What
is Leveraged Finance?
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. Today
many
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.
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The
Course
This interactive
course offers a practical study of the techniques and pricing of
leveraged, mezzanine, and equity-linked debt with a special
emphasis on the
private sector in emerging markets.
The
workshop will include case studies of actual deals in Africa and other
emerging markets, showing how leveraged and mezzanine debt can serve as
a
catalyst to help an enterprise or project to get started. We'll use
lecture-discussions, spreadsheet analysis, deal memorandums and
hands-on
exercises. These will give participants the opportunity to demonstrate
their
understanding of techniques that can be employed in structuring
transactions in the future .
Who
Should Attend?
The seminar is of relevance to corporate financial 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.
Some
Features of the Course
What can participants expect to gain from this course?
- Identify the key benefits and risks of
leveraged
finance
- Learn
or update knowledge of required rates of return, cost of capital, and
acquisition finance
- Be able to identify appropriate
subordinated and mezzanine financing techniques for particular
situations in emerging markets
- Work out appropriate rates of return for
risks taken, and how to structure the payment of these returns
- Learn about 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?
- Discuss the right pricing and covenant structure for
leveraged acquisition lending.
- Perform a cash flow analysis to model the
senior, mezzanine and equity paydown
- Learn post-deal leveraged loan management,
restructuring and exit decisions.
Workshop
participants will be provided with a package of
materials
useful for developing leveraged financing proposals, including
pertinent articles, case studies based on
actual deals, and sample
spreadsheets.
Outline
of Workshop
Date
|
Topics
|
Resources
|
| Day One |
Emerging Market Finance: Debt, Equity and Mezzanine
- What is Leveraged Finance, and where
does it fit into a company's financing strategy?
- The global market for leveraged
finance
- 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.
Delegates estimate the company's debt capacity and the owner's
options.
- The investor's required return on
debt and on equity
- The corporate cost of funding:
techniques of effective cost analysis
- Cost of capital in emerging markets
(Example: Required returns in
Equatorial Guinea)
- Leverage optimization through WACC
simulation
- Case
study: Lifetime Fitness.
Delegates 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
- Case
study: The Management Buyout of Nukem Security Services. We
trace the steps in
leveraged debt capacity analysis and paydown
- 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
- 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?
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Presentations
unicapital-restructuring
unicapital-buyouts
Case Studies
Ubuntu
Lifetime WACC
ISS Bridge
Nukem
The LBO of ISS
ISS Financials
Spreadsheets
ubuntu.xls
lifetime_wacc.xls
lbocapacity2.xls
reykjavik.xls
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Day
Two
|
Mezzanine
Financing Techniques
- Checklist of senior and subordinated
financing techniques
- Senior secured debt in emerging
markets -- what does it mean?
- Global default and recovery tables
- Second lien versus senior-sub
mezzanine
- Case
study: Second Lien Facility. How would you adapt this term sheet
to your client's needs?
- Sale-and-leaseback financing
- Step-up rates, PIKs, participations,
warrants, preferred
- Case
study: PIK Finance
- Seller notes
- The structure and pricing of sub debt
and warrants
- Example:
Woodstream's
Mezzanine. What is the effective cost to the issuer of this
mezzanine debt?
- Terms and conditions of a mezzanine
transaction
- An alternative to warrants:
valuation-linked exit
- Performance-linked participation
debt: an alternative form of mezzanine
- Spreadsheet analysis of EBITDA-linked
debt
- Mezzanine as a catalyst in private
development finance
- Four forms of mezzanine for emerging
markets: performance-participation notes, subordinated debt with
warrants, convertible notes, and preferred stock
- Case
study: Maputo Fruit. What are the advantages and
disadvantages of the Contingent Payment Unit in this deal? What are the
exit possibilities?
Emerging
Market Applications: Empowerment Acquisitions, Buyouts and Recaps
- Structuring a leveraged buyout where
exit is limited
- Terms and pricing of the senior and
mezzanine in
no-liquidity situations
- Setting targets and linking payout to
performance
- Evaluating a funding proposal with
revenue-linked mezzanine debt
- Case
study: Suriname Hydro LBO. Can you model the feasibility of this
proposed buyout in Senegal?
- Leveraged
recapitalizations with share buybacks or special dividends to enhance
shareholder
value
- Leveraged
defensive recaps: how a company with
stable and growing free cash flows
can exploit its debt capacity
- Leveraged recaps for ownership transition
or cash-out
- Case study: RoadShow. In this
example of a company using leverage to effect a BEE change in control,
delegates discuss shareholders' options.
- Leveraged rollups
(or build-ups)
- Share puchase financing for
empowerment acquisitions
- Security: the shares, the buyer, the
company
- Implementing a share purchase
financing: cash
flow analysis
- Case
study: African Haven
- Exit analysis
- Exiting the deal: payout from sale
- Exiting the deal: payout from put
option
- Exiting the deal: payout from
operating cash flows
- When things go wrong -- what recourse?
- Discussion
session of Mezzanine Matrix: Structural features and a cost-benefit
analysis of four forms
of mezzanine
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Presentations
unicapital-techniques
unicapital-applications
Case Studies
Marsh
Diagnostics
Second Lien Facility
Sealy PIK
Woodstream Mezz
Woodstream Termsheet
Suriname Hydro
RoadShow
African Haven
Spreadsheets
woodstream.xls
participation_mezz.xls
financing_abc.xls
roadshow.xls
african_haven.xls
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Additional Resources
Background
Reading
Notes
on cost of
capital
and capital
structure
Corporate
Finance and Debt
Capacity Tables
Note
on Leveraged Buyouts
Second
Lien Loans
Mezzanine
Finance 1
Mezzanine
Finance 2
Senior_Secured_Facilty
term sheet
Subordinated
notes term sheet
Useful Links
fitchratings.com (bond
ratings)
damodaran.com
(industry ratios)
advfn.com (corporate financial ratios)
About the Instructor
Dr. Ian
Giddy,
born in South Africa, has taught finance at NYU, Columbia, Wharton,
Chicago and
in over 40 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
North and South America, Europe, Asia, the Middle East and Africa. As a
banker and consultant he has been involved in the
growth of the structured finance 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, and Asset Securitization in Asia. He
and his wife are
the founders of Wildcliff, a nature reserve in South Africa's Langeberg
mountain range.
About Unicapital
Unicapital is a Pan African
financial advisory firm operating in Johannesburg, South Africa. For details, see unicapitalsa.com
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