dw european refinancing 2013
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8/13/2019 DW European Refinancing 2013
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Result
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REFINANCING2013:
EUROPEAN
REFINANCING
OUTLOOK
MAY 2013
EUROPE
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CONTENTS
Foreword 3
Note From The Sponsors 4
Borrower Survey 5
Lender Survey 19
Case Study: Techem 33
Case Study: Centrotherm Photovoltaics AG 35About & Contacts 36
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FOREWORD
A hefty EUR 70bn of high yield issuance last year and a urry of amend and extend
deals has taken a signicant chunk out of the 2014-2015 maturity wall, easing
concerns over an overcrowded re market. Inows into high yield funds seem
unstoppable, maintaining appetite for new deals. But the bank market, which is
still in deleveraging mode, will contract substantially in the second half of this year
as the lion’s share of the European CLO market switches to repaying its original
investors, while the emergence of Cyprus as the next sovereign debt ashpointserves as a reminder that the crisis remains far from resolved and retains the ability
to shutter primary markets.
Debtwire’s 2013 Renancing Report surveyed market respondents in both
the borrower and lender communities. The ndings reveal that companies
have taken some big steps to improve their maturity schedules, especially
private equity backed rms. Markets are in full swing as companies tackle
the remaining maturity wall but next year looks set to be even busier, with
debt maturities as well as renancing to peak in 2014, the report shows.
A sizeable number of borrowers are taking advantage of liquidity-addled
markets to raise additional capital while dealing with their maturities. Most
of the extra cash is earmarked for acquisitions but around half of
the respondents are planning to make debt-funded dividend payments.
This is the third Debtwire Renancing Report, presenting detailed results
of a survey of 50 representatives from the borrower community (split
between private equity rms and corporates) and 50 representatives from
the lender community, with their views of market conditions ahead of their
renancing plans. We hope you nd it a useful resource.
Robert Schach
Managing Editor
Debtwire Europe
robert.schach@debtwire.com
F O R E W O R D
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NOTE FROM THE SPONSORS
Despite continued volatility, the past 12 months have demonstrated a renewed
resilience within European debt markets with participants now looking better-
adapted to the regular swings in condence triggered by each unfolding political
crisis. Over the past year the nance community has had to negotiate the fallout
from indecisive Italian elections and the collapse of Cyprus’s banking system, but
both of these events had a less pronounced impact on debt markets than would
have been likely if they had occurred in prior years.
Although companies continue to be affected by weak levels of growth,
balance sheets are generally looking healthier and there is an expectation
that the number of defaults will star t to come down. That said, timing
remains of critical importance when negotiating a renancing and the need
to avoid coinciding with a fresh bout of uncertainty should encourage rms
to renance early, so as to avoid being forced to conduct negotiations
when the market is unfavourable. Private equity borrowers have so far
been more pro-active in this respect, with many rms having extended
their debt maturities out beyond 2017, which has helped deliver stability
and improved condence levels for this subset of borrowers.
A signicant proportion of banks are now well prepared for the new
capital requirements of Basle III. However, many still need to raise
additional capital and reduce their loan exposure and this will continue
to put pressure on renancing. While banks remain the primary source of
nancing, alternative capital providers are growing in prominence, with
private equity in particular emerging as an important source of nance.
PE rms holding large cash piles are willing to offer exible terms in the
search for a return and are increasingly also setting up new funds to better
tap this expanding opportunity.
Against this backdrop, and with signicant volumes of European debt
maturing over the next two years, Debtwire’s 2013 Renancing Report
provides some interesting insights into the perspective of both borrowers
and lenders on timing, sources of funding as well as the key challenges
and opportunities anticipated for the next 12 months.
Alex Mitchell
Banking Partner
Freshelds Bruckhaus Deringer
alex.mitchell@freshelds.com
Klaus Kremers
Senior Partner
Roland Berger Strategy Consultants
klaus.kremers@rolandberger.com
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B O R R O WE R S U R V E Y
BORROWER SURVEY
In early 2013, Debtwire canvassed the opinions of 50 representatives
from the borrower community – 25 corporate issuers and 25 private
equity fund managers in Europe – regarding their outlook for the European
renancing market. Respondents were questioned on the subjects of
upcoming debt maturities, renancing plans, market conditions and their
relationship choices in a renancing scenario. Interviews were conductedover the telephone and respondents were granted anonymity. Their
responses are presented in the following pages in aggregate. Further
details regarding respondents can be found in the Appendix at the end
of the report.
METHODOLOGY
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BORROWER SURVEY
Nearly half of borrower respondents expect over
EUR 1trn to be renanced in next three years
Some 46% of borrowers surveyed expect more than EUR 1trn in debt to
come up for renancing over the next three years. This compares to just
33% of lenders who expect that level of debt quantum to hit the market,
suggesting that borrowers seem more cognisant of the competitive challenges
within the renancing space than lenders.
“Over the next three years the debt maturing and coming for renancing
will be high – above a trillion euros. Some of this debt will be repaid by
the companies that have managed to grow their revenues, but the majority
of rms will seek a maturity extension or a renancing,” said a French
private equity respondent.
“In the last three years we have only seen an increase in accumulation of
debt and no signicant debt repayment,” added a Polish corporate borrower.
“In the next three years we will see all the debt renanced rather than
repaid and this will continue unless the market improves signicantly.”
“In relation to recent years, it appears that most borrowers
now recognise the scale of the renancing challenge
that still remains and appear to be more in line withlenders’ expectations.”
Klaus Kremers, Roland Berger Strategy Consultants
How much debt do you expect to come up for renancing
in the market over the next three years?
8%
22%
24%
46%
Corporates expected to account for majority
of upcoming maturities
The vast majority of respondents believe that corporates will account for
the majority of debt renancing, with close to three-quarters expecting a
26-50% PE / 50-64% corporate split and one fth expecting a 0-25% PE
/ 50-74% corporate split. Only 6% of respondents anticipate that private
equity will require more renancing than corporates.
“Borrower nancing expectation will also signicantly
depend on its business focus. With European growthexpected to be very slow, companies with signicant
business inside and outside Europe might have the
mismatch of managing a restructuring in Europe but
funding growth in other regions.”
Klaus Kremers, Roland Berger Strategy Consultants
Percentage wise, how do you see the split of that debt
between private equity-related debt and corporate debt?
6%
74%
20%
€150bn-€299.9bn €300bn-€499.9bn €500bn-€1 Trillion Above €1 Trillion 26-50% PE / 50-74% Corp 0-25% PE / 75-100% Corp 51-75% PE / 25-49% Corp
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B O R R O WE R S U R V E Y
Financial services expected to account for
bulk of renancings
The Financial Services sector will account for the largest proportion of debt to
be renanced, according to nearly a quarter of respondents, while some 14%
point to Auto/Auto Parts, Energy and Property & Construction respectively.
“Financial services owe the bulk of the debt that will be maturing in the next
three years and most of this debt will be renanced. The sector is evolving
and central banks are playing a major role in safeguarding nancial services
so that liquidity is maintained and the market does not go into a double dip
recession,” suggested an Italian private equity respondent.
The auto sector is expected to account for the largest proportion of debt
(24%) to be renanced by corporates, but represents a negligible share
of private equity company debt (4%), respondents said.
“Debt levels in the auto sector will continue to rise as the car market
is expected to remain weak due to high interest rates, more expensive
fuel prices and an uncertain economy,” suggested a Finnish corporate
respondent. “These companies are facing pressure from both sides,
demand is declining continuously and at the same time operational and
inventory cost is increasing.”
In which sector do you expect the bulk of renancing
to take place?
