Financing Corporate Acquisitions

Course Objectives

This programme is designed for those who are looking to build the knowledge and skills needed to assess corporate acquisition finance proposals and structure the transactions using the different funding instruments.

Specifically this two-day workshop is designed to equip participants to:

• Understand the key drivers of M&A finance and how they drive capital structures in today’s market
• Validate the purchase price using multiples and DCF tools
• Use proforma forecasts combining acquirer and target to determine an appropriate debt quantum
• Quantify the impact of target capital structures on shareholder value
• Structure acquisition funding packages using the different funding instruments available by understanding their relative advantages and disadvantages including: bank debt; private placements; hybrid instruments; investment grade, cross-over and high yield bonds (e.g. traditional high yield, senior secured FRN’s)
• Be cognisant of the key terms and conditions of funding instruments used in M&A and their implication on other lenders, investors and shareholders

Target Audience

Experienced banking and finance professionals responsible for credit risk management, marketing, structuring or evaluating the funding of corporate mergers and acquisitions.

Fitch Training offers programmes at an intermediate level and advanced level of continuing education. Although no prerequisite courses or experience is required to participate in this programme, working knowledge of financial statement analysis is required, as well as prior knowledge of the programme topic.

Content

ANALYTIC OVERVIEW

• Mergers and acquisition finance: the rationale, key players and motivations of parties
• Market trends: leverage multiples, capital structures, and instruments
• Apply the purpose ~ payback model to different classes of debt to better evaluate the risk : return profile

COMMERCIAL RATIONALE FOR COMBINING THE BUSINESSES

• Understanding the businesses of the company and target
• Understanding the commercial justification for the transaction
• Identifying integration risks: commercial, financial and cultural
• Key cash-flow drivers of the combined entity
• Scrutinising potential synergies and their impact on future cash-flows
• Future performance: critiquing and sensitising forecasts and benchmarking performance

VALUING THE TARGET

• Assessing the target and its suitability
• Defining and measuring synergies
• Valuing the target: using multiples and DCF tools

DETERMINING THE CAPITAL STRUCTURE

• Using cash-flow forecasts to quantify debt capacity
• Target capital structures based on balance sheet, cash-flow and desired ratings
• Debt versus equity: cost, dilution and valuation implications for raising new equity
• Determining the amount of debt: leveraging cash-flows
• Sources of finance: identifying potential funding alternatives

FUNDING INSTRUMENTS IN CONTEXT OF LEVERAGED ACQUISITIONS

Senior Bank Debt

• Matching purpose and payback: bridge finance, term debt, working capital
• Quantifying and pricing acceptable levels of refinancing risk
• Bridge loans: relying on alternative payback (asset sales or debt/equity)
• Covenant packages: erosion of terms and conditions
• Pricing M&A bank debt: risk versus reward
• Hedging credit exposure in the derivative market

Private Placements

• Public versus. private markets: advantages and disadvantages
• The need for private ratings: rationale and process
• Structuring and pricing for a U.S. investor base
• Currency and liquidity considerations

Senior Secured FRN’s

• Replacing bank debt with bonds: pros and cons
• Credit profiles and structural features
• Issuing in conjunction with high yield bonds
• Investor considerations: pricing and liquidity

Bonds

• Credit profiles of potential issuers across the rating spectrum
• Current market conditions: terms and conditions / pricing
• Event risk protection / step up pricing and negative pledges
• Developments in the high yield market
• Recovery rates and their impact on ratings
• Investor perspective: risk versus reward

Convertible Bonds

• Determining when convertible bonds are appropriate
• Key terms and conditions
• Impact on WACC and EPS
• Considerations for issuers and investors

Corporate Hybrid Securities

• The best of all worlds? - Debt, equity or both?
• Why issue? - motivations for the borrower
• Main structural features and how debt / equity treatment is achieved
• Understanding the ratings agencies’ views on hybrid securities
• Valuing the bond: how structural features impact pricing considerations

Securitisation

• Rationale for securitising assets
• Corporate assets available for securitisation: receivable, property etc.
• Understanding the basic structure of receivable securitisation
• Balance sheet and rating considerations
• Impact of securitisation on other lenders

FUNDING INSTRUMENTS - TERMS AND CONDITIONS

Seniority

• Unravelling the corporate structure
• Identifying the borrower and its position in the group
• Defining ranking: contractual (legal), structural and constructive subordination
• Establishing and maintaining ranking within the capital structure
• Debt layering: the impact of alternative funding products on capital providers

Safeguards

• Key purposes of safeguards
• Lender versus borrower: defining respective positions and objectives
• Understanding to what extent safeguards operate to protect investors
• Covenants: maintenance versus incurrence and covenant-light
• Assessing safeguards: balancing needs and rights across the capital structures

Pricing

• Pricing conventions in the M&A market
• Benchmarking against indices, ratings, peers etc.
• Assessing risk~return profiles in search of value.

Workshop Times