The Banking and Corporate Finance Training Specialist

Cov-lite (& Cov-loose) Loans

Negotiating and analysing the key commercial terms and current trends in cov-lite and cov-loose loans

This course is presented in London on:

20 September 2018, 4 February 2019, 16 September 2019

This course can also be presented in-house for your company

or via live on-line webinar

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+44 (0)20 7387 4484

Course Overview

Participants will:

Acquire a detailed understanding of the key terms in cov-lite (and cov-loose) loans and how these differ from the LMA approach

Review the current market approach to springing leverage covenants in terms of the RCF thresholds, headroom

Review the current approach to equity cure rights – when and how?

Gain an understanding of the key aspects (terms) of high yield bonds which have been imported in the cov-lite loan market

Understand the “grower” and “builder” baskets which are used in the “Permitted” baskets and the variables that drive them (e.g. EBITDA, Total / Tangible Assets)

Analyse the key various “Permitted” baskets and how these vary from the LMA

approach (e.g. debt incurrence, acquisitions and disposals) Analyse how debt can be can reclassified between the various baskets and the

ratio debt basket Review the current trends to the definition of EBITDA with focus on borrower-

friendly add-backs and run rate adjustments

Discuss how the financial covenants and their constituents and how these affect other key terms of the loan (margin ratchets, debt incurrence)

Review lender protection in terms of yields, MFN and sunset periods and how borrowers can (and have) gamed the lenders

Topical issues in the market - restrictions on transfer (White and Black lists) –

when can the lenders sell and to whom? Holding limits and restrictions

Key Concepts Review of the various types of cov-lite and cov-loose loans and how they are

documented Structure of English cov-lite loan Structure of NY cov-liye loan

How to read/approach a New York style credit agreement The Restricted Group

Inclusions and exclusions Approach used in high yield bonds & why it matters

Re-designation of subsidiaries to and from the Restricted Group Non-guarantor restricted subsidiaries

Material subsidiaries

What constitutes at material subsidiary – market approach to the threshold % The various tests: EBITDA and other approaches

Relevance and application in the SFA Date and manner of determination- Certificate (LMA vs market approach)

Information and financial reporting

Term Loan “B” vs LMA approach Treatment of unrestricted group

Presentations Access rights

A Word About Baskets Use and application

Key variables and their ramifications Lender vs Borrower friendly

Fixed baskets

Course Content

Course Objectives

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Life time vs annual limit

Carry forward and back Grower

Application

Key variables Builder

Application Key variables

Are baskets refillable, can amounts be split, restrictions

Case: review of use and application of different types of baskets

Voting Thresholds, Amendments & Waivers LMA / EU thresholds vs NY style thresholds

Majority lenders Super-majority

Thresholds Typical matters

Entrenched rights

“Unanimous” consent? - Typical matters Facility change / Structural adjustments (or equivalent)

Approval Requirements Major vs minor vs payables Matters affected

Snooze you lose – timing Yank the bank

Required consent threshold Non-consenting trigger

Can non-consenting lenders be prepaid or bought at par Required source of funds

Debt buy-backs

Permitted Cap on amount

Disenfranchisement Yield / Margins, Ratchets & Call Protection & Hedging

Trends in LIBOR/Euribor floors Differences in NY law vs English law

Matters affecting the Floor OID – market trends Margin ratchets

Incidence – Application to facilities & step downs Commitments fees on RCFs etc

Call protection Application & Scope - Repricing Events Specific carve-outs (Specifc Asset Sales or Significant Acquisitions, CoC, IPO,

EBITDA increase, other) Basis of calculation of the Call protection (effective yield)

Hedging required

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Permitted Acquisitions & Investments Structure of ‘Permitted” acquisitions

Permitted Acquisitions – LMA vs Cov-lite approach Ability to acquire Majority interests & applicable requirements/ conditions

Type and structure of basket lifetime or annual limit

Typical tests & thresholds Similar or complementary business

Leverage test applicable to Target Due diligence requirement - Third party / Independent certification Other restrictions (jurisdiction)

Treatment of pro-forma synergies Can management add synergies to the test

What synergies qualify, time limits? Limits on non-guarantor entities Must target accede to the collateral package

Ability to acquire minority stakes Applicable requirements/ conditions

Permitted Asset Sales Requirements for assets sales

Threshold amount Nature of the consideration received

Other requirements Fair market value – certificates? Payment waterfall & de minimis amounts

Debt Incurrence

Incremental / additional debt generally “Accordion–style” facilities

Permitted Alternative debt Structure of incremental debt basket

Ratio debt vs hard vs soft caps

Grower cap Ratio & hard cap

Hard and grower caps High Yield Bond style

Accordion facilities Terms and conditions

Types of debt baskets Free and clear baskets General basket

Acquired debt basket Acquisition debt basket

Contribution debt basket Case: review of use and application of different approaches to incremental (and

accordion) debt

MFN & Sunset Provisions That Relate To Incremental Facilities MFN provisions – scope

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Incidence in deals Scope – application to specific facilities Method – margin cap vs all-in-yield cap

Other requirements and exclusions Structuring the yield cap to avoid being gamed by borrowers

Issues for lenders Sunset provisions

Incidence Duration Effective date?

