High Yield and Leverage Finance

A practical 2-day course presented by Rupesh Tailor.

This course begins with foundation work covering background on the high yield and leveraged finance market, the instruments and their key terms and conditions, leveraged buyout (LBO) structuring and a cash flow template that provides key insights on corporate debt service capacity.

The course then considers business, financial and instrument aspects of high yield credit analysis, recovery analysis and common drivers of corporate distress, and valuation. Real company examples and in-depth case studies cover a variety of high yield issuers across sectors and geographies.

These case studies illustrate various investment situations that arise in the high yield space – companies in structural decline, successful LBOs, unsuccessful LBOs, turnaround situations, project finance-like situations and fallen angels.

• High yield credit analysts, Equity analysts
• High yield asset managers
• Hedge fund managers
• Distressed debt investors
• Private equity investors
• Loan portfolio managers
• Mergers and acquisitions bankers
• Debt capital markets/leveraged finance bankers
• CLO managers, Strategy consultants
• Business turnaround/restructuring accountants/corporate finance professionals

• Basic understanding of financial statements
• Basic familiarity with Excel

Foundations

• High yield and leveraged finance market background – size, history, participants, historic returns and default rates, composition and credit rating agencies
• Instruments and their key terms and conditions – high yield bonds and leveraged loans, bank debt (revolvers, working capital facilities, bridge finance and capital expenditure facilities) and PIKs; credit default swaps; corporate structure and capital structure; covenants; security packages and enforcement rights; guarantors; and call schedules
• Leveraged buyouts (LBOs) – overview of deal structuring
• Cash flow template to provide key insights on debt service capacity

Example: Europcar (car rental company)

Workshop:  Evaluating key terms and conditions of New Look Retail Group Limited’s (UK clothing retailer) bonds; preparing and interpreting cash flow template for New Look

High Yield and Leveraged Finance Analysis and Investing

• Delineation of credit analysis process – business assessment, financial assessment, instrument assessment
• Business assessment – products, competition, customers, company
• Financial assessment – financial statement analysis, forward-looking financial modelling, key credit metrics, covenant compliance testing, liquidity analysis and debt service capacity.
• Instrument assessment – covenant, seniority, security and guarantor protection
• Stress-testing – what does it take to “break” the company? What are the key ways in which companies get into distress? What are recovery prospects?
• Valuation – identifying comparables for relative valuation; absolute valuation

Example: Ono (Spanish cable operator)

Workshop:  Are New Look’s senior unsecured bonds an attractive investment?

Case Studies

Case Study 1 – Identifying and analysing companies in structural decline

Example: Norske Skogindustrier ASA (Norwegian newsprint and magazine paper producer)

Case Study 2 – The hallmarks of a successful LBO

Example: TDC (Danish telecoms operator)

Case Study 3 – The hallmarks of an unsuccessful LBO

Example: EMI (Global music publishing and recording company)

Workshop: Can Nokia (mobile phone device and telecoms equipment manufacturer) survive and are its bonds an attractive investment?

Case Study 4 – Identifying, analysing and investing in a successful turnaround situation

Example: Thomas Cook Plc (tour operator)

Case Study 5 – Analysing and investing in project finance-like high yield investment opportunities

Example: Fortescue Metals Group (start-up Australian iron ore producer)

Case Study 6 – Identifying, analysing and shorting fallen angels in the making

Example: DSG International Plc (consumer electronics retailer)

Workshop:  Can Arcelor Mittal (steel producer) survive and are its bonds an attractive investment?