Funding Instruments

Course Objectives

The aim of this two day workshop is to increase the participants' understanding of how various funding products are used within a company's capital structure which will help them assess their potential impact on overall credit worthiness and enable them to interact more effectively with their clients with a view to uncovering new business opportunities and being considered a value added, trusted advisor.

Specifically the aim of the training is to equip participants to:

• Understand the main features of public and private debt instruments: market practice, investor requirements and price implications
• Assess the key commercial, financial and structural benefits and drawbacks from an issuer's and an investor's perspective of issuing or investing in a bond versus other forms of capital (e.g. bank debt, US private placement, asset securitisation, mezzanine, convertible bonds, hybrid instruments, CDS)
• Determine when each instrument should be used and when it may be inappropriate, focusing on banking and Debt Capital Markets products (e.g. corporate bonds, convertibles and hybrids, and asset securitisation)
• Identify issuer characteristics by understanding the purpose of capital markets funding in an entity's capital structure and the required credit profile of potential issuers.

Target Audience

Experienced credit and risk professionals and relationship managers with sound financial analysis skills who would benefit from a broader and deeper understanding of the funding products used in today's market and the credit implications which may arise as a result of a corporate employing the product in its capital structure.

Content

ANALYTIC OVERVIEW

The goal of this section is to review a structured approach to capital structure evaluation and the relationship of debt instruments to the financial strategy of the borrower / issuer.

Structured approach to analysis

• Purpose and payback: identifying the borrower, use of proceeds, potential repayment sources and the potential impact on financial risk
• Risks: balancing sector, business and financial risks
• Structure: determining the degree of protection and flexibility provided by the debt structure (i.e., tenor, ranking, safeguards and pricing)
• Impact of funding structures on overall financial strategy
• Exercise: different scenarios demand different funding structure and instruments.

ISSUER / BORROWER CHARACTERISTICS

The goal of this section is to review the issuer / borrower characteristics most appropriate for different financial products and appreciate the capital structure considerations which impact risk profiles.

Issuer / borrower profiles and motivations

• Sector drivers and commercial and financial strategy and strength
• Financial fundamentals required to successfully tap specific markets
• Drivers of capital structures and leverage: return requirements of equity providers
• Issuer motivations – the role of various funding products in capital structures.

Liquidity considerations

• Understanding the need for and providers of liquidity
• Re-financing risk and its impact on liquidity requirements
• Identifying when liquidity becomes a key structural consideration: seasonal, cyclical, timing, predictability, source, etc.
• Exercise: refinancing risk in convertible debt.

Solvency considerations

• Highlighting financial risks on and off balance sheet
• Comparing capital structures and their impact on ratings and spreads
• Repayment sources: future cash-flow, refinancing, asset disposals, third party support
• Exercise: the effect of invoice discounting or receivable securitisation.

ISSUE / DEBT CHARACTERISTICS

The goal of this section is to identify the main features of capital market funding and distinguish them from other forms of debt both from an issuer and investor perspective. Focus will be on assessing the protection provided by the debt structure. Funding instruments covered will depend on market developments, location and audience preference.

Investor / issuer perspectives

• Identifying the needs of debt providers: investor / lender profiles and preferences
• Understanding the benefits and drawbacks of issuing bonds from the client's perspective
• Market developments and their impact on issuers, investors and debt structures.

Bond or debt structures

• Debt profile: amount, term, currency, redemptions, and pricing
• Ranking: degree and relative to other forms of funding
• Safeguards: typical covenant packages and their comparison to the bank market
• Rights to acts and their impact on other classes of creditors.

Alternative funding instruments

• Comparison from issuers' and investors' perspective of key products used in today's market
  • Banking and syndicated loan products
  • Securitisation, borrowing base loans
  • Private placements
  • Finance and operating leases
  • Commercial paper and other money market instruments
  • Hybrids instruments with debt and equity characteristics: convertibles, exchangeables, loans with warrants, perpetual debt
  • Preferred shares
  • Various exercises and relevant examples of financial instruments
• Role of CDS, other derivatives and other synthetic structures in optimising issuer and investor needs
• Credit risk implications of debt structure: evaluating funding instruments and debt structures when market conditions change
• Impact of alternative financial instruments on key financial ratios, ratings targets and valuation multiples
• Exercise: impact of alternative financial instruments.

MARKET DYNAMICS

The goal of this section is to understand how funding instruments and capital structures need to be evaluated within the context of prevailing market conditions, capital allocation issues, and risk appetite.

Market features

• Launch process, due diligence, role of the rating agencies,
• Disclosure requirements, accounting conventions, registration and 144A, investor relations
• Current market conditions: market appetite for credit, sectors and new issues
• Using default and recovery statistics to price credit risk
• Credit spreads across the risk spectrum: bond yields, CDS, bank market and equity requirements
• Spreads, prices, yield curve, liquidity and ratings: impact of market conditions across product spectrum.

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.