Leveraged Buyouts - a 1 day course for Lawyers

Course Overview:

The private equity model operates on a different paradigm from traditional corporate investors in terms of its aim and objectives, the structures it employs, the manner in which it approaches an investment and its sophisticated approach to capital structuring, the management incentives and last, the use of laminated (senior and junior debt) or bifurcated (pari loan / bond) debt financing.

This is an intensive one day programme designed to cover all the major areas relevant to the deal so as to provide attendees with a toolkit to understand the LBO process, the key issues from the perspective of all the major players’ PE, management and the various providers of finance.

The PE market is dynamic so the course will provide an historical perspective together with the current trends and issues relevant in the market.

The course is relevant those in PE or professionals involved either directly or indirectly in private equity. Matters are approached from a pan-European perspective.

Course Content:

LBOs: Value creation model, structuring issues & structuring parameters

• The traditional PE value creation model
• New value creation model
• Structuring issues
  • Ranking
  • Collateral / Security
  • Tax issues
• Structuring parameters – creating an appropriate financial structure (overview)
  • Percentage senior, junior and equity in debt capital structure
  • EBITDA multiples
  • Target returns for PE & Mezz Funds
• The 3 main stages of a PE deal & relevant agreements: overview, scope & purpose
  • The Sale & Purchase Agreement
  • Loan Agreements
  • Security documents
  • Management’s Service agreements
  • The Shareholder’s / investment agreement

Case Study: Deriving the source and uses of funds; target equity returns of the PE fund and Management

Financing: summary of application, key terms, conditions and pricing

• Spectrum of financing instruments in LBOs
• Senior loans
  • Alphabet notes
  • RCF
  • Capex facilities
• Mezzanine debt
  • Warranted & warrantless
• High Yield Notes (FRNs and Fixed)
  • Senior Secured Notes
  • Senior Notes
  • Second Lien Notes
  • PIK Notes
• Equity financing – typical structures and coupons
• Vendor Notes

Case Study: Deriving the target equity returns of the PE fund and Management

The Lender’s perspective

• Lender’s approach to credit decision
• Overview of loan documentation and impact on deal/restructuring
• The four deal scenarios
• Key financial and other covenants
  • Negative pledge
  • Summary of main financial covenants / ratios

Case Study: Analysing & “right-sizing” the capital structure to identify the optimum funding instruments and funding structure

The Private Equity firm’s perspective

• Typical objectives & required market returns
• Typical fund structures
• Assessing the investment – the 5 key criteria
• Division of the spoils – typical terms (what’s market?)
  • Hurdle / preferred return
  • Carried interest (European vs US approach)
• Equity ratchets

Management issues

• Multifaceted role and duties of management
  • Issues vis-à-vis role as Director, Employee, Shareholder, Warrantor
• Critical issues in the Investment agreement
  • Good vs. Bad leaver
  • Management warranties
• Critical issues in the Service agreement
  • Restraints
  • Termination

Pulling it all together

• Structuring the deal – the first take
• How much debt can or should be used
• Equity second
  • Who goes first – PE or Management
  • Deciding who gets what
  • Ratchets
• Evaluating the structure – does it work?