0% 20% 40% 60% 80% 100%
Overall
Private equity firm
Corporate 20%
28% 4% 12% 16% 16% 8% 4% 4%4%4%
24% 16% 12% 12% 8% 4%4%
24% 14% 14% 14% 10% 1 0% 6 % 4%
2%
2%
Borrowers face maturity spike in 2014
Both groups of borrowers have a signicant chunk of debt due for
renancing in 2014, with 40% of corporate borrowers and 44% of
private equity companies hitting their maturity peak next year. But while
corporate borrowers face another year of peak maturities in 2015, private
equity borrowers have a more manageable schedule with modest volumes
in 2015 and 2016.
When does the bulk of the debt you are planning to renance
come up for maturity?
0% 20% 40% 60% 80% 100%
Overall
Private equity firm
Corporate 12% 40% 44% 4%
44% 12% 4% 32%8%
10% 42% 28% 18%2%
Financial Services Auto/Auto Parts Energy Property & Construction
Consumer/Retail Industries Basic Technology Utilities
Media Transport
2013 2014 2015 2016 Beyond 2016
Percentage of respondents Percentage of respondents
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BORROWER SURVEY
Majority of respondents plan to renance
in 2H13 or 2014
Just over a quarter (26%) of all respondents are planning to renance this
debt in 2H13, while nearly a third (32%) will wait until 2014. Corporate
borrowers are in more of a rush to re, with 28% aiming to deal with their
maturity schedules in the second half of this year and 40% next year. The
longer maturity proles of the debt held by private equity rms means they
are under less pressure – just 24% plan to re in 2H13 and 24% in 2014,
while some 32% are not planning to tackle their maturities until beyond 2015.
“We were able to renance our debt when market conditions were worse
and the eurozone crisis was at its peak. Now the market is relatively stable
and liquidity has improved, we will renance our debt close to our debt
maturities and I don’t think we will face any difculty this time,” said a
private equity respondent.
“I think now is a good time to renance as bank lending has improved
and interest rates are down,” added a Spanish corporate respondent. “We
are looking to early renancing because of two reasons – we want to take
advantage of the low interest rates and at the same time we want to avoid
any possible setback at the last moment.”
When are you planning to renance this debt?
0% 20% 40% 60% 80% 100%
Grand Total
Private equity firm
Corporate 8% 28% 40% 16% 8%
8% 24% 24% 12% 32%
8% 26% 32% 14% 20%
Optimal renancing conditions expected
in 2014
Just over one third (34%) of all respondents expect market conditions
for renancing to be optimal in 2H13 while nearly half (48%) expect
conditions to be even better in 2014. The majority of corporate borrowers
(52%) think conditions will be best in 2014, but private equity borrowers
are split with equal numbers plumping for both 2H13 and 2014 as the
ideal time to come back to the market.
“After the rst half of 2013 I feel most of the uncertainties in the market
will have been overcome and there will be renewed condence. Appetite
for lending will greatly increase so it will be the right time for renancing,”
an Italian private equity respondent commented.
“The market is all set to leave behind the crises and by next year we will
again see growth coming,” suggested a corporate respondent in Poland.
“Companies will be in a bet ter position to negotiate a renancing deal.
Although the market has improved a lot there is some level of restriction
because of the uncertainties, which should end by next year.”
“The number of government elections taking place last
year created extra uncertainties alongside the state of theeconomy. As the overall level of uncertainty reduces, more
and more companies will look to renance.”
Klaus Kremers, Roland Berger Strategy Consultants
When do you see the market conditions as optimal
for renancing?
0% 20% 40% 60% 80% 100%
Corporate
Private equity firm
Overall 12% 24% 52% 12%
8% 44% 44% 4%
10% 34% 48% 8%
H1 2013 H2 2013 Not until 2014 Not until 2015 Beyond 2015 H1 2013 H2 2013 Not until 2014 Not until 2015 Beyond 2015
Percentage of respondents Percentage of respondents
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B O R R O WE R S U R V E Y
Periodic shutting down of markets seen
as biggest factor impacting renancing
Near three-quarters of respondents (74%) said that funding costs rose as a
result of the sell-off in secondary, sparked by concerns over the sovereign
debt crisis. But nearly half (48%) of respondents felt the primary impact of
the crisis is a reduced opportunity to renance due to bouts of uncertainty
periodically shutting down markets. The impact of sovereign downgrades
on corporate ratings was seen as the most important fallout by some 38%
of respondents, while banks’ inability to rollover loans due to exposure to
sovereign debt was cited by 18% of borrowers surveyed.
“It is because of the prevailing uncertainty that companies are often
not able to get renancing. Elections in European countries, currency
uctuations etc do not allow for easy access to renancing capital as
lenders become concerned about the macroeconomic situation and
volatility,” said a private equity respondent.
“Many European countries have a sovereign debt crisis and in these
countries even those companies which are doing good business and are
able to withstand the deteriorating economic conditions are not able to
get renancing because the rating of these companies are downgraded,”
added a Finnish corporate respondent.
“The sovereign debt crisis is certainly not over but the level
of uncertainty and concern has reduced slightly.”
Bernd Brunke, Roland Berger Strategy Consultants
What impact is the sovereign debt crisis having on
borrowers’ ability to renance?
0% 10% 20% 30% 40% 50% 60% 70% 80%
Negative impact only in respect of certain lower
rated credits / sectors / financing sizes
Sovereign rating downgrades result in corporate
downgrades, increasing funding costs
Exposure to sovereign debt is limiting banks’ ability
to roll over loans
Bouts of uncertainty periodically shutting markets,
reducing the window of opportunity to refinance
Increased uncertainty is sparking a sell-off in the
secondary markets, thereby pushing up primary
market pricing and resulting in higher funding costs
74%
4%
48%
72%
62%
18%
62%
28%
8%
2%
Smoothing out maturity schedules most
important reason for renancing
Loans approaching maturity was cited as a factor in raising capital by
68% of respondents, with nearly a quarter (24%) stating that it was the
primary reason for renancing. This marks a signicant shift from last
year, when 44% of respondents picked it as a primary reason, highlighting
that many borrowers feel under less pressure from upcoming maturities.
Renancing at lower costs was cited by nearly two thirds (66%) of
borrowers, with 22% seeing it as the primary reason. Some 60% of the
borrower’s surveyed cited smoothing out a maturity schedule as a reason for
renancing, with a substantial 36% seeing it as the most important reason.
“We are not under pressure to renance our debt. We will do it to smooth
out a maturity schedule and will do it only when we approach maturity,”
said a UK private equity respondent.
“Our primary reason for early renancing is the lower cost of renancing.
We feel that the cost will increase in the next year,” a UK corporate
borrower commented. “An early renancing will give us time and we can
then start focusing on our business without any worries. The market is not
strong enough to be overcondent and renance at the last moment.”
“Many corporate borrowers have already taken steps to tackle
approaching maturities and so are now able to focus more
generally on their maturity prole and opportunistically take
advantage of good market conditions.”
Martin Hutchings, Freshelds Bruckhaus Deringer
Why are you planning to renance this debt?
0% 10% 20% 30% 40% 50% 60% 70% 80%
To meet rating agency
requirements
To raise additional capital
To smooth out a maturity
schedule
To refinance at lower cost
To meet an approaching
maturity
68%
24%
66%
22%
60%
36%
38%
16%
18%
2%
Overall Primary Impact Overall Primary Impact
Percentage of respondents Percentage of respondents
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BORROWER SURVEY
M&A the standout reason for raising additional
capital but dividend recaps on the rise
Easy nancing conditions in the primary markets are emboldening
borrowers. All of the respondents looking to raise fresh capital were
planning to use the new money to fund M&A, up from 62% last year.
Meanwhile, half of respondents were also planning to use the additional
funding to perform a dividend recapitalisation, up from just 14% last year.
But expansion abroad looks to be slowing – only a quarter of the borrowers
said they would use incremental debt to fund expansion into emerging
markets, down from 57% last year.
