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,
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
or to facilitate black empowerment ownership, or as an alternative to a
trade sale or
IPO for exit.
workshop on leveraged financing techniques will be taught
around seven 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, 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 explains why and when corporations
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
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
exercises, and will give participants the opportunity to augment
understanding of deals through group work, presentations and
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
securities analysts, private equity specialists, asset managers, and
individuals whose professional future may be enhanced by an
of leveraged and mezzanine finance techniques.
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.
Some of the 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 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?
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
- How can credit default swaps and collateralized debt
obligations be used to manage a leveraged loan portfolio?
|| 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
- Case study: Ubuntu Properties. The owner of private KNZ company is looking for acquisition
finance. Participants estimate the company's debt capacity and the
- 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
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
finance as a temporary capital structure
the deal done: bridge finance
study: A Bridge Too Dear. How should the bridge loan be priced?
And the senior debt?
- Capital market refinancing: ISS bonds
- Implementing a management buyout:
and equity finance
finance as a temporary capital structure
- Spreadsheet-based Debt Capacity
for leveraged finance
- Focus: synthetic ratings and debt
study: The MBO of Nukem Security Services. We trace the steps in
leveraged debt capacity analysis and paydown
- Focus: when things fall apart
study: Linens 'n Things
- How to structure and price the
funding for an acquisition or buyout
study: The LBO
of ISS. Delegates 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
- Case study: Reykjavik Fleet Leasing.
What value should we place on this company at exit?
Bridge Too Dear
to Leveraged Finance
Note on LBOs
to do an LBO in 1 page
Refinancing, Recapitalizations and Exit
Refinancing and deleverage
- Case study: Foodtree. How to deleverage after a
leverage: roll-ups and recaps
of high leverage on business efficiency and shareholder risk
recaps with share buybacks or special dividends to enhance shareholder
- 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
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
study: Roadshow. We evaluate a proposed leveraged exchange offer
to give management more control of a company
- Leveraged rollups
- 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 secured leveraged lending
versus cash flows as support for leverage
- Case study: CUSA Busways. How
second-lien lending contributed to the leveraged buy-out of a bus
study: Jefferson Smurfit. Delegates identify the factors that
determine the rating of this "Holdco PIK"
- Warrant notes
study: Georgepipe Mezzanine. Who gets the warrants, and what are
- Convertible notes and preferred
- Participation mezzanine
study: Suriname Hydropower Services. Teams seek to structure a
performance-linked mezzanine note for a private emerging-market company.
Second lien term
The Cognis Refinancing
Value of Loan Covenants
a Buyout: Cash Flow Modelling
High Yield and Hybrid Bond Financing
- Modelling a LBO: key corporate numbers
a LBO: key predictions
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.
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
study: Reclamation Group. In this example of a company using
leverage to effect a change in control, we discuss the financing
bonds and capital
note finance: debt or equity?
to banks and corporate acquisitions
Structuring a Leveraged Deal: Players and
- Proposing a buyout: example (Kaydon)
- Implementing a management buyout:
senior, mezzanine and equity finance
- The sequence and legal structure
equity investors: how a fund looks at a deal
fund pitchbook (Bostonian Capital)
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
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?
and pricing of credit default swaps
synthetic CDOs and super-senior credit default swaps
the mezzanine finance
Mezzanine Partners. How a mezzanine fund looks at a deal
but not least: Restructuring and recovery
Sources: damodaran.com, Bank of America
Business Capital, and others
- Valuation Models
(xls) - Rough calculation for choosing the correct valuation model.
- Synergy (xls)
- Estimates the value of synergy in an acquisition.
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.
Finance and Debt
Role in Leveraged Debt Financing
- Sample documentation for
leveraged loans, leases, etc
Diagnostics Term Sheet
High-Yield Debt Market
is Private Equity?
LBO Funds Work
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 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
River Watertrail Guide. He and his wife are the founders of Wildcliff, a nature reserve in
the Western Cape.