Presenting a live 90-minute webinar with interactive Q&A Syndicated Loan Agreements: Amend and Extend, Borrower and Affiliate Lender Buybacks, Cashless Rolls and Disqualified Institutions Structuring Provisions to Address Lender and Borrower Objectives and Risks THURSDAY, NOVEMBER 13, 2014 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Geoffrey R. Peck, Partner, Morrison & Foerster , New York Bridget K. Marsh, Executive Vice President - Deputy General Counsel, The Loan Syndications and Trading Association , New York Tess Virmani, Assistant General Counsel, The Loan Syndications and Trading Association , New York Ted Basta, Senior Vice President of Market Analysis & Data, The Loan Syndications and Trading Association , 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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Syndicated Loan Agreements Pro Rata Sharing Provisions, Amend & Extends, Borrower and Affiliated Lender Buybacks, Cashless Rolls, and Disqualified Institutions Structuring Provisions to Address Lender and Borrower Objectives and Risks Theodore Basta, Senior Vice President - Market Analysis, LSTA Bridget Marsh, EVP and Deputy General Counsel, LSTA Geoffrey Peck, Partner, Morrison & Foerster LLP Tess Virmani, Assistant General Counsel, LSTA November 13, 2014
Presentation Overview Overview of Current Market Conditions in the Syndicated Loan Market Pro Rata Sharing Provisions Borrower Buybacks and Affiliated Lender Buybacks Amend & Extend Transactions Disqualified Institutions and DQ Lists Refinancings - Cashless Rollovers 5
Overview of The Corporate Loan Market 6
Total Corporate Loan Commitments and Outstandings Have Reached a Record $3.4 Trillion Dollars Total Outstanding Total Committed $4,000 $3,500 $3,000 $2,500 Billions $2,000 $1,500 $1,000 $500 $- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Shared National Credit Program 7
Total Leveraged Debt Outstanding (Bonds & Loans) Has Reached a Record $2.4 Trillion Dollars in 2014 Institutional 1st Lien Bank Debt 2nd-Lien Bank Debt Sr Secured Bonds Sr Unsecured Bonds Subordinated Bonds $2500B $2000B $1500B $1000B $500B $0B Source: S&P Capital IQ LCD 8
Institutional Loan Lending Activity Took Off in The Mid- 2000’s as The Investor Base Shifted Away From Banks Banks & Sec. Firms RC Inst TL Term Loan A Term Loan Non-banks (Institutional Investors) 100% $1,200 $1,000 Primary Inst. Lending Mkt. Share 75% Leveraged Issuance (Billions) $800 50% $600 $400 25% $200 $ - 0% 1997 1997 1999 2001 2003 2005 2007 2009 2011 2013 1999 2001 2003 2005 2007 2009 2011 2013 Source: S&P LCD Capital IQ 9
CLOs Accounted For a Record 68% of Non-Bank Institutional Lending During 3Q14 Mkt Share of Primary Institutional Lending CLO Issuance Loan Mutual Fund Flows 2012 2013 1H14 3Q14 $100 70% 68% 60% $80 50% $60 40% 30% Billions $40 20% 15% 10% $20 0% Hedge, Fin. & Retail CLOs $- -10% Dist. & Insur. Cos Loan 2012 2013 Jan-Oct 2014 HY Funds Funds $(20) Source: S&P Capital IQ LCD and Thomson Reuters LPC 10
Almost 50% of 2014 Institutional Lending Volume Was Used to Finance M&As and LBOs Bookrunner # of Market Rank Bank Holding Company Volume Deals Share 2014 Institutional Volume by 1 Bank of America Merrill Lynch 5,849,722,222 33 15% Purpose 2 Deutsche Bank 5,472,867,383 27 14% 3 Credit Suisse 4,224,469,133 23 11% Refinancing 29% 4 Barclays 3,171,131,278 20 8% 5 Goldman Sachs & Company 2,394,714,286 14 6% 6 JP Morgan 2,266,063,889 17 6% M&A 30% 7 Citi 1,970,014,050 14 5% 8 Morgan Stanley 1,955,014,286 14 5% 9 Macquarie Group Ltd 1,835,407,619 7 5% Other 10 Jefferies Finance LLC 1,454,250,000 8 4% 7% 11 RBC Capital Markets 1,279,478,181 15 3% 12 UBS AG 1,234,785,161 8 3% 13 General Electric Capital Corp. 1,197,183,333 15 3% Recap/Divi Recap/IPO dend 2% 14 Wells Fargo & Company 1,074,138,889 10 3% 12% 15 Nomura Holdings 1,065,083,333 7 3% LBO 16 BMO Capital Markets 509,729,500 8 1% Exit 18% Financing 17 KKR & Co 419,454,917 4 1% 2% 18 Mizuho Financial Group Inc. 366,121,583 3 1% 19 Natixis SA 343,333,333 4 1% 20 RBS 319,629,500 5 1% Source: S&P Capital IQ and Thomson Reuters LPC 11