“We have acquisition plans and want to raise additional capital for it,”
commented a director of strategy at a Finnish corporate. “We do not want
to overspend from our balance sheet as we want to keep money safe for
our capital expenditures. Thus additional nancing in the form of debt or
equity is what we are looking for to nance our acquisition over the next
12 months.”
If answered “To raise additional capital”, why do you need
additional nancing?
0% 20% 40% 60% 80% 100%
Expansion into emerging
Dividend recap
M&A 100%
50%
25%
Amend and extend becomes default option
for borrowers
Amend and extend has become the preferred route for borrowers needing
to re with some 60% of respondents planning to go down this route.
Just 20% expect to renance with a combination of both new and existing
lenders, down from 73% last year. Sixteen percent of borrowers expect to
renance with existing lenders while only 4% expect to raise the necessary
capital with new lenders.
“We are not looking to renance for any acquisitions or business
expansion, we just want to renance our debt and do not want to raise
any additional capital so we would prefer to amend and extend,” said a
Spanish corporate respondent.
“New lenders are very sceptical and do not easily provide renancing.
Using current relationships and obtaining renancing from the existing
lenders is usually the best option as a new lender will take much longer for
approval and there is no guarantee that it will happen,” added a director at
an Italian private equity rm.
How do you expect to do the renancing?
0% 20% 40% 60% 80% 100%
Overall
Private equity firm
Corporate 56% 20% 20% 4%
64% 20% 12% 4%
60% 20% 16% 4%
Amend and extend instead Renance with a combination of both Renance with existing lenders
Renance with new lenders
Percentage of respondents Percentage of respondents
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B O R R O WE R S U R V E Y
Senior secured and unsecured bond structures
and pari passu bank and bond structure to
lead renancing
For planned renancings over the next 12 months, senior secured and
unsecured bond structures are expected to be most popular alongside pari
passu bank and bond structures, with 38% of respondents selecting each
option. All bond structures with a super senior RCF are making inroads
though – roughly a quarter (24%) of borrowers chose this option, up
from just 11% last year.
“Senior secured and unsecured bond structures provide exibility and are
done at low cost. There is strong market demand for both senior secured
credit facilities and senior unsecured notes allowing businesses to lock in
very favourable rates,” a UK private equity respondent said.
“There is a lot of demand for senior secured bond structures, which is
natural considering the volatile market means investors are looking for
a secure mode of investments. But even unsecured bonds are gaining
prominence among a specic class of investors who have higher appetite
for risk and are looking for higher returns,” a corporate respondent added.
What bank/bond structure do you think will be most popular for
renancings over the next 12 months?
0% 20% 40% 60% 80% 100%
Overall
Private equity firm
Corporate 40% 36% 24%
36% 40% 24%
38% 38% 24%
Banks and bond market key renancing routes
Banks are expected to remain the key providers of capital, with 96% of
respondents selecting them as a renancing route and 48% anticipating that
they will be the primary providers. But bonds are gaining in importance with
82% of respondents choosing them as a renancing option as well (up from
60% in last year’s survey), and 22% tipping them as the primary route (up
from 16%).
“I think 2013 will be a boom year for the corporate bond market,”
suggested a partner at a UK private equity rm. “Momentum is very high
with some deals heavily oversubscribed motivating companies to issue
bonds for renancing.”
Who will be providing the renancing?
0% 20% 40% 60% 80% 100%
The Stock Markets
Non-bank lenders /
Alternative capital providers
Private equity
The Bond Markets
Banks96%
48%
82%
22%
58%
20%
58%
10%
12%
Senior secured and unsecured bond structure Pari passu bank and bond structure
All bond structure with super senior RCF
Overall Primary
Percentage of respondents Percentage of respondents
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BORROWER SURVEY
More respondents expect lenders to roll into
new debt
Some 53% of respondents expect more than half of loan providers to roll
over during renancing, while 20% of those surveyed expect more than
half of bondholders to do the same. This is slightly up on last year, when
46% of respondents expected more than half of loan providers to roll over
and 18% thought that more than half of bondholders would switch into
new bonds in a renancing.
“Now there is not much difference between bank lending and the bond
market. Issuing bonds is the easiest route for renancing as there are
many investors looking for investment opportunities which are secure and
liquid too,” suggested a head of nance at a Luxembourg-based corporate.
“Bank lending is holding steady for highly regarded and highly rated
companies, but with companies which are in distress and have lower
ratings the bond market is helping them to raise capital.”
What % of existing lenders do you expect to roll into
new debt?
0% 20% 40% 60% 80% 100%
Loan providers
Bondholders 26% 54% 16% 4%
4% 44% 20% 30% 2%
Shift towards bond market continues
Borrowers expect the bond market to play a more important role in
providing funding, with 42% of those surveyed anticipating that they
will increasingly source capital in the bond market. In contrast only 26%
expect an increased proportion from the bank market while just under a
third (32%) anticipated no change in allocation.
“There is high demand for investment grade bonds and when a highly
regarded company issues bonds it receives huge interest from lenders.
Even junk and non investment grade bonds are now attractive to lenders,”
a Spanish corporate respondent commented.
“All of the factors that helped in improving bond market performance in
the past two years remain rmly in place, which will keep the bond market
active in funding,” added a partner at a UK private equity rm.
“Many European corporates have increasingly sought to
diversify their funding sources by tapping the bond market
so as not to be overly reliant on bank nancing. In the US,
corporates are funded 70% in the capital markets. Whilst
European corporates have some way to go to reach theselevels, there has been a shift in focus over the last 5 years.”
Martin Hutchings, Freshelds Bruckhaus Deringer
How do you expect your funding mix to change between
loans and bonds?
0% 20% 40% 60% 80% 100%
Overall
Private equity firm
Corporate 44%
40%
42% 32% 26%
32% 28%
32% 24%
Below 15% 16% – 30% 31% – 50% 51% – 60%
61% – 75% Above 75%
Increased proportion from the bond market No change anticipated
Increased proportion from the bank market
Percentage of respondents Percentage of respondents
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B O R R O WE R S U R V E Y
Bank debt followed by senior secured bonds
most popular instruments in 2013
Some 23% of respondents expect to use bank debt to renance more than
half of their debt in 2013, while another 27% anticipate using bank debt for
renancing between 40% and 49% of their debt. Senior secured bonds are
the next most popular option, with almost half of the respondents (45%)
planning to use the instruments to renance between 30% and 49% of their
debt and another 45% to re between 20% and 29% of their debt.
What percentage of debt do you expect to be renanced with
the following instruments during 2013?
0% 10% 20% 30% 40% 50% 60% 70% 80%
Private placements (%)
PIK debt (%)
Unsecured bonds (%)
Equity (%)
Mezzanine debt (%)
Senior secured bonds (%)
Bank debt (%)17%
33%27%
23%
45%45%
6%
2%
2%33%
50%17%
36%43%
14%
37%56%
7%
50%50%
63%31%
6%
7%
Covenant pressures and dodging sovereign risk
volatility biggest challenges when renancing
Covenant pressures moved to the top of the list of challenges faced by
borrowers when negotiating a renancing from second place last year,
with close to three-quarters (72%) of respondents citing it as a challenge
and 22% as the main obstacle. Timing to avoid sovereign risk volatility
jumped to second place from third last year with 68% of respondents
picking it and 24% tipping it as the primary challenge. Timing to achieve
optimum market conditions, the most widely selected challenge last
year, slipped to third place with 40% picking it as a challenge, and 24%
considering it the main difculty, down from 38% the prior year.
“The sovereign debt crisis in Europe weighs heavily on companies
negotiating a renancing,” suggested a Spanish corporate respondent.
“Because of the crisis banks can be reluctant to extend credit to renance
debt even when it’s investment grade.”
