Course dates
Course overview
The aim of this course is to provide you with exposure to leveraged and mezzanine financing techniques in the context of M&A and private equity structures. You will be introduced to international practice in executing leveraged transactions, which includes due diligence, accounting issues and valuation techniques. Case studies will include opportunities to structure leveraged finance transactions.
Summary of course content
- How leverage facilitates the achievement of corporate objectives
- How to use leverage to lower the weighted average cost of capital (WACC)
- LBO structuring
- Different types of leveraged transaction
- Other hybrid instruments: convertibles, structured products
- Second lien financing
- Mezzanine and non-senior debt financing
- Changes to covenant structures post-credit crunch
- Restructuring
- Distressed debt
- Asian perspective on mezzanine and restructuring
Methodolody
The course will use real life case studies and examples of transactions to develop understanding of the techniques being discussed. Most of the case studies are designed to encourage you to think more closely about the issues involved and discuss them as a group.
The course will improve your skills in acquisition analysis, structuring and valuation. Many examples will be provided to illustrate the key principles and to develop your understanding of real-life applications.
Computer-based execises
All delegates should bring their laptops to facilitate in-class studies and exercises.
Who should attend?
- Corporate financiers
- Lawyers working in corporate finance
- Accountants involved in corporate finance work
- Analysts
- Investors in private equity funds, mezzanine or high yield funds
- Restructuring professionals
- Financial advisers
- Corporate considering such transactions
Supporting publication
Day 1
LBO structuring
- Introduction to mezzanine instruments
- Financial analysis: producing pro forma projections
- Establishing the amount of debt that can be used
- Assessing the type of debt that can be used
- Computing the blended cost of capital
- Disadvantages of the high level of gearing
- Case study: International acquisition using bridge financing
- Leveraged buy-outs
- Different types of transaction: LBO, MBO, MBI, BIMBO, IBO, LBU, P2P, etc.
- Acquisitions suitable for leveraged finance
- Deal structuring: equity and debt (including senior and mezzanine debt)
- Refinancing with bonds or other capital instruments post acquisition
- The leveraged buy-out process
- Case study: A large multinational LBO
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Secondary buy-outs (SBOs)
- Structure
- Financial economics
- Management participation
- The envy ratio
- Exit strategies
- Case study: Building materials group buy-out of a buy-out
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Restructuring as a strategic option
- The theory
- Impact on incentives
- Mechanics: share buyback or special dividend
- The benefits
- Leveraged recap to release value for owners
- Leveraged recap as a defensive stratege
- Case study: M&B refinancing
Day 2
Credit ratios in LBO deals
- Mezzanine finance structures
- Key ratios determining the financing structure
- Preparing projections for the appraisal of an LBO and mezzanine opportunity
- Likely changes in loan covenants after the credit crunch
- Mezzanine in structure products (such as securitised debt)
- Using Monte Carlo simulation to simulate credit scenarios
- Non-bank financial institutions (structured investment vehicles - SIVs)
- Case study: Whole business securitisation
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Second lien financing
- Definition
- Providers
- Security arrangements
- Case study: Comparison of mezzanine structures in Asia, Europe and US
- Mezzanine and non-senior debt financing
- Senior vs. non-senior debt
- Mezzanine debt capacity
- Cost of mezzanine
- Using warrants to deliver value to lenders
- Subordination: structural and contractual
- Case study: Inter creditor agreements in an LBO
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Other mezzanine financing instruments: hybrids, convertibles
- PIK notes +/- warrants
- Cost of finance
- Subordinated debt
- High yield debt
- Convertibles
- Hybrid securities
- Restrictions, covenant structures
- Case study: High yield bond issue
Day 3
Distress and restructuring
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The road to financial distress
- Symptoms of distress
- Causes of distress
- The cycle of distress
- The role of covenants as early warning devices
- The rating agencies and missed problems
- Distressed security prices
- Systemic distress or ad hoc distress
- Speed of recognition vs. management denial
- Case study: Americredit and the US car industry
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Business plan failures
- Critical assumption failure causing distress
- Technological failure
- The Iridium case
- Revenue failure
- Project financing failure
- Case study: Channel Tunnel restructuring
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Pre-distress restructuring actions
- Management led business restructuring ahead of distress
- Cutting costs to meet a lower level of business activity
- Financial restructuring ahead of projected or possible distress
- The distressed debt investor’s approach to selecting distress candidates
- Case study: Raising equity for a major property company (Hammerson) before covenant breaches cause financial distress, LonMin cost cutting actions
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Restructuring options
- What business levels can be projected in the future
- Can the projections support the current debt burden?
- Does the company need more cash to execute the new plan?
-
Legal options available
- Approaches to insolvency (INSOL Principles)
- Workouts
- Prepackaged deals
- Court led/judicial restructurings
- Comparing international approaches
- Case study: Restructuring in Taiwan
Course summary
InterContinental Grand Stanford Hotel, Hong Kong, Hong Kong
This programme takes place on a non-residential basis at the InterContinental Grand Stanford Hotel. Non-residential course fees include training facilities, documentation, lunches and refreshments for the duration of the programme. Delegates are responsible for arranging their own accommodation, however, a list of convenient hotels (many at specially negotiated rates) is available upon registration.
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Paul Richards
Paul Richards graduated from Cambridge University in mathematics and has a Masters degree in business administration from London Business School. He is also a CFA charter holder, an Associate of the Chartered Institute of Bankers, a Member of the Association of Corporate Treasurers and a Fellow of UKSIP.
Paul has more than 20 years investment banking experience specialising in domestic and international corporate finance at UBS (Warburg), HSBC and Map Securities (part of Skandia Insurance and Mapfre, Spain). He was also the chief executive of the London merchant banking operation of Credit Industriel et Commercial, a major French banking group.
As a result of this experience, Paul has extensive first hand experience of: Mergers and acquisitions; IPOs; bond issues; secondary market issues; privatisation; debt syndications; corporate treasury; equity valuation; investment analysis; security and derivative valuation; private equity; modelling; corporate governance; and compliance.
Paul won the 2004 Wincott Foundation Prize for his article "Lessons in shareholder value" on the boom and bust in new economy stocks, published in Professional Investor (the journal of the UK Society of Investment Professionals - the UK member society of the CFA Institute). He has taught MBAs and Masters to Finance students at Cass and Cranfield Business Schools for more than 12 years in a range of financial disciplines; and has trained staff at major City houses and in banks on different continents.
Courses run by this instructor
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Course dates