Presenting a live 90-minute webinar with interactive Q&A Acquisition Financing: Evaluating Layers of Capital, Negotiating Loan Terms, Navigating Regulatory Developments THURSDAY, DECEMBER 17, 2015 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Lawrence F . Flick, II, Partner, Blank Rome , New York Kelly M. Dybala, Partner, Sidley Austin , Dallas S. Randy Lampert, President, Lampert Debt Advisors , New York The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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LAMPERT DEBT ADVISORS Lampert Debt Advisors is a boutique investment bank specializing in arranging debt financing for privately- owned, sponsor-backed and publicly-traded companies 30 years of experience, over $15 billion of debt financings completed for over 60 clients Experience across a broad array of industries including technology, Randy Lampert telecommunications, financial services, industrial, and consumer/retail President randy.lampert@lampertdebtadvisors.com Co-founder of Debt Capital Markets Group and Head of Business Development at Morgan Joseph Founder and Head of Leveraged Finance at Nomura Securities December 2015 | 5
MIDDLE MARKET ACQUISITION FINANCING OVERVIEW Uber-competitive environment for attractive assets is … and resulting in leverage levels not seen since the driving valuations to all time highs … halcyon days of 2007 … or is it the other way around?? Purchase Price Multiple Leverage Multiples 5.4x 12.1x 5.3x 5.1x 5.0x 4.9x 4.8x 4.6x 10.7x 4.2x 9.6x 9.3x 3.9x 3.9x 8.8x 8.4x 8.3x 8.2x 7.9x 6.6x 2007 2008 2009 2010 2011 2012 2013 2014 1Q-3Q15 3Q15 2007 2008 2009 2010 2011 2012 2013 2014 1Q-3Q15 3Q15 FLD/EBITDA SLD/EBITDA Other Sr Debt/EBITDA Sub Debt/EBITDA December 2015 | 6
TOO MUCH CAPITAL, CHASING TOO FEW DEALS Dry powder abounds for both private equity sponsors and lenders, alike; however acquisition-related volume has been relatively soft A lack of M&A activity has led to weak year-over-year … creating a favorable pricing environment for acquisition related loan volume borrowers Pro Rata and Institutional Leveraged Loan Volume Pro Rata and Institutional Spreads $3.0 L+700 $ in billions L+600 $2.5 L+500 $2.0 L+400 $1.5 L+300 $1.0 L+200 $0.5 L+100 L+0 $0.0 Pro Rata Institutional Institutional Pro Rata December 2015 | 7
ASSET-BASED LOANS REMAIN A KEY COMPONENT Intense competition amongst banks for asset-based facilities has resulted in extraordinarily favorable pricing for borrowers ABL volume increased significantly in the 3Q15 3Q15 spreads averaged L + 164 bps, Commitment fees reaching $15.7 billion ticked up slightly in 3Q15 to 35 bps Volume and Number of Deals ($ in billions) Average ABL Spreads (bps) (1) L+500 $35 90 $33 L+450 80 $30 L+400 70 $25 $25 L+350 60 $21 $20 $20 L+300 $19 $20 50 L+250 $16 $16 40 $15 $13 L+200 30 L+150 $10 $7 20 L+100 $5 $3 10 L+050 L+000 $0 0 2007 2008 2009 2010 2011 2012 2013 2014 1Q15 2Q15 3Q15 Volume Number of Deals Footnotes: (1) Data for 3Q14 unavailable; (2) Data for 4Q14 unavailable December 2015 | 8
PREVAILING TRENDS The prevalence of non-bank lenders, such as BDCs and private debt funds, combined with regulatory constraints impacting commercial banks, has underpinned the shift away from traditional bifurcated debt structures Observation Commentary • Unitranche becoming more commonplace Ease of execution combined with attractive pricing make unitranches very competitive • AAL rather than intercreditor • Pricing of L + 650 – 1000 depending on the credit • Forcing junior capital (2 nd lien / mezz) providers to be more flexible in order to win mandates • Tighter pricing, fees • 30-35% covenant cushions • Greater intercreditor flexibility • Covenant flexibility Cushions of 25%+ for first lien and unitranche • Availability of delayed draw facilities for Acquisitions Typically limited to 12-18 months for banks, longer for non-bank lenders • Net neutral impact on pro forma leverage • Conditioned on prenegotiated metrics, e.g. purchase multiple, line of business, geography, etc. December 2015 | 9
PREVAILING TRENDS The prevalence of non-bank lenders, such as BDCs and private debt funds, combined with regulatory constraints impacting commercial banks, has underpinned the shift away from traditional bifurcated debt structures Observation Commentary • Impact of leveraged lending guidelines Tangible impact on banks’ appetite for leveraged credits • 3.0x senior / 4.0x total leverage for domestics • 3.5x – 4.0x senior / 5.0x – 6.0x total for foreign banks • Required Due Diligence Quality of Earnings from reputable firm is almost universally required • LDA has recommended clients engage the accounting firm early in the process to accelerate the closing timeline December 2015 | 10
LDA DEBT FINANCING AUCTION PROCESS Structure Implement optimal structure based on real-time knowledge of current market terms and requirements and the company’s needs Identification and mitigation of credit and transaction-related risks Specific covenants and inter-creditor terms established upfront to avoid “eleventh hour” negotiations Solicitation Rapid deployment and comprehensive solicitation of investors for each financing layer Concentrated management meetings minimize distraction from running the business Successfully secure multiple proposals and commitments to enhance degrees of freedom throughout the process Closing Seamless transition from commitment to closing Reduction in closing surprises and elimination of “drift” in terms Increased likelihood of successful closing December 2015 | 11
SELECT RECENTLY COMPLETED TRANSACTIONS $430,000,000 $152,000,000 Undisclosed $78,500,000 Undisclosed Business Combination Recapitalization Acquisition Financing Acquisition Financing & $250,000,000 Refinancing has acquired has acquired has acquired has merged with Exclusive Financial Advisor, Exclusive Financial Advisor Placement Agent, and Co- Exclusive Financial Advisor Exclusive Financial Advisor Exclusive Financial Advisor Manager and Placement Agent and Placement Agent and Placement Agent and Placement Agent $38,000,000 $75,000,000 $77,200,000 $66,000,000 $45,000,000 Recapitalization Recapitalization Recapitalization Recapitalization Acquisition Financing PAQ, Inc. & QSI, Inc. 2100 Trust, LLC Operator of: has acquired A Monomoy Capital Partners Portfolio Company Exclusive Restructuring Exclusive Restructuring Exclusive Financial Advisor Exclusive Financial Advisor Advisor and Placement Exclusive Financial Advisor Advisor and Placement and Placement Agent and Placement Agent Agent and Placement Agent Agent December 2015 | 12
Acquisition Financing: Evaluating Layers of Capital, Negotiating Loan Terms, Navigating Regulatory Developments Lawrence F. Flick, II, Partner, Blank Rome, New York 212.885.5556 Flick@BlankRome.com Kelly M. Dybala, Partner, Sidley Austin LLP, Dallas 214.981.3426 kdybala@sidley.com
Structuring the Transaction • Cash Flow vs. ABL – ABL Financing • Typical ABL Loan: based on a formula (i.e. borrowing base) – Important to understand real availability in ABL structures; tension between lender discretion in borrowing base criteria versus borrower's desires for certain of access to capital – Split collateral package loans • Benefits: Lower cost of capital; flexibility on investments/restricted payments • Detriments: Level of reporting 14
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