Advanced Private Equity & Leveraged Buy-Outs

Course Overview:

The debt markets fall into two broad categories; Investment grade or I-Grade (firms rated at least BBB) and High Yield (also referred to as Sub-investment grade or “Junk”). The High Yield segment includes two sub-categories, Corporates (listed or private e.g. Virgin Media) and those acquired by Private Equity firms (via LBOs or leveraged deals).

Whilst many of the financing tools and techniques used by Corporates and LBOs are the same with similar terms (senior debt, high yield) some instruments are peculiar to one segment only (e.g. mezzanine is rarely used in Sponsor-less deals). Despite these similarities, Corporates and Private Equity firms approach matters in subtle but significantly different ways; for example, in the past, PE firms have preferred more expensive mezzanine finance to, much cheaper, high yield debt. In the current market high yield bonds have enjoyed a fantastic 18 months with record issuance around the globe being used to extensively to refinance bank debt and banks have sought to deleverage.

This course deals with a number of related issues. First, it provides participants a template for identifying the key risks and opportunities in a private acquisition (not P2P). Second, it will impart a thorough understanding of the mechanics of Private Equity (excluding venture capital), covering the key terms and structures used by PE Funds and how this affects their approach to the deal and the financing. Third, it describes and explains, in detail, the various financing methods and techniques used by both PE firms & LBOs on the one hand and Corporates on the other, both in the current market and in the past (e.g. 2nd Lien, although that market is closed pre 2007 deals still include those instruments) and provides some background on how and why the markets developed so that participants will understand not only the current position but also how and why the markets may develop in the future (e.g. will PIK or 2nd Lien return).

The programme is highly intensive and will require participants to do some pre-course reading and familiarise themselves with the jargon used (a glossary will be provided in advance along with one case study).

Participants will also be sent an Excel model which will be used in various case studies during the programme to develop an appropriate capital structure. Reference will be made to topical issues and data during the course (e.g. European Directories) and topics will be reinforced with a number of caselets and case studies.

The programme will benefit those in Private Equity, Leveraged finance, Debt advisory and Restructuring. The programme adopts a pan-European approach to the topic but the presenter is able to discuss issues relevant in the USA and Asia in view of his exposure to those markets.

Participants will be required to bring a laptop to the course.

Course Content:

Offer Structure and Structuring issues
 Offer structure – cash free, debt free with normalised working capital/net asset value etc
 Risk matrix - Analysis of the five key value drivers / areas for due diligence
 Cash, debt, working capital, capex and EBITDA/cash run rate
 Techniques for mitigating the risks and identifying value
 SPA structuring – Locked box vs Completion Accounts
 The traditional PE value creation model (summary)
 New value creation model (deconstruction of the CAPM)
 Structuring issues
 Taking Security, Financial Assistance
 Tax issues
 Control / Squeeze-outs
 Structuring parameters - creating an appropriate financial structure (overview)
 Percentage senior, junior and equity in debt capital structure
 Ebitda multiples
 Target returns for PE & Mezz Funds

Financing Instruments: Key Terms, Conditions and Trends
 Spectrum of financing instruments in LBOs
 Senior loans
 Capex aspects
 RCFs – avoiding typical pitfalls
 Cash sweeps - typical, terms structure & issues
 Mezzanine and junior mezzanine
 Rationale of warranted vs. warrant-less
 Key issues for the warrant-holder
 Key issues in warrant-less deals
 High Yield Notes (FRNs and Fixed)
 Overview of HY market
 Pros & Cons of HY and why it has been so successful (Bonds vs Loans)
 Summary of key terms, pricing
 Call protection generally (FRNs vs Fixed)
 Issuance process & Bookbuilding
 Other forms of Debt (summary)1
 PIK & 2nd Lien
 Equity financing – typical structures and coupons
 Structure - Loans, Prefs, TPECs, DDBs
 Typical returns

The Lender’s Perspective
 Lender’s approach to credit decision
 measuring debt capacity
 security over assets
 exit routes
 Overview of loan documentation and impact on deal/restructuring
 Loan as a radar system
 Typical structure
 Key parties (Obligors, Borrowers and Guarantors)
 Key financial ratios / covenants
 Limitations / interaction of the ADSCR, Tot. Debt/Ebitda, Interest cover
 Selecting the appropriate ratio for the deal
 The four deal scenarios and the role of due diligence
 Inter-creditor agreement – overview of key issues

Sponsor’s Perspective
 Structuring the equity
 Ratchets
 Rationale, structure
 Pros and cons of positive vs. negative, stepped vs. linear
 Structure of the PE market – the main categories and impact on the deal metrics
 Structure and key terms for PE Funds (and impact of the deal)
 Investment period (how long)
 Preferred return (rate, calculation)
 Carry (European vs US approach)
 The 5 critical issues to Sponsors
 The business model
 Management - what PEs approach
 Approach to generating value/returns
 Exits – hard vs. soft
Management issues
 Multifaceted role and duties of management
 Issues vis-à-vis role as Director, Employee, Shareholder, Warrantor
 Key documents & terms
 Shareholders’ Agreement vs Articles/ Statues (pros & cons)
 Critical issues in the Investment agreement
 Good vs. Bad leaver
 Management warranties
 Equity – valuation issues pre exit (why “Fair value” is dangerous)
 Transfer issues – drag, tag-along rights
 Critical issues in the Service agreement
 Restraints
 Termination

Delivery:	Classroom
Regions:	London
Category:	Advanced Corporate Finance