“How far the current market will sustain optimal conditions is not known.
Considering the volatile history of the European economy in the last four years
and frequent changes in the banking system I think it is very difcult to get
the right timing for renancing,” suggested a German private equity borrower.
“With European economies’ continuing struggle to drive
growth there will be a lot of pressure negotiating covenants
as lenders look to keep as tight a control as possible in
such uncertain times.”
Klaus Kremers, Roland Berger Strategy Consultants
What are the biggest challenges you encounter when negotiating
a renancing?
0% 10% 20% 30% 40% 50% 60% 70% 80%
Potential to tap into
US markets
Obtaining appropriate rating
Timing to avoid competing
deals
Timing to achieve optimum
market conditions
Timing to avoid sovereign
risk volatility
Covenant pressures72%
22%
24%
24%
10%
18%
20%
2%
62%
64%
68%
68%
1 – 19 20 – 29 30 – 39 40 – 49 50 & Above Overall Primary
Percentage of respondents Percentage of respondents
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BORROWER SURVEY
Sovereign debt crisis is key macro trend
inuencing renancing
The sovereign debt crisis is the key macro trend affecting renancing,
with 90% of respondents seeing it as having an impact and 28% citing
it as the primary inuencing factor. Fears over a prolonged period of
below normal growth have increased, with 70% of respondents selecting
it and 26% expecting it to have biggest impact, up from 52% and 18%
respectively last year. Similarly, concerns over a double-dip in Europe are
rising, with 66% of respondents seeing it as a deterrent to renancing and
30% as the main one, up from 44% and 0% respectively last year.
“The sovereign debt crisis is the biggest enemy for renancing. There is
still huge amount of sovereign debt held by European countries which
automatically puts strain on the ability of the banks to provide lending,”
suggested a UK-based private equity respondent.
“Concerns of another recession loom large and this is affecting renancing
as we are either required to give strong guarantees or required to pay
higher prices,” added a Polish corporate borrower.
What macro trends are affecting your plans to renance?
0% 20% 40% 60% 80% 100%
Currency issues
Reduced bank liquidity
ahead of Basle 3
Concerns of a double-dip
Prolonged period of
below normal growth
Sovereign debt crisis90%
70%
66%
48%
24%
2%
14%
30%
26%
28%
Borrowers plan step-up in operational
changes to their business during renancing
Both corporate and private equity rms are planning to operationally
restructure when renancing, with just over three-quarters (76%) of
corporate respondents and (92%) of private equity borrowers planning
to make operational changes to their businesses alongside their plans to
tackle their maturities. It marks a signicant shif t among private equity
companies, where just 24% had planned to restructure operationally
concurrently with renancing last year.
“The trends have changed and so has demand,” a Spanish corporate
respondent commented. “We will restructure our business and will focus
on the core areas.”
“We are planning to divest some assets in the domestic market and take
on new products in foreign markets,” added a German corporate borrower.
“There has been a signicant shift towards combining
operational and strategic improvements alongside nancial
restructuring in a much more holistic approach. This is
key to give the borrower the best chance of successfully
renancing with the best possible conditions.” Nick Parker, Roland Berger Strategy Consultants
Alongside the renancing of the business, are you planning
to make any operational changes to the business?
0% 20% 40% 60% 80% 100%
Overall
Corporate
Private equity firm 92% 8%
76% 24%
84% 16%
Overall Primary Impact Yes No
Percentage of respondents Percentage of respondents
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B O R R O WE R S U R V E Y
Move towards paying down CLOs to have
moderate impact on renancing
The majority (54%) of respondents expect the switching of many CLOs
towards paying down their liabilities to make renancing slightly more
difcult in 2H13. The concerns are more pronounced among private
equity borrowers, where 64% anticipate tougher conditions as a result
of disappearing CLO liquidity.
“With the likelihood of a material reduction in CLO investments in the
second half of 2013 there will be a signicant funding gap between the
renancing needs of speculative grade companies and available capital
from traditional high yield bond and leveraged loan funding sources,”
noted a UK-based private equity respondent. “The funding gap will likely
be most acute in the leveraged loan market given the diminishing capacity
of CLO investments.”
Do you expect renancing to become more difcult in the second
half of 2013 when a number of CLOs switch repayment cashinto pay down instead of reinvesting in new deals?
0% 20% 40% 60% 80% 100%
Overall
Private equity firm
Corporate 36% 44% 20%
28% 64% 8%
32% 54% 14%
Drop in active CLOs likely to push up amend
and extend requests
There is limited consensus among borrowers on the impact of the expected
reduction in active CLOs, with just under a third (32%) of respondents
suggesting it will lead to increased amend and extend requests, some 28%
believing that it will drive renancing via alternative capital providers and 26%
stating that it will lead to increased renancing through high yield bonds.
“Alternative capital providers will now become the primary source of
renancing,” suggested a Spanish corporate borrower. “As the primary
lenders are unable to meet their commitments towards renancing,
alternative capital providers will take the lead and renancing through
these routes will greatly increase during this year.”
What impact will the drop in active CLOs during 2013
have on the market?
0% 20% 40% 60% 80% 100%
Overall
Private equity firm
Corporate 44% 32% 16% 8%
20% 24% 36% 20%
32% 28% 14%26%
No impact Slightly more difcult Signicantly more difcult Increased amend and extend requests Increased renancing via alternative capital providers
Increased renancing via high yield bonds Increased renancing with banks
Percentage of respondents Percentage of respondents
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BORROWER SURVEY
Reduction in active CLOs to have moderate
impact on liquidity this year
Just over a third (34%) of respondents think that the reduction in
active CLOs will reduce liquidity by less than EUR 5bn. Ten percent of
respondents think that the trend will reduce liquidity by EUR 5bn-10bn,
while 28% think that it will shrink by EUR 10bn-20bn and a further 28%
think that liquidity will reduce by more than EUR 20bn.
How much CLO liquidity do you expect will disappear in 2013?
0% 20% 40% 60% 80% 100%
Overall
Private equity firm
Corporate 36% 8% 24% 16% 16%
32% 12% 32% 8% 16%
34% 10% 12% 16%28%
More pronounced impact on liquidity in 2014
Borrowers expect more of an impact in 2014, with 38% expecting the
reduction in active CLOs to reduce liquidity by more than EUR 20bn and
almost a quarter by more than EUR 30bn next year.
How much CLO liquidity do you expect will disappear in 2014?
0% 20% 40% 60% 80% 100%
Overall
Private equity firm
Corporate 32% 12% 12% 16% 28%
32% 8% 28% 12% 20%
32% 10% 14% 24%20%
Less than €5bn €5bn-€10bn €10bn-€20bn €20bn-€30bn €30bn plus Less than €5bn €5bn-€10bn €10bn-€20bn €20bn-€30bn €30bn plus
Percentage of respondents Percentage of respondents
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B O R R O WE R S U R V E Y
No major CLO comeback anticipated in 2013
A minority of respondents anticipate a comeback for CLOs in 2013.
Almost half do not expect new CLOs to come to the market until next year,
and another 30% think it won’t happen until the following year. However,
just 4% of respondents expect the asset class to disappear completely,
while some 16% expect CLOs to raise a EUR 1bn plus this year.
“CLOs will cer tainly come back in 2013 or in early 2014,” suggested a
Polish corporate borrower, “Because of CLO constraints the market is
already in very bad shape and there is a strong argument for removing
some restrictions and bringing down the regulations to improve the market
and keep a balance between debt and renancing.”
Do you expect CLOs to make a comeback in Europe in 2013?
