Syndicated Lending: Practice and Documentation

613 Pages·2013·3.994 MB·English

by  Cameron Andrews, Andrew Bailey, Mark Campbell, Tony Rhodes, Christoph Weaver

Syndicated Lending:
Practice and Documentation
Sixth Edition
ii
Syndicated Lending:
Practice and Documentation
Sixth Edition
General Editor and Author
Mark Campbell
Author
Christoph Weaver
Founding Editor
Tony Rhodes
Foreword
Andrew Bailey
Contributors
Cameron Andrews Doo Bo Chung Meredith Coffey
Clare Dawson Dealogic – loans team Matthew Dunn
David Fewtrell Lorenz Jorgensen Declan McGrath
Joseph Morris-Trupin Philip Pentney Alexander Riddick
Stefan Scholz Howard Sharp Jim Skufca
Sean Tai Thomson Reuters LPC team Tessa Walsh
Christoph Willeke
E
U
R B
O O
M O
O K
N S
E
Y
iii
Published by
Euromoney Institutional Investor PLC
Nestor House, Playhouse Yard
London EC4V 5EX
United Kingdom
Tel: [phone] or USA 11 800 437 9997
Fax: [phone]
www.euromoneybooks.com
E-mail: [e-mail]
Copyright © 2013 Euromoney Institutional Investor PLC and the individual contributors
ISBN 978 1 78137 099 5
This publication is not included in the CLA Licence and must not be copied without the permission
of the publisher.
All rights reserved. No part of this publication may be reproduced or used in any form (graphic, elec-
tronic or mechanical, including photocopying, recording, taping or information storage and retrieval
systems) without permission by the publisher. This publication is designed to provide accurate and
authoritative information with regard to the subject matter covered. In the preparation of this book, every
effort has been made to offer the most current, correct and clearly expressed information possible. The
materials presented in this publication are for informational purposes only. They reflect the subjective
views of authors and contributors and do not necessarily represent current or past practices or beliefs
of any organisation. In this publication, none of the contributors, their past or present employers,
the editor or the publisher is engaged in rendering accounting, business, financial, investment, legal,
tax or other professional advice or services whatsoever and is not liable for any losses, financial or
otherwise, associated with adopting any ideas, approaches or frameworks contained in this book. If
investment advice or other expert assistance is required, the individual services of a competent profes-
sional should be sought.
The views expressed in this book are the views of the authors and contributors alone and do not reflect the
views of Euromoney Institutional Investor PLC. The authors and contributors alone are responsible for accuracy
of content.
Note: Electronic books are not to be copied, forwarded or resold. No alterations, additions or other
modifications are to be made to the digital content. Use is for purchaser’s sole use. Permission must be
sought from the publisher with regard to any content from this publication that the purchaser wishes to
reproduce ([e-mail]). Libraries and booksellers and ebook distributors must obtain a licence
from the publishers ([e-mail]). If there is found to be misuse or activity in contravention
of this clause action will be brought by the publisher and damages will be pursued.
Typeset by Phoenix Photosetting, Chatham, Kent
iv
Contents
Contents
Contents
Foreword xvii
Preface xix
About this book xx
List of abbreviations xxiii
Acknowledgements xxv
About the editors xxvii
About the contributors xxix
The Loan Market Association reaches out to wider markets xxxv
Clare Dawson, Loan Market Association
The origins and development of the LMA xxxv
Documentation xxxvi
Regulation xxxvii
Education xxxviii
Ongoing issues xxxix
The LMA and the credit crunch xxxix
Looking to the future xl
1 The creation and history of an innovative market 1
The creation of the market 1
Development of the market 2
The petro-dollar 3
The sovereign debt crisis 4
Problems in eastern Europe 4
Latin American countries reschedule their debts 4
Sovereign borrowers tap the capital markets 4
Capital adequacy concerns 5
Leveraged deals grow in popularity 6
The early 1990s 6
The mid-1990s 7
The late 1990s 8
The early noughties 10
The mid-noughties 13
When the music stops… 15
The late noughties 16
The twenty-tens: the revival of the loan market and the return of
benign market conditions 19
Conclusion 22
v
Contents
2 Structural analysis and recent developments in the syndicated
credit markets 23
Definition 23
Instruments 26
Term loan 26
Revolving credit facility 27
Standby facility 27
Standby letter of credit 27
Hybrid transactions 28
Loans combined with interest rate swaps, caps, floors and collars 28
Other instruments 29
The syndicated credit market 30
Size of the market 30
