Syndicated Lending: Practice and Documentation PDF
Preview Syndicated Lending: Practice and Documentation
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: +44 (0)20 7779 8999 or USA 11 800 437 9997 Fax: +44 (0)20 7779 8300 www.euromoneybooks.com E-mail: [email protected] 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. 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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
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