0% 20% 40% 60% 80% 100%
Overall
Private equity firm
Corporate 12% 4% 4% 48% 32%
8% 8% 4% 28%44% 8%
10% 6% 46% 30% 4%4%
PE funds have money for deployment in 2013
Some 40% of private equity respondents indicate that they have raised
EUR 200m-300m that they will need to deploy during 2013. Just under a
third (32%) need to deploy EUR 100m-200m this year, while a fth of the
private equity respondents will be looking to invest EUR 300m-500m.
“We have raised funds but not big ones. We now have a focus on small
companies and thus have raised funds accordingly,” noted an Italian
private equity investor.
What level of funds have you raised that you will need to deploy
during 2013?
0% 5% 10% 15% 20% 25% 30% 35% 40%
€100million-€200million
€200million-€300million
€300million-€400million
€500million plus 8%
20%
40%
32%
Raise more than €5bn in 2013 Raise more than €1bn in 2013 Raise €0-€1bn in 2013
Not until 2014 Not until 2015 The asset class will disappear
Percentage of respondents Percentage of respondents
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BORROWER SURVEY
Turnover in leveraged loan universe expected
to decrease
Just over two-thirds (68%) of respondents do not think that turnover in the
leverage loan universe will resume in 2013, while just under a third (32%)
think that secondary buyouts will pick up again.
Secondary buyouts have dried up during 2012. Do you expect
turnover in the leveraged loan universe, a key driver of deal owhistorically, to resume in 2013?
32%
68%
Yes No
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L E ND E R S U R V E Y
LENDER SURVEY
In early 2013, Debtwire canvassed the opinions of 50 representatives from
the lending community in Europe regarding their outlook for the European
renancing market. Respondents were questioned on their expectations
regarding the amount of debt coming to market for renancing and which
sectors and countries will be most impacted. In some instances, and
in order to present results for comparison, respondents were asked thesame questions as those from the borrower survey. The interviews were
conducted over the telephone and respondents were granted anonymity.
Their aggregate responses are presented over the following pages. Further
details regarding respondents can be found in the Appendix at the end of
the report.
METHODOLOGY
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LENDER SURVEY
A third of lender respondents expect over EUR
1trn to be renanced in next three years
Some 33% of lenders surveyed expect more than EUR 1trn in debt to
come up for renancing over the next three years. That compares to 46%
of the borrowers surveyed, suggesting that lenders are more relaxed over
the maturity wall.
“In the next three years we have a huge maturity wall and much of the debt
maturing will come for renancing because in the current environment and
given the capital position of companies, rms generally aren’t in a position
to pay down the debt,” suggested a commercial banker.
“Lenders continue to be more negative over the challenges
facing the renancing wall compared to borrowers and are
much more sensitive to the specic sectors and geographies.”
Klaus Kremers, Roland Berger Strategy Consultants
How much debt do you expect to come up for renancing
in the market over the next three years?
9%
6%
26%
33%
26%
Private equity steals a march on corporates
in tackling debt maturities
More than three quarters (77%) of the respondents expect 26-50% of the
renancing to come from private equity deals and 50-74% to come from
corporates. This down from 55% last year, suggesting that some private
equity owned rms have tackled their debt maturities in the interim.
“Corporates continue to face challenges and many companies are still in
distress because of the lack of demand. They are not able to meet their
debt obligations and at the same time tight lending conditions are a big
hurdle. Private equity players are in a bet ter position and have built huge
cash reserves and are in fact buying assets,” an investment banker noted.
“The rate of corporate debt maturing is higher than the rate of private
equity debt in the next three years. Firstly, because private equity rms
have already taken debt extensions and their new debt will now mostly
mature after 2017. Secondly, private equity rms have already cleared
debt and they are not facing as much tension now like the corporates,”
a prop desk trader added.
“Private equity rms have been very focused on managing
their business’ debt maturities over the last few yearsthrough amend and extend transactions and bank/bond
renancings. Corporate debt maturities will be a key focal
point for the market in the next 12 months.”
Alex Mitchell, Freshelds Bruckhaus Deringer
Percentage wise, how do you see the split of that debt
between private equity-related debt and corporate debt?
0% 20% 40% 60% 80% 100%
2012
2013 8% 77% 15%
23% 55% 22%
Percentage of respondents
<€150bn €150bn-€299.9bn €300bn-€499.9bn €500bn-€1 Trillion
Above €1 Trillion
0-25% PE / 75-100% Corp 26-50% PE / 50-74% Corp 51-75% PE / 25-49% Corp
76-100% / 0-24% Corp
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L E ND E R S U R V E Y
Renancing peak expected in 2013
Lenders expectations of when the bulk of renancing gets done are
running ahead of borrowers’ plans. Some 46% of lender respondents think
that the majority of renancing will take place in 2013, whereas just 34%
of borrowers plan to tackle their maturities this year. Similarly just 2% of
lenders think the re peak will be in 2015 and none thereafter, whereas
14% of borrowers aim to re in 2015 and 20% the following year or later.
“Companies will try to squeeze as much renancing as possible into 2013
itself,” suggested a fund of funds manager. “For companies looking for
renancing, now is the right time because interest rates are very low and
credit conditions have improved.”
“I think the majority of the renancing will happen in 2014 as we saw a
signicant number of maturities extended in 2012 – the majority by two
years,” a Swiss respondent commented. “It will be hard to extend these
maturities again so we will instead see renancings happening.”
When do you expect the majority of renancings
to take place?
12%2%
14%
32%
40%
Financial Services and Property/Construction
to account for bulk of renancings
Financial Services and Property & Construction are the two sectors
expected to account for the bulk of upcoming renancing, with both
sectors tipped by 24% of respondents each. This was broadly in line
with last year.
“The crisis is still looming large for Europe’s struggling construction and
real estate companies as they face a race to renance a huge amount of
debt by the end of the year. Weak consumer condence and poor property
demand continues to strain the sector,” a prop desk trader commented.
Autos, selected by just 6% of respondents last year, jumped to third place
with 18% of the lenders surveyed citing it as the sector that they expect to
provide most of the renancing.
“The automotive industry globally needs some serious renancing because
the crisis has worsened the problem for companies who are struggling
with production overcapacity. There is an imminent need for restructuring
to survive,” added a corporate banker.
In which sector do you expect the bulk of renancing
to take place?
0% 20% 40% 60% 80% 100%
2012
2013 24% 24% 18% 14% 8 % 4% 2%
2% 2%
30% 15% 6% 11% 11% 12% 9% 2%
2%
2%
2%
Percentage of respondents
They already have H1 2013 H2 2013 Not until 2014 Not until 2015 Financial Services Property & Construction Auto / Auto parts Consumer / Retail
Energy Media Technology Infrastructure
Chemicals and Materials Transport Basic Industries
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LENDER SURVEY
Germany to account for lion’s share of
renancing
Germany will account for the largest share of renancing, according to 38%
of respondents, (up from 32% last year). Just under a quarter (24%) expect
the UK to represent the largest number of renancings, well down from
the 38% last year. Some 16% think that Spain will account for the biggest
volume of debt coming up for renancing while 12% point to France.
“Renancing largely depends on the capacity of the domestic market and
overall sentiment, and the current capacity and sentiment in Germany is very
positive and this will increase renancing,” an investment banker commented.
“Just because a country has the highest amount of debt maturing does not
mean the bulk of renancing will happen there. Considering the economic
environment I think German businesses will be able to renance the most
even though companies in some other countries are holding higher debt
with closer maturities,” agreed a prop desk trader.
“With current lack of growth in European economies, it
is not too surprising that expectations are for Germany to
account for the largest share of renancing, but this will
also be very much sector specic.” Nils Von Kuhlwein, Roland Berger Strategy Consultants
In which country do you expect the bulk of renancing
to take place?
0% 20% 40% 60% 80% 100%
2012
2013 38% 24% 16% 12% 10%
32% 38% 10% 6% 8% 6%
Closing of markets seen as biggest factor
impacting renancing
For lenders the most damaging impact of the sovereign crisis on
renancing is seen as the periodic shutting of markets, with 86% of
respondents citing it as having an impact and 40% selecting it as the
most important effect.