Comparison with the bond markets 34
Borrower analysis 36
Borrower type 36
Borrower origin 38
Analysis by currency 41
Analysis of lenders active in the market 43
Pricing 47
Capital adequacy and risk weightings 52
Basel I 52
Basel II 53
Summary of the key aspects affecting the syndicated lending market 53
The first pillar – minimum capital requirements 54
Rating assessments for credit risk 54
Lending secured by property 55
Off-balance sheet items 56
Short-term committed facilities 56
Operational risk 56
The second pillar – supervisory review process 57
The third pillar – market discipline 57
Basel III 57
Capital ratios 58
Definition of capital 58
Leverage ratio 59
Liquidity 60
Liquidity coverage ratio 60
Net stable funding ratio 60
Large exposure rules 61
Conclusion 62
Location of the marketplaces 62
Team structures 63
Introduction 63
vi
Contents
Explanation of various team structures 65
Team structures in the future 66
Technology 66
Sources of information 68
Annex 2.1 History and methodology of Dealogic Loan Analytics 70
Dealogic Loans Department
Annex 2.2 History and evolution of Thomson Reuters LPC 72
Thomson Reuters LPC team
Annex 2.3 Debtdomain – Syndicated Loans 74
Sean Tai, Ipreo Debtdomain
Background 74
Market standard 74
Syndication 75
Secondary 75
Agency 75
The future 76
Annex 2.4 Implementing syndicated lending best practice in IT systems 77
Joseph Morris-Trupin, Misys Loan IQ
Best practices, systematically applied 77
Best practice meets innovation 78
Shaping the future 79
Annex 2.5 Selected sources of information on the syndicated loan market 80
Supplement 1 The syndication process – a borrower’s perspective 81
Stefan Scholz and Christoph Willeke, Continental AG
Introduction 81
Continental AG (Conti) background 81
Syndicates 82
Lead banks 83
League tables 84
Documentation and execution 84
Conclusion 86
Supplement 2 Acquisition finance: the pure oxygen of the loan market 88
Declan McGrath (updated in 2013 by Alexander Riddick),
The Royal Bank of Scotland
Introduction 88
The past 88
The present 92
vii
Contents
The future 94
Conclusion 94
Case study 94
Cadbury Schweppes overview 95
Background 95
Business description 96
Group development 96
Major acquisitions and disposals 96
Assumption 96
Overview of transaction 96
Financing summary and facilities overview 97
Summary terms 99
Final allocations and tombstone 100
Supplement 3 The European Bank for Reconstruction and Development:
a long-term capital partner in an uncertain environment 106
Lorenz Jorgensen, EBRD
The operating environment 106
The EBRD’s response to the GFC 107
Partnering with the EBRD 109
The co-financing outlook 109
Supplement 4 View of an institutional investor 111
Howard Sharp, GE Corporate Finance Bank
What an institutional investor is looking for 111
What are the drivers of institutional liquidity? 112
How does the market work? 113
Which institutions are in the market? 115
Approval processes 117
Importance of secondary market for institutional investors 119
Conclusion 120
Supplement 5 Loan portfolio management 121
Doo Bo Chung and Jim Skufca, Royal Bank of Scotland
Introduction 121
The loan portfolio management rationale 121
Key components of loan portfolio management 123
Measuring and monitoring risk 123
Regulatory capital 123
The standardised approach 124
Internal ratings based approach 124
Basel III 125
Economic capital 125
The onboarding process 125
viii
Contents
Managing excess risk concentrations 126
Conclusions 130
Supplement 6 A recent history of the European leveraged finance market 132
Tessa Walsh, Thomson Reuters Loan Pricing Corporation
Introduction 132
Overview 133
Early days 134
Building up to the boom 2002 to 2004 135
Top of the market 2005 to 2007 138
2006 139
2007 141
2008 – the collapse 143
2009 145
2010 – dead cat bounce 147
2011 – sovereign debt crisis 148
2012 150
Conclusion 151
Supplement 7 US institutional loan performance: surviving the
100-year storm 153
Meredith Coffey, Loan Syndications and Trading Association
The pre-GFC loan market: the salad days 153
In a financial crisis, all correlations go to one 156
The recovering loan market 160
Changing investors, changing markets 163
All is well that ends well? 166
Supplement 8 Explaining loan and recovery ratings 167
Cameron Andrews, Standard and Poor’s
Introduction 167
Rating definitions and rating scale 168
Methods of distribution 169
Public, private and confidential ratings 169
Preliminary ratings 170
The rating process 171
Rating request 171
Management meeting 172
Standard & Poor’s evaluation 172
Rating committee 173
The appeal period 173
Surveillance and review are ongoing 173
Outlooks and CreditWatch listings 173
Introduction to loan and recovery ratings 174
Recovery rating methodology 175
ix