Developments in Corporate Loan/Bond Structures

Transcription

1 Developments in Corporate Loan/Bond Structures Sebastian Maerker Dr. Bettina Steinhauer 14 June 2012

2 Key Structural Considerations Ranking Secured versus Unsecured Control over Enforcement Action Consistency of Documentation

3 Deal Structures Across the Credit Spectrum Unsecured loan/bond structures Evonik Hapag Lloyd Secured loan/unsecured bond structures Fresenius Heidelberger Druckmaschinen Secured loan/secured bond structures loan/bond deals with pari passu bond Continental/Schaeffler Kuka super senior revolving facility with bond

4 Senior Secured High Yield Structure High Yield Bonds Bank Co Senior Debt Target OpCo OpCo High yield bonds rank pari passu with senior debt and often share security with senior debt Intercreditor Agreement highly negotiated (no market standard yet) Enforcement of security generally controlled by senior debt (even if Bonds represent >50% of total Bank Co senior debt) Super senior revolver on bond-only deals Orphan issuer can be used to lend under new tranche into Senior Facility (e.g., Nara, Expro)

5 Ranking Structural ranking of payment obligations usually pari passu same borrower and issuer if different, guarantee from the other obligors Problem: corporate benefit and other limitations of guarantee same guarantors (if any) true pari passu deals pro rata payments super senior deals priority for RCF

6 Ranking (cont d) Contractual ranking always on secured loan/secured bond transactions ranking of payment obligations of borrowers and guarantors usually pari passu on payment obligations of borrowers and guarantors exceptions: guarantees in bonds on highly leveraged transactions ranking of security ranking of waterfall of enforcement proceeds rarely on secured loan/unsecured bond transactions but: loan may include provisions on: maturity of bond redemption of bond early payment of bond

7 Secured versus Unsecured BB and better: bond unsecured, loan at BB+ often still secured BB- and below: often both bond and loan secured pari passu on security and enforcement proceeds super senior loan (LBO structures only): senior ranking with respect to security and enforcement proceeds senior secured loan/senior subordinated bond with respect to security and enforcement proceeds Types of security share security over shares in obligors security over strategic assets of obligors, e.g. intercompany loans or cash pooling accounts full asset security over all assets of obligors

8 Control of Enforcement Action - Acceleration No intercreditor agreement => no restrictions on enforcement check: cross default/cross acceleration rights Loans: AA and better: cross acceleration Bonds: cross acceleration Where intercreditor agreement is put in place acceleration: usually no restrictions as bondholders and lenders senior creditors expect independent acceleration rights market expectation: loan covenants bite before bond covenants do; lack of MAC in bonds; maintenance covenants vs. incurrence covenants => breathing space for lenders Acceleration may, in some jurisdictions, result in directors filing for insolvency, thus undermining the security enforcement

9 Control of Enforcement Action Security Enforcement Pari passu loan/bond there have been a number of senior secured bonds issued to sit alongside existing senior secured bank loans intercreditor terms reflect the specific context: bond proceeds used to refinance existing bank debt lenders keen to reduce exposure investors focused on other aspects of the credit AFME/EHYA has postponed efforts to standardised terms bondholders expect equal treatment (i.e. overall majority vote) in some transactions banks initially control enforcement until loan has been reduced to a certain level (25% 35% of total debt) => gives bank disproportionate control above the level and minimal control below it

10 Control of Enforcement Action Security Enforcement (cont d) Super senior loan bondholders want control over enforcement argued that super senior refers only to ranking in the enforcement proceeds waterfall RCF lenders have accepted this position because (i) they were managing the bond issue (ii) the RCF is relatively small (iii) anyway, the RCF is super senior, isn t it? common guarantee and security package RCF and bonds are both free to accelerate RCF and bonds rank pari passu RCF is paid out ahead of the bonds in the enforcement proceeds waterfall following acceleration, no creditor can receive payments except by way of enforcement proceeds through the waterfall

11 Control of Enforcement Action Security Enforcement (cont d) Super senior loan (cont d) super senior character of RCF is not ensured for cash that is not derived from enforcement proceeds bondholders control enforcement of security subject to conditions: consultation bondholders must be taking positive action to enforce enforcement must realise sufficient cash proceeds public auction / fair value opinion required enforcement must be "prompt and expeditious" and completed within a specified period Otherwise, the RCF lenders can take over

12 Control of Enforcement Action Security Enforcement (cont d) Protecting the minority creditor group more prescriptive enforcement process consultation requirement third party opinions on enforcement strategy; public auction or fair value opinion minority creditors right to instruct after standstill period Bondholders lack of experience

13 Consistency of documentation Maturity Prepayments borrower will want maximum flexibility bondholders likely to be less interested in requiring mandatory prepayments (especially if at par during the non call period) banks will want to ensure that (i) voluntary prepayment/redemption of the bonds is capped and (ii) the bonds mature after the bank debt Covenant package Restrictions on changes to documents