“Because of sovereign debt crises any foundation laid for economic
recovery is weak,” suggested a prop desk trader in the Netherlands.
“There is always uncertainty which shuts the market and decreases
the chances of renancing.”
“Despite the current benign credit environment, market
uncertainty can return quickly and unexpectedly. Preparation
and exibility remain key to executing a successful
renancing strategy.”
Alex Mitchell, Freshelds Bruckhaus Deringer
What impact is the sovereign debt crisis having on borrowers’
ability to renance?
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Negative impact only in respect of certain
lower rated credits / sectors / financing sizes
Increased uncertainty is sparking a sell-off in the
secondary markets, thereby pushing up primary
market pricing and resulting in higher funding costs
Sovereign rating downgrades result in corporate
downgrades, increasing funding costs
Exposure to sovereign debt is limiting banks’
ability to roll over loans
Bouts of uncertainty periodically shutting markets,
reducing the window of opportunity to refinance
86%
40%
70%
18%
68%
28%
64%
14%
6%
Percentage of respondents Percentage of respondents
Germany UK Spain France Italy Ireland Overall Primary
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L E ND E R S U R V E Y
Amend and extend will be most common
option for renancing
Over half (54%) of lenders surveyed think that amend and extend
arrangements will be the most common option for borrowers facing
renancing while just under a quarter (24%) think that renancing with
a combination of existing and new lenders will be the most utilised route.
“Amend and extend is currently the favoured option for borrowers,”
a respondent in Finland suggested. “They do not have to spend a long time
negotiating and it is the most favourable mode of renancing.”
“Amend and extend transactions have proven to be a very
efcient and relatively inexpensive way for borrowers to
manage their debt maturities, while maintaining the benet
of their existing lender relationships. We expect them to
remain a key nancing tool in the future.”
Alex Mitchell, Freshelds Bruckhaus Deringer
“The key issue with amend and extend is that it is
much easier not to address potential root causes of
underperformance. Combining with operational and
strategic reviews as part of a holistic restructuring isthe only way to ensure long term competitiveness.”
Klaus Kremers, Roland Berger Strategy Consultants
How do you expect borrowers to renance?
Banks still the key route to renancing but
private equity makes inroads
Banks are still expected to be the primary source of capital when renancing,
according to half (50%) of respondents. Overall some 96% of the respondents
expect bonds to play a role, followed by 84% for banks, 68% for private
equity and 58% for alternative capital providers.
“Banks are still the largest lenders and they are the primary source of
renancing for many companies. Interest rates have come down and
banks are now more open while their lending conditions have also eased
a bit,” an investment banker commented.
Private equity leapfrogged bonds into second place as likely primary
provider of renancing, with 22% of respondents picking private equity
ahead of 20% selecting bonds.
“Private equity is emerging as the leading source of capital as they
are now holding huge cash piles and are very active in renancing
businesses,” suggested a prop desk trader.
“Private equity rms, credit funds and other alternative
capital providers have very signicant amounts of capital available and are taking increasingly large direct lending
positions. They have an advantage over banks in the current
regulatory environment and we expect them to be a key
source of funding for renancings in the coming years.”
Alex Mitchell, Freshelds Bruckhaus Deringer
Who will be providing the renancing?
0% 20% 40% 60% 80% 100%
The Stock Markets
Non-bank lenders /
Alternative capital providers
Private equity
Banks
The Bond Markets
96%
20%
84%
50%
68%
22%
8%
34%
58%
10%
12%
24%
54%
Percentage of respondents
Renance with new lenders Renance with existing lenders
Renance with a combination of both Amend and extend instead
Overall Primary
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LENDER SURVEY
Banks set to continue driving renancing
Some 35% of respondents expect banks to account for more than 50%
of new debt during renancing in 2013, while a quarter (25%) anticipate
that banks will provide 40% and 49% of the capital. Eleven percent of
respondents see the bond markets accounting for more than 50% of the
new debt in a renancing, and some 7% think private equity will provide
50% or above of the new capital.
“Bonds are still regarded as one of the most viable sources of renancing
with more favourable terms and accessibility,” suggested a prop desk
trader. “Private equity is also emerging as a big renancing source as PE
rms are showing considerable interest and are being exible because this
is an opportunity for them to strike valuable deals.”
Between all those that you mentioned, what will be the
likely split?
0% 10% 20% 30% 40% 50% 60%
The Stock Markets
Non-bank lenders /
Alternative capital providers
Private equity
The Bond Markets
Banks13%
28%25%
35%
4%33%33%
20%11%
18%32%
25%18%
7%
4%4%
22%33%
37%
36%50%
7%7%
Loans remain most popular debt instrument
when renancing
A fth of respondents expect bank debt to account for more than 50% of
debt renancing in 2013, while 27% anticipate that bank debt will be used
for between 40% and 49% of the debt being renanced. Seven percent of
respondents see senior secured bonds being used to renance more than
50% of debt while 41% anticipate that senior secured bonds will be used to
renance between 30% and 49% of the debt due for renancing.
What percentage of debt do you expect to be renanced
with the following instruments during 2013?
0% 20% 40% 60% 80% 100%
Equity
Unsecured bonds
Mezzanine debt
Private placements
PIK debt
Senior secured bonds
Bank debt30%
23%27%
20%2%
50%25%
16%7%
13%54%
25%
17%63%
21%
19%71%
10%
100%
50%
8%
43%7%
Percentage of respondents Percentage of respondents
1 – 19 20 – 29 30 – 39 40 – 49 50 & Above 1 – 19 20 – 29 30 – 39 40 – 49 50 & Above
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L E ND E R S U R V E Y
Senior secured and unsecured bond structures
to dominate
Senior secured and unsecured bond structures are expected to be the
most popular when renancing during the next 12 months, according to
46% of respondents. All bond structures with super senior RCF are the
next most likely to be used, tipped by 28%, followed by pari passu bank
and bond arrangements, chosen by 26% of lenders surveyed.
“Secured loans are highly regarded by lenders as they provide security
and are very liquid,” a director at a mezzanine fund noted. “Bank bond
structures are not liquid and have strict terms and are therefore difcult
for the companies to issue. Senior secured bond structures have gained
prominence and proven to be a successful element for renancing.”
What bank/bond structure do you think will be most popular
for renancings over the next 12 months?
26%
28%
46%
Timing to achieve optimum market conditions
biggest challenge but dodging sovereign risk
volatility increasingly important
Timing to achieve optimum market conditions remains the biggest
challenge when negotiating a renancing, cited by 72% of respondents as
a factor and by 24% as the primary challenge. Timing to avoid sovereign
risk volatility moves up into joint second place with covenant pressures,
with 64% seeing them as issues and 24% as the primary challenge.
“Avoiding sovereign risk volatility will signicantly benet issuers when
renancing and it will also help companies in improving their credit rating,”
a mezzanine fund manager commented. “However, avoiding sovereign risk
is not easy and can put signicant pressure on companies and their ability
to renance.”
What are the biggest challenges you encounter when negotiating
a renancing?
0% 10% 20% 30% 40% 50% 60% 70% 80%
Potential to tap
into US markets
Timing to avoid
competing deals
Obtaining appropriate rating
Covenant pressures
Timing to avoid sovereign
risk volatility
Timing to achieve optimum
market conditions
72%
24%
64%
24%
64%
24%
64%
12%
58%
14%
38%
2%
Percentage of respondents
Pari passu bank and bond structure All bond structure with super senior RCF
Senior secured and unsecured bond structure
Overall Primary
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LENDER SURVEY
Default rates expected to fall this year
Half of the lenders surveyed anticipate a decline in default rates over
the next 12 months, while just under a quarter (24%) expect default
rates to increase and the remainder for them to remain the same.