Overview of The Institutional Primary & Secondary Markets 12
The Primary & Secondary Institutional Loan Markets Are Very Much Inter-Connected Avg. Primary Market New-issue Institutional Yield 7% 6% 5% 4% Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Average Bid in Secondary Market 100 99 98 97 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Source: Thomson Reuters LPC 13
S&P/LSTA Leveraged Loan Index (LLI) Outstandings Have Grown to a Record $800B – Up $270B in Two Years S&P/LSTA Leveraged Loan Index: Par Amount WA Rating (8=BB- / 9=B+ ) Outstanding 9.0 $850 8.8 8.6 $800 8.4 $750 8.2 8.0 Billions $700 Oct-12 Oct-13 Oct-14 $650 New Issue Primary Spread 500 $600 450 $550 400 $500 350 $450 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 300 Oct-12 Oct-13 Oct-14 Source: S&P /LSTA Leverage Loan Index 14
LTM Secondary Trading Volumes Total a Record $598B 1Q-3Q14 Annualized Volumes Equal $634 B Annual Trade Volume TOTAL PAR DIS $700 $200 $600 $175 $634 $500 $150 Billions $520 $517 $125 $400 Billions $100 $300 $75 $200 $50 $100 $25 $- 2007 2008 2009 2010 2011 2012 2013 LTM 1-3Q14 Ann. $- 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 Source: The LSTA Trade Data Study 15
Prices in The Secondary Loan Market Traded Down to 20-Month Lows During The Middle of October Advancers Decliners Avg. Bid Avg. Bid-Ask Spread 99.0 100 100% 98.5 Bid-Ask Spread (basis points) 90 75% 98.0 Avg. Bid 97.5 80 50% 97.0 70 25% 96.5 96.0 60 0% 9/2/14 9/9/14 9/16/14 9/23/14 9/30/14 10/7/14 10/14/14 10/21/14 10/28/14 Sept. 14 Oct. 14 Source: LSTA/Thomson Reuters LPC 16
The Secondary Loan Market Offers Lenders a Diverse Risk-Return Profile Which Allows For Diversification Discounted Secondary Spreads (3Yr) Jul-14 Oct-14 Jul-14 Oct-14 L+1000 L+900 L+900 L+800 L+800 L+700 L+700 L+600 L+600 L+500 L+500 L+400 L+400 L+300 L+300 L+200 L+200 L+100 L+100 L+ L+ BBB BB B CCC Source: S&P/LSTA Leveraged Loan Index 17
PRO RATA SHARING PROVISIONS 18
A Basic Tenet of Syndicated Lending Is That Lenders Are To Be Treated Ratably A fundamental principle in credit agreements is that all lenders of a particular tranche are to be treated on a pro rata or “ ratable ” basis (subject to limited exceptions). Because payments are made through an agent, the pro rata treatment is largely self-operative. Pro Rata Treatment Provision “Except to the extent otherwise provided herein: (i) each Borrowing shall be made from the Lenders, each payment of commitment fees shall be made for account of the Lenders, and each termination or reduction of the amount of the Commitments shall be applied to the respective Commitments of the Lenders, pro rata according to the amounts thereof; (ii) each Borrowing shall be allocated pro rata among the Lenders according to the amounts of their respective Commitments (in the case of the making of Loans) or their respective Loans that are to be included in such Borrowing (in the case of conversions and continuations of Loans); (iii) each payment or prepayment of principal of Loans by the Borrower shall be made for account of the Lenders pro rata in accordance with the respective unpaid principal amounts of the Loans held by them; and (iv) each payment of interest on Loans by the Borrower shall be made for account of the Lenders pro rata in accordance with the amounts of interest on such Loans then due and payable to the respective Lenders .” (See “LSTA’s Complete Credit Agreement Guide”) 19
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