day 1	Leveraged Finance: Debt Restructuring Opportunities The global market for leveraged finance Leveraged finance in the credit crunch Leverage: the good, the bad and the ugly Performance-driven leveraged finance Defensive leveraged finance Deal-driven leveraged finance Leverage in ownership transition Identifying corporate debt restructuring opportunities Case 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 options. Establishing required rates of return: the "Fierce Creatures" method and others Adjusting the costs of debt and equity for leverage Corporate taxation and capital structure Leverage optimization through WACC simulation Case 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. Using valuation in a leveraged finance context, with higher costs of debt and high private equity required returns Some useful data sources and other resources Leveraged Buyout Analysis 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 Implementing a management buyout: senior, mezzanine and equity finance Leveraged finance as a temporary capital structure Spreadsheet-based Debt Capacity Analysis for leveraged finance Focus: synthetic ratings and debt pricing Case study: The MBO of Nukem Security Services. We trace the steps in leveraged debt capacity analysis and paydown Focus: when things fall apart Case study: Linens 'n Things 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 Post-acquisition refinancing and asset sales Paydown and exit analysis Case study: Reykjavik Fleet Leasing. What value should we place on this company at exit?	Presentations leveragedsa-restructuring leveraged-buyouts Case Studies Ubuntu Properties UPS A Bridge Too Dear Nukem Security Services Linens 'n Things Linens financials The LBO of ISS iss_financials.xls Reykjavik Fleet Leasing Articles Introduction to Leveraged Finance Debt-to-EBITDA Rating a Company Covenant Examples A Note on LBOs How to do an LBO in 1 page Spreadsheets wacc.xls ubuntu.xls ups2007.xls firmvolatility.xls leverage_effect.xls lbocapacity2.xls lbo_exit.xls
Day 2	Refinancing, Recapitalizations and Exit Leverage: Refinancing and deleverage Case study: Foodtree. How to deleverage after a buyout 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 Leverage and exchange offers Case study: Roadshow. We evaluate a proposed leveraged exchange offer to give management more control of a company Leveraged rollups (or build-ups) 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 Senior secured leveraged lending Assets versus cash flows as support for leverage Second lien financing Case study: CUSA Busways. How second-lien lending contributed to the leveraged buy-out of a bus company. Mezzanine and more Senior sub debt Pay-in-kind (PIK) notes Case study: Jefferson Smurfit. Delegates identify the factors that determine the rating of this "Holdco PIK" Warrant notes Case study: Georgepipe Mezzanine. Who gets the warrants, and what are they worth? Convertible notes and preferred stock Subordinated vendor financing Participation mezzanine Case study: Suriname Hydropower Services. Teams seek to structure a performance-linked mezzanine note for a private emerging-market company.	Presentations leveragedsa-recaps leveraged-techniques Case Studies Sealed Air Ahlsell's Recap RoadShow Cusa Busways Second lien term sheet Sealy PIK Norcross PIK Jefferson Smurfit Georgepipe Mezz Georgepipe Termsheet The Cognis Refinancing Suriname Hydro Articles Leveraged Rollups Leveraged Recaps The Value of Loan Covenants Second Lien Loans Pay-in-kind notes Mezzanine Finance Spreadsheets lbo_deleverage.xls roadshow.xls pik-and-pay.xls suriname.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 Focus: The US high yield market for non-US issuers A review of pricing and other key terms and their negotiation Case study: Reclamation Group. In this example of a company using leverage to effect a change in control, we discuss the financing options Hybrid bonds and capital note finance: debt or equity? Application to banks and corporate acquisitions Structuring a Leveraged Deal: Players and Pricing Proposing a buyout: example (Kaydon) Implementing a management buyout: senior, mezzanine and equity finance The sequence and legal structure Private equity investors: how a fund looks at a deal Sample fund pitchbook (Bostonian Capital) Arranging the bank finance: pricing and distribution of the loan Case study: Funding Marsh Diagnostics. Delegates examine the pricing and syndication structure of a term acquisition loan and revolver. 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? Structure and pricing of credit default swaps Leveraged synthetic CDOs and super-senior credit default swaps Arranging the mezzanine finance IHG Mezzanine Partners. How a mezzanine fund looks at a deal Post-deal management Last but not least: Restructuring and recovery Summary and Recap Additional resources: Valuation Models (xls) - Rough calculation for choosing the correct valuation model. Synergy (xls) - Estimates the value of synergy in an acquisition. 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 leveraged buyout. Corporate Finance and Debt Capacity Tables Sponsors' Role in Leveraged Debt Financing Leveraged Finance articles Sample documentation for leveraged loans, leases, etc ISS Actual Financing iss_solution.xls georgepipe.xls financing_suriname_solution.xls jordan_lbo_model_soln.xls foodtree_solution.xls Sources: damodaran.com, Bank of America Business Capital, and others	Presentations leveraged-cashflow leveragedsa-highyield leveraged-structuring Case Studies Jordan Cement U.S. Bancorp Hybrid Reclamation Group Kaydon Bostonian Capital Marsh Diagnostics Term Sheet KKR Financial CLO IHG Mezzanine Partners Articles Europe's High-Yield Debt Market Hybrid Bonds Synthetic ABS What is Private Equity? How LBO Funds Work Spreadsheets Jordan_LBO_model.xls noname_synthetic_clo.xls
The Instructor Ian 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 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 around the world. 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 Hudson River Watertrail Guide. He and his wife are the founders of Wildcliff, a nature reserve in the Western Cape.