“Default rates will come down,” suggested a commercial banker. “Although
the amount of debt coming for maturity will be as high as a trillion euros,
generally companies are in a healthy position with good balance sheets.
Thus companies will be able to renance and avoid defaults even if they
are not able to pay down their debt.”
“I think default rates will come down as the market has generally emerged
from uncertainty and compared to earlier companies will be able to get
renancing and extend maturities,” added a prop desk trader.
“However, due to more complex nancing structures out
of court solutions are becoming more difcult which could
temper any expected reduction in default rates.”
Klaus Kremers, Roland Berger Strategy Consultants
How do you expect default rates to develop over the next
12 months?
50%
26%
24%
Renancing in the US an attractive option
for many
Forty percent of lenders surveyed expect more than EUR 20bn of
European debt to be renanced in the US market in 2013. Just under a
third (30%) of respondents think the number will be closer to EUR 10bn-
20bn while just under a quarter (24%) anticipate that the gure will be in
the region of EUR 5bn-10bn.
“European issuers are keener on renancing debt in the US than in Europe
due to the improving state of the economy in the US,” noted a prop desk
trader. “The situation in the US is not as grim as it is in Europe and that is
driving European issuers to renance debt in the US.”
What volume of debt will European issuers renance in the
US market in 2013?
40%
30%
6%
24%
Decrease Remain the same Increase €20bn plus €10bn-€20bn €5bn-€10bn €1bn-€5bn
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L E ND E R S U R V E Y
Private placements expected to account for
15-20% of US renancing
Just under half (48%) of lender respondents expect that between 15-20%
of the debt renanced in the US will be done through private placements.
Some 36% think that private placements will account for 10-15% of these
renancings while 16% think that the proportion will be in the 20-25% range.
What percentage of this will be in the form of
private placements?
48%
36%
16%
Banks planning to raise further capital and
cut lending to boost ratios
Thirty-six percent of respondents from banks say that they do not need
to make any further preparations in anticipation of the new capital
requirements of Basle III. But 29% say that they will both raise additional
capital and reduce their loan exposure while 21% plan only to raise more
capital and 15% just to reduce lending.
“We are already prepared for the new regulatory requirements under Basle
III and it is the right time for us to be opportunistic,” said an investment
banker. “The market is improving and we have taken adequate steps so
that we are not restricted because of the new regulatory requirements.”
“Like any other bank we are looking to reduce our loan exposure,” noted
a German commercial banker. “However, we do not have plans to curb
lending as investment opportunities in some segments of the market are
still attractive.”
“The regulatory impact on capital costs for the banks
will mean that certain products will either become more
expensive for borrowers, be offered by fewer banks, or only
be offered where there is sufcient ancillary work available
(and therefore returns for the banks) to justify it.” Martin Hutchings, Freshelds Bruckhaus Deringer
What preparations does your institution still need to make to
meet the new regulatory capital requirements under Basle III?
36%
29%
14%
21%
Decrease Remain the same Increase None, we are already prepared Plan to both raise further capital and reduce loan exposure
Plan to raise more capital Plan to reduce lending further
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L E ND E R S U R V E Y
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APPENDIX
BORROWER SURVEY RESPONDENTS’ INFORMATION
Are you a corporate or private equity investor?
50%50%
Private equity rm Corporate
In which European sub-region are you primarily based?
28%
22%
12%
10%
8%
6%
6%
4%4%
UK & Ireland Germanic Nordic France Italy
Iberia Benelux CEE SEE
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A P P E ND I X
3131
LENDER SURVEY RESPONDENTS’ INFORMATION
In which market are you primarily involved:
50%50%
The leveraged market The corporate market
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F r e s h f e l d s B r u c k h a u s D e r
i n g e r L L P
freshelds.com
For your most complex matters, you need the
best legal minds to solve your problems.
Freshelds leads the way on Europe’s most intricate nancingsfor borrowers and sponsors, funds and arrangers. We advised
on Techem’s and Stork’s bank/bond renancings, and on
Center Parcs’ rst-of-a-kind £1.2bn renancing. We have
the experience and creativity to get your deal through.
Freshelds will make sure you get the best possible
outcome – we’re with you every step of the way.
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C A S E S T U D Y : T E C H E M
CASE STUDY: TECHEM
Techem is a leading global provider of energy billing and energy
management services, principally owned by Macquarie. The initial
acquisition had been nanced by traditional senior and mezzanine bank
debt and, whilst the business was well able to service the ongoing
obligations, the upcoming maturities in 2015 required a renancing.
The company needed to renance €1.3bn of existing debt and required
ongoing capex/acquisition and working capital revolving credit facilities,
and judged that the market appetite for a renancing justied the decision
to seek a renancing in 2012.
Given the nature of the business of the group and its long term nancing
needs, the management wanted to put in place a nancing which reected
the need for exibility in building out and developing its metering business,
and which was designed around the cashows of the business. The group
also wanted to design a debt package with staggered maturities and the
ability to independently renance individual elements of the debt package
to broaden its renancing options going forward.
This led the company and its advisers to design a mixed debt package
with a blend of products including:
• €550,000,000 senior facilities agreement maturing in 2017;
• €410,000,000 senior secured notes due in 2019;
• €325,000,000 senior subordinated notes due in 2020.
This mix of debt types and maturities facilitates opportunistic renancings
by the group and the ability to switch debt products in the future in order
to meet its maturity obligations. It also avoids exposure to any one debt
product and enables the company to ensure that it is already achieving the
best pricing.
This exibility was also reected in other terms of the capital structure, in
particular:
• The limitations on debt incurrence in both the bank and bond debt was
limited to achieving a particular leverage position but with a free ability
as to the type and nature of the debt (subject to certain ceilings on the
economic terms) thereafter;
• The ability to renance the facilities and the notes by means of new
facilities, new notes or other debt instruments is not fettered other than
in respect of certain of the economic requirements;
• The intercreditor agreement and security package was designed to
accommodate full or partial renancings and various different types
of debt including, in the event that an all bond structure is put in
place, allowing the structure and the ICA to “ip” to an all bond style
ICA without bondholder consent and without needing a new security
structure (an “evergreen” feature);
• The hedging is not tied to any one particular product but provided on ageneric basis in order to enable the hedging to apply to renanced debt
going forward.
This uid capital structure permits renancing of the various classes of
debt from a number of sources and minimises execution risk of renancing
the current structure by avoiding the need for further consents or
amendments to the capital documents (in particular with respect to the
ICA). In addition, the bond covenants provide exibility going forward for
the purpose of the payment of dividends if certain leverage requirements
are met.
The transaction also saw the development of certain features addressingthe rights of the bank and bond investors in the capital structure where:
• Enforcement voting is on a euro for euro basis; but
• If the relevant event of default is continuing under the facilities
agreement but not the notes, then the relevant instructing group will
consist of the lenders under the facilities agreement only; and
• There are certain prohibitions on amendments in respect of the terms of
the bonds where they would be stricter than the terms of the facilities
agreement.
These arrangements enshrine the pari passu treatment of the senior
secured debt but preserve the differential terms of the bank debt versus
the bond debt.
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Our key restructuring focus areas
> Cash management > Business planning > Interim management / CRO > Stakeholder negotiation > Restructuring targeting > Implementation support,including measuremanagement
> Due diligence > Investments / divestments
STRATEGIC RESTRUCTURING
OPERATIONAL RESTRUCTURING
FINANCIAL RESTRUCTURING
Supported by
Integrated in business plan
COMPANY PROFILERoland Berger Strategy Consultants, founded in 1967, is one of the world’s leadingstrategy consultancies. With 2,700 employees working in 51 offices in 36 countriesworldwide, we generate the majority of our business internationally.
