ILFA 2018 – Advanced Training

1. ILFA 2018 – Advanced Training Amelia Slocombe – Director, Head of Legal, Loan Market Association

2. Agenda • The LMA • Differences between debt products • Mechanics and timetable of a syndicated loan • Loan market overview • LMA documentation – the background • Q&A

3. Loan Market Association - Background Secondary Trading Investment Grade Leveraged Real Estate PXF Developing Markets Private Placements Export Finance

4. LMA activities Efficiency Documentation Liquidity LMA Transparency Regulation Market practice Events & Education Loan Operations

5. LMA membership • 700+ members: • - Law firms • - Banks • Commercial/investment/public • Development banks • Export/import banks • Supras • - Institutional investors • - Brokers • - Technology platforms • - Information providers • - Ratings agencies • - Borrowers Service providers Other Funds Banks Law firms

6. LMA today – 62 jurisdictions globally 538 62 26 42 47

7. Recent documentation initiatives • Revised Replacement of Screen Rate clause in light of uncertainty over the future of LIBOR • Production of new leveraged intercreditor agreement for a super senior revolving facility and senior term facility structure • Production of ECA buyer credit facility agreement • Update to Confidentiality and Front Running Letter for Primary Syndication and New User Guide • Publication of South African law mandate letters (best efforts and underwritten) • Update of secondary terms and conditions re discontinuance of LIBOR • Update of secondary documents to reflect recent changes to ERISA • Revised versions of developing markets documentation • Revised versions of private placement documentation • Revised English law investment grade primary documentation • Update of real estate finance documentation • Launch of new fronted agreements for leveraged acquisition finance transactions

8. Ongoing documentation projects • Production of a REF mezzanine drafting guide • Review of private placement documentation and inclusion of US investor rider • Production of recommended form of Schuldscheindarlehen document

9. LMA guides

10. Dialogue with regulators and legislators • Ongoing dialogue wherever the loan market is impacted, including: • Brexit: jurisdiction, licensing and Article 55 - recognition, passporting, equivalence, grandfathering • LIBOR: dialogue with FCA, BoE, ECB, Fed, national working groups, other trade associations • Competition law – EC review • Proposed EU legislative measures for non-performing loans • Proposed EU regulation on the law applicable to the third-party effects of assignments of claims • ECB leveraged guidelines • CMU: CLO risk retention • Anti-money laundering: JMLSG consultation, ESA consultation, HMT call for information and countering the financing of terrorism guidelines • Article 55, BRRD: Dialogue with EC, EBA and PRA/FCA

11. Events and training 2018 • 90+ events planned in 18 centres across EMEA • Evening seminars in Amsterdam, Brussels, Frankfurt, Johