Negotiating & Issuing High Yield Bonds High Yield Bonds – Trends in issuance, structuring, covenants, pricing & documentation This course is presented in London on: 18 January 2018, 17 May 2018, 08 October 2018

The Banking and Corporate Finance Training Specialist

Background of the Trainer  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, and loan documentation and restructuring. He is a senior consultant with Debt Xplained, with Grant Thornton UK (Debt Advisory) and is also a Senior Advisor to KPMG Finland. He has spoken at conferences in the UK, Europe, and Australasia & South Africa. He provides training to a wide range of clients on a bespoke in-house basis & publicly through Redcliffe Training Associates. Additionally, he is the Programme Director for the infrastructure / project finance module for the MBA programme at Course Overview the Cass Business School in London. Course Objectives Participants will:  Gain an appreciation of the key terms of high yield notes  Understand why and how covenants matter to investors  Explore a template for risk assessment  Understand the limitations on debt financing, including the use of “baskets”  Get to grips with the key accounting definitions & impact on covenants  Master the issues pertaining to security, liens, guarantees & subordination  Explore the issues surrounding value leakage, with the help of a case study  Review deal outliers and aggressive terms used in 2016  Gain and understanding of call protection, change of control & equity claw  Be taught about the relevant intercreditor issues (LMA SSRCF)  Gain an understanding of specific issues re Junior (PIK) Notes Course Overview The High Yield bond market has started 2017 with a bang seeing volumes of €23.8 billion from 60 transactions in Q12017, representing the third best start to the year since 2006. While much of the issuance has been in BB territory, paper is being written at tight spreads across the credit spectrum with Play’s €500 million PIK Toggle (B-/Caa1) priced at 5.375% fixed being an excellent example. Veralia returned to the market to relaunch a PIK Toggle (pulled last October) providing further evidence of strong primary demand. This programme is designed to provide participants with an in-depth guide to negotiating an appropriate covenant package for New York-style high yield bonds. It will also benefit players in the syndicated loan / TLB market whose terms increasingly mimic those found high yield bonds (e.g. grower/builder baskets and other HYB-style features imported to the loan market). The high yield incurrence based approach to covenants affords issuers with a much higher degree of financial and operational flexibility than traditional loans whilst simultaneously seeking to provide investors with an appropriate level of protection through the credit and business cycle. The complexity of the high yield covenant flows from the fact that many terms in the documents apply in different areas and are often inter-dependent. For example, distributions to investors also depends on the restricted groups’ ability to incur debt whilst (grower) baskets which cascade through the indenture are governed by EBITDA, which itself is the subject of increasingly issuerfriendly add-backs (e.g. sponsor payments to use a trite example) Whilst the high yield bond indenture follow the same format, the devil is hidden in the detail which can be discovered only through an in-depth analysis of the Indenture. For example, some recent issues have applied adjustments to financial ratios in differing ways within the same Indenture, enabling management to game the covenants to their advantage. In other cases, leverage ratios have excluded different types of debt to enable issuers to maximise leverage and http://redcliffetraining.com

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effectively undermine noteholders’ collateral. Perhaps more significantly for investors, redemption rights and equity claw-backs have come under increasing pressure increasing reinvestment risk and potential value erosion. Other aspects of the covenant package which have been under attack relate to restricted payments (i.e. distributions) via the use of free and clear baskets and the ability to reclassify from relevant baskets. During the programme, the covenant package will be discussed with reference to extracts from recent Indentures. Current market trends will be illustrated with selected data from DebtXplained (the key provider of information to the European high yield community) providing guidance on what is, and is not, market standard. Against this background the course now includes a number of new sections; first, specific aspects that relate to PIK notes using analysis from DebtXplained; second, some of the intercreditor issues that flow from the super-senior RCF structures which dominate market issuance; third, to provide participants with greater visibility into the market, an overview of the issuance process and finally, how issuers approach the issue of pricing. For Issuers, the programme identifies the key structuring & documentary issues to ensure that they are able to achieve maximum operational flexibility post issuance. It also provides some guidance on what is required to be able to access the capital markets. Case Studies: Participants will be required to (1) analyse the pros and cons of various structures currently used in the market (2) identify some of the key areas of value leakage and (3) discuss the role and impact of subordination.

Course Content Summary of the key terms of High Yield Notes  High yield spectrum; First lien Notes, 2nd Lien Notes & PIK Notes  Types of Notes & coupons: Fixed & FRNs  Typical yields & maturities  Which Companies can access the market: market considerations  Typical Debt capacity metrics  Issue size  Other market-related factors  Small is beautiful?  Reporting requirements, Offering venue & Listing & Credit ratings  Review of Pricing  Key issues that affect pricing  Theory vs practice Covenants - why and how they matter to investors (overview)  Upside protection  Call protection /redemption (current examples)  Equity claw-backs – market trends  Downside protection  CoC put  Default risk  Debt incurrence  Asset sales  Affiliate transactions  Merger covenants  Impact on recovery in distress  Anti-layering http://redcliffetraining.com

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 Permitted liens and Permitted collateral liens  AFME’s wishlist  Key areas of focus in 2016 A template for risk assessment  Review of Corporate and Financing Structure  The Restricted Group - why and how it matters  How/when can Restricted Subsidiaries become Unrestricted  Jurisdiction of Guarantors, Issuer, Borrowers  Impact on recovery in distress (q.v. Thomas Cook)  Use of proceeds  Overview of the key areas of the Covenant package  Limits on Debt: Ratio Debt Basket & Permitted Debt baskets  Security & Subordination (Liens)  Value Leakage Limitations on Debt (Ratio Debt basket & the Permitted baskets)  Limitation on Debt / Ratio Debt Basket: key ratios & issues  Fixed Charge Cover & Coverage ratio:  Constituents & range  Which Group companies can use: (typical inclusions & exclusions, non-Guarantor subs)  Leverage & Secured Leverage ratio  Constituents of the ratios and typical range in market  The various Permitted Debt (“Capped”) “baskets”  Summary of the various baskets (Liens, Collateral Liens, Restricted Payments, Permitted Investments)  Baskets & why they matter  Approach to “capping”  Issues to watch  EBITDA add-backs  Debt reclassification issues  Other topical issues re the baskets “dumping”, “one-time” vs “revolving” baskets  Payment waterfall & Hedging issues Key Accounting definitions & impact on covenants  Definition of Indebtedness  Typical exclusions: Operating Leases & related issues (Fixed or Frozen GAAP)  Unusual exclusions  Definition of EBITDA & related issues  The categories of add-backs  EBITDA add-backs per Management “discretion” vs. GAAP/IFRS compliance  Pro-forma adjustments in M&A  The 5 categories  Management “good faith”  Run-rate EBITDA Security, Liens, Guarantees & Subordination  The main issues  Security package generally  Topical issues: CoMI & Restructuring  Guarantees & issue of Non-Guarantors  Liens, Permitted Liens & Permitted Collateral Liens  What to look for at the outset  Issues to watch  Refinancing debt issues  Liens: equal or rateable http://redcliffetraining.com [email protected]  Review Guarantor & non-guarantor issues

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Case: Covenant analysis of Algeco’s 2018 Senior Secured Notes in light of the proposed Modular Space Corporation “merger” Value leakage:  The Restricted Payments basket: who & what is covered  What to look for at the outset  Build-up basket  Carve-outs  Build-up basket issues (q.v. Eco-Bat)  Valuation issues - Fair Market Value  Non-cash considerations  Payment waterfall (sales)  Affiliates Transactions (sweetheart deals)  When are they relevant  Key areas of leakage  Permitted Investments  Asset Sales: the new battleground  The main area of leakage  Other aspects where leakage can occur Deal outliers / aggressive terms in 2016  Uncapped EBITDA addbacks & pro-forma adjustments & synergies  Aggressive EBITDA add-backs  Ratio defintions applied differently leverage vs other corporater actions  Flexibility for Limited condiion Acquisitions  Narrower numerators for leverage ratios  Enhanced Basket flexibility for Leverage & EBITDA grower caps  Upfront “free & clear” basket credit in build-up basket  Asset sales availble for dividends  Looser Affliiate transactions  Equity clawbacks – what market  Redemption & Special optional redemption/non-call diluted Call protection: Change of control & Equity Claw  The “historical” Change of Control (CoC) position  The “portability” issue – the 3 variations on the standard CoC position  Standard call protection (absent CoC)- Fixed vs FRNS  “Equity Claw”  Investor issues  Issuer matter Intercreditor issues (LMA SSRCF)  Overview of key provisions  Assumed Funding structure  Security structure  Ranking  Payment waterfall  Restricted Payments  Enforcement Specific issues re Junior (PIK) Notes  Specific issues relating to Junior notes  Review of Ardagh PIK Notes (using Report from DebtXplained)  Review of Schaffler PIK (using Report from DebtXplained)  Review of key differences in PIK covenant packages vs Senior Secured Notes covenants http://redcliffetraining.com

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 Intercreditor issues in PIK deals Included in the Appendices  Overview of the issuance process  Initial preparation  Preparation phase  Targeting the investors (framing the issue)  Execution phase

09:00-17:00

09:00-17:00

London

London

Standard Price: £725 + VAT Membership Price: £580 + VAT

£725 +VAT (£870)

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

http://redcliffetraining.com

[email protected]

+44 (0)20 7387 4484