Roland Berger is an independent partnership owned by about 250 Partners. Itsglobal Competence Centres specialise in specific industries or functional issues.We handpick interdisciplinary teams from these Competence Centres to devisetailor-made solutions.
At Roland Berger, we develop customised, creative strategies together with ourclients. Providing support in the implementation phase is particularly importantto us, because that’s how we create real value for our clients. Our approach isbased on the entrepreneurial character and individuality of our consultants – “It’scharacter that creates impact”.
CONSULTING SERVICESWe provide top management and investors / creditors with outstanding restructuringconcepts, having performed more than 2,100 cases: strategic, operational andfinancial restructuring is where we truly excel. In addition, we support the entireimplementation process and ensure that necessary actions are taken quickly.Further topics include structural realignment, liquidity management, insolvencyissues, business planning and interim management.
For corporate excellence projects, we offer advice in strategic positioning, portfoliomanagement, transformation, PMI, process reengineering, cost reduction and
working capital optimisation. Key organisational topics include headquartersorganisation, HR management, change management, shared services, corporategovernance, overhead optimisation and reviewing management structures andprocesses. This process is always heavily supported by our industry experts.
REFERENCESFundamentally restructuring companies, consulting on mergers, acquisitions andfinancing issues, developing strategic concepts and implementing comprehensiveprogrammes as well as optimising organisations and processes – these projectsset the basis for a company’s future.
Our Corporate Performance Competence Centre taps the expertise of RolandBerger Strategy Consultants to support our clients in tackling these key businessissues. This expertise is built on over 40 years of relevant project work and studieswith clients from all industries.
CONTACT Klaus Kremers
SENIOR PARTNER Tel: +44 (0)20 3075 1100Mob: +44 (0)79 6767 4871 +49 (160) 744 3420Fax: +44 (0)20 7224 4110klaus.kremers@rolandberger.com
www.rolandberger.com
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C A S E S T U D Y : C E NT R O T H E R MP H O T O V O L T A I C S A G
CASE STUDY: CENTROTHERM
PHOTOVOLTAICS AG
Experience with the new insolvency law in Germany
One of the most prominent ESUG cases to date concerns a global leading
technology and equipment provider covering the entire photovoltaic value
chain. The provider went public in 2007 and has since expanded rapidly,
driven mainly by market growth and acquisitions. In 2011, the company
generated revenues of EUR 700m, with 95% of its sales outside of
Germany and with Asia as its most important region. The company had
approximately 2,000 employees.
In 2012, the market for photovoltaic equipment shrank by approximately
70%. The sudden turmoil in the market triggered a severe drop in the
company's prots and a high cash burn rate by the beginning of Q2/2012.
In light of developments in the photovoltaic industry as a whole, major
banks responded to the company's situation by suspending its credit lines.
The company also faced high risks and nancing needs resulting from
ongoing large-scale projects. Finally, at the beginning of Q3/2012, the
company's trade credit insurance policies were cancelled. At this point,
the board concluded that, even though the company still had EUR 80m
in cash at its disposal, it was not possible to obtain the nancing needed
to take the requisite restructuring actions and survive the crisis that was
affecting the entire photovoltaic industry.
The company led for insolvency in combination with protective shield
proceedings and self-administration (Eigenverwaltung). Its request was
granted by the district court, giving the company a three-month window
in which to further drive restructuring and develop an insolvency plan
showing how creditor claims could best be satised. The district court
named a trustee to supervise self-administration, which was the option
adopted by the company's board and stakeholders.
In the three months that followed, the company developed a restructuring
concept and a bankruptcy plan. The cornerstones of the plan were to
continue operations, focus on the company's core business and remain
as a public company. The plan also envisaged a deferral of payments, a
cut in shares and a debt-to-equity swap. Creditors would own 80% of the
business, and the company would be obliged to sell shares on the best
possible terms and settle creditors' claims out of the proceeds. The plan
was approved by the creditors at the beginning of 2013.
Within the allotted time frame, management was able to stabilize
business operations. No orders were cancelled due to nancial collapse.
Furthermore, the company was able to negotiate with potential new clients
and to actually generate order income. Employees felt reassured by the
safety net procedure It helped them believe in the future of the company.
In addition, the company received debtor-in-possession nancing.Restructuring actions were implemented as planned, which improved the
company's liquidity situation.
The success factors in an insolvency under the new ESUG law are:
1. Make sure that management is both experienced and autonomous
2. Involve creditors early on when applying for self-administration
3. Prepare the certicate required by Section 270b of the German Statute
on Insolvency (InsO) early on and quickly get it agreed/approved
Contacts:Klaus Kremers, Senior Partner
Roland Berger Strategy Consultants
klaus.kremers@rolandberger.com
Jan von Schuckmann, CEO
Centrotherm Photovoltaics AG
jan.schuckmann@centrotherm.de
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A B O U T & C O NT A C T S
ROLAND BERGER STRATEGY CONSULTANTS
Klaus Kremers
Partner, London / Berlin
+44 20 3075 1100
klaus.kremers@rolandberger.com
Rene Seyger
Partner, Amsterdam
+31 20 7960 620
rene_seyger@nl.rolandberger.com
Bernd Brunke
Partner, Berlin
+49 30 399 27 3527
bernd_brunke@de.rolandberger.com
Uwe Johnen
Partner, Berlin
+49 30 39927 3520
uwe_johnen@de.rolandberger.com
Max Falckenberg
Partner, Düsseldorf
+49 211 43 892 301
max_falckenberg@de.rolandberger.com
Nils Von Kuhlwein
Partner, Düsseldorf
+49 211 43 892 122
nils_von_kuhlwein@de.rolandberger.com
Sascha Haghani
Partner, Frankfurt
+49 69 29924 6444
sascha_haghani@de.rolandberger.com
Jorge Delclaux
Partner, Madrid
+34 91 564 7361
jorge_delclaux@es.rolandberger.com
Roberto Crapelli
Partner, Milan
+39 2 2950 1235
roberto_crapelli@it.rolandberger.com
Uwe Kumm
Partner, Moscow
+7 495 287 92 46
uwe_kumm@de.rolandberger.com
Gerd Sievers
Partner, Munich
+49 89 9230 8543
gerd.sievers@de.rolandberger.com
Emmanuel Bonnaud
Partner, Paris
+33 1 53670 983
emmanuel_bonnaud@fr.rolandberger.com
Jan Beckemann
Partner, Stockholm
+46 8 410438 – 91
jan_beckeman@se.rolandberger.com
Rupert Petry
Partner, Vienna
+43 1 53602 100
rupert_petry@at.rolandberger.com
Beatrix Morat
Partner, Zurich
+41 43 336 – 8630
beatrix_morath@ch.rolandberger.com
Roland Berger Strategy Consultants, founded in 1967, is one of the
world’s leading strategy consultancies. With roughly 2,700 employees
working in 51 ofces in 36 countries worldwide, we have successful
operations in all major international markets. The s trategy consultancy
is an independent partnership exclusively owned by about 250 Partners.
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Debtwire provides actionable intelligence and research on High Yield and
Distressed credits, analysing each situation to identify the most pertinent
issues and delivering insights from informed sources. As an independent
organisation, our experienced team generates unbiased and value-added
intelligence for our clients. Debtwire was been built in conjunction with The
Mergermarket Group’s customer base of hedge funds, proprietary trading
desks, high yield fund managers and the restructuring departments ofthe major law rms and investment banks. The Debtwire team comprises
individuals with backgrounds in credit analysis, nancial journalism.
To nd out more please visit:
www.debtwire.com
DEBTWIRE
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For more information regarding this report please contact:
Ben Thorne
Publisher, Remark
ben.thorne@mergermarket.com
Tel: +44 20 7010 6341
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