Capital Structures & Debt Products

Excel Models:
Where proprietary models are used, they will be made available to all participants.

Target Audience

Red Banking and finance professionals involved in credit risk management, origination, structuring or relationship / portfolio management of companies actively managing their capital structures.

Course Objectives

The overall goal of this two-day workshop is to sharpen the analytic skills of participants so that they evaluate and structure complex funding strategies for both new business opportunities and in context of re-financing existing debt. The workshop will use lessons learned during the credit crisis to quantify sustainable debt levels in the current economic climate. The focus is on creating robust forecasts to use as a key tool in recommending an appropriate capital structure.

Participants will be equipped to:

• Model a company's future debt servicing ability based on cash-flow forecasts and sensitivities which are realistic, consistent and supportable in the current economic climate.
• Quantify sustainable debt levels in context of business strategy, market conditions and potential corporate actions.
• Understand the relative advantages and disadvantages of various debt instruments and the factors influencing their choice.
• Structure funding solutions using bank and debt / equity capital market products to meet the commercial and financial needs of the company whilst protecting the Bank's position.

Content

BUSINESS AND FINANCIAL DRIVERS

The goal of this section is for participants to use a cash-flow forecasting model to forecast key sector and company specific business drivers and sensitise critical variables to create alternative scenarios.

Forecasting key business drivers: assumption setting

• Macro, sector and firm specific factors which influence strategy
• Anticipating the impact of business drivers on future performance
• Quantifying potential cash-flow impact of other costs and benefits
• Modelling business performance and anticipating fee cash-flow
• Testing forecast assumptions for reasonableness: peer analysis and benchmarking
• Reviewing alternative scenarios: worst, base and breakeven

Forecasting key financial drivers

• Determining the timing and impact of financial obligations
• Impact of interest rate and forex assumptions
• Dividend payments: sustainability of dividend policy

APPROACH TO STRUCTURING FUNDING SOLUTIONS

The goal of this section is to understand the factors which influence management's decisions regarding how best to manage their company's capital structure and to understand the key features of debt and equity products being used in the current climate.

Capital structures considerations

• Factors which influence a company's choice of funding instruments: shareholder and management motivations: balancing business risk vs. financial risk
• Performance measures (IRR, P/E, TSR, EVA, ROCE) and the impact on funding strategy
• Exercise using performance measures

Debt profile

• Using cash-flow forecasts to structure term debt: amount, currency, tenor, drawdown and repayment profile
• Controlling lending amounts through borrowing base structures
• Evaluating refinancing as a source of repayment.

Ranking

• Legal, structural and economic subordination
• Identifying the borrower and its position in the corporate structure
• Establishing and maintaining ranking
• Assessing the need for support and alternative means for achieving it
• The role of security, guarantees and third part support.

Safeguards

• Key purposes of safeguards
• Defining the lender and borrower position and objectives
• Balancing and protecting the positions of all lenders and stakeholders
• Defining safeguards as a means to minimise the risks and provide early warning signals
• Setting financial covenants at appropriate levels
• Stress testing to ensure appropriate levels of attainment and trigger covenants.
• Exercise: choosing suitable covenants

Pricing

• Assessing risk return profiles: avoiding equity risks for debt returns
• Using default and recovery statistics to price credit risk
• Using market indicators (bond market yields, CDS) and ratings as a basis for comparison.

DEBT AND HYBRID PRODUCTS

• Bank debt products: forward start agreement, alphabet loans, revolvers, working capital, bridge finance, acquisition, restructuring and CAPEX lines.
• Capital markets products: investment grade and sub investment grade bonds, hybrid products
• Balancing borrower, lender and investor preferences.
• Exercises and examples relating to several funding products

Workshop Times

Below are typical timings for our courses; upon registration we shall advise you if these have changed.

Breakfast: 8.30am
Course Start: 9.00am
Course End: Between 5.00pm and 5.30pm
Lunch starts between 12.30pm and 1.00pm, and lasts no longer than 1 hour.
Short breaks of 10 - 15 minutes are taken mid morning and mid afternoon.