Differences in NY law vs English law

Case: review of approach to MFNs and sunset provisions

Restricted Payments (Distributions)

Permitted / Restricted Payments General Basket(s) Hard vs soft caps “Source of funds” condition

“Builder basket” approach Investor Payments Leverage Basket

Typical range Available Amount (“AA”) / Cumulative Credit (“CC”) - Leverage compliance test Investor payments - Leverage Basket Funding Sources (other than AA/CC)

Other conditions for Investor Payments Leverage Basket (other than AA/CC)

Sponsor Fees & Sub-debt Payments Types of fees and their caps

Holding Co / Admin fees

Sponsor / Monitoring fees Advisory fees

Other material fees Parent Debt Servicing / Fees/ Expenses

Aggregate of hard capped equity and sub debt related payments Equity repurchases Employee benefits

Negative Pledge, Permitted Liens / Security

Can incremental debt be secured & if so what assets are available Existing collateral No collateral assets

Non-Guarantor Restricted Subsidiaries Restrictions on securing incremental debt

Availability of general and other baskets Hard vs soft “grower” permitted lien baskets Intercreditor accession

Mandatory Pre-payments (Cash Sweeps)

Excess cash Opening percentage Step down

Step down mechanism – linear or stepped

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IPO

Applicable repayment percentage [Available amount vs Cumulative Credit basket]

The five main basket combinations CNI and “out of the box” amount Build up basket start date – when does this start?

Ratio test Leverage

FCCR Other

Change of control

Is this treated as an EoD or mandatory prepayment Six approaches – automatic exit, Lender has option etc

Transferrability & Portability Transferrability

Whitelists / Approved lenders Blacklist / Disqualified Institutions List present Specific affected parties

Industry competitors Loan to own investors

Consent, Deemed consent & “Reasonableness requirement Triggers to facilittae sell-down Minimum transfer & hold sizes – interaction with Related/ Existing lenders

Matters affecting the RCF Portability

Ratings test Ratio - Leverage or Enterprise value ratio

Timing periods/limits & Frequency

Additional requirements

Financial Maintenance Covenants & Covenant Suspension Financial covenant package type Review of current market approach: Traditional vs Cov-loose vs Cov-lite

“Springing” leverage covenants What are they

Typical terms Aggressive add-backs to EBITDA

Synergies and other add-backs

Por-forma adjustments - Scope Run-rate adjustments – what does this mean in practice

Equity cures Current market approach – what can be cured; how often, over-cures?

Deemed cures – what are they and why they matter Deal outliers

Introduction of minimum EBITDA covenant

Maintenance covenants tested at greater intervals Covenant suspension

Trigger Availability and scope

Case: review of Equity cures

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Guarantor Coverage

Incidence of guarantor coverage GCT percentage (where present)

Exclusion of Material subsidiaries & materiality threshold Other market exclusions

Events of Default LMA EoDs and typical market exclusions

Clean-up period Cross-default or cross-acceleration Right to accelerate

Grace periods Non-payment

Other obligations Commencement of grace period

MAC

Review of market variations

The trainer is a consultant, public speaker and author. He provides training programmes globally to a blue-chip client base on private equity, debt finance, loan documentation and

restructuring. He is a senior consultant with Debt Explained and as such has access to current market trends and developments in the cov-lite loan market. He is also a Senior consultant to Grant Thornton UK (Debt Advisory) and is also a Senior Advisor to KMPG Finland.

He has spoken at conferences in the UK, Europe, Australasia & South Africa. He provides

training to a wide range of banks, law firms, advisors and other parties involved in the leveraged loan market on a bespoke, in-house basis. Additionally, he is the Programme Director for the infrastructure/project finance module for the MBA programme at the Cass

Business School in London.

The European leveraged loan market has experienced significant changes over the last few years. The market has bifurcated into two segments; larger loans above roughly 200m

which compete with the high yield bond market and smaller loans. The latter continue to follow LMA leverage precedents, however the larger loans have adopted many aspects

imported from the high yield bond market. The most obvious and high profile example is the advent of cov-lite loans. High yield bonds have incurrence rather than maintenance covenants and these larger loans have been forced to follow suit with the result that the

incidence of financial maintenance covenants has declined alarmingly (from the lenders’ perspective); grower and builder “Permitted” baskets have also become a standard feature

(with some even appearing in loans sub 50m) along with the ability to reclassify amounts as between baskets. At the same time borrowers have taken advantage of current borrower-friendly conditions to curb lenders’ ability to transfer their loans and thus limit their

downside. The programme uses data from the Debt Explained database to review the current trends prevalent in this dynamic market.

Course Summary

Background of the Trainer

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+44 (0)20 7387 4484

09:00-17:00

London

Standard Price: £695 +VAT Membership Price: £556 + VAT

09:00-17:00

London

£725 +VAT (£870)

In-House Training

Delivering this course in-house for a number of participants could be very cost effective.

The venue and timing can be agreed to suit the client, as well as the selection of the trainer and the

precise contents of the seminar.

Tailored Learning

All of our training courses can be tailored to suit your company’s exact training needs.

We will work closely with you to help develop a training programme with content that is unique for your organisation.

Please email us on enquiries@redcliffetraining.co.uk for more information

E-Learning This course can also be presented as a bespoke e-learning programme created by you to fit your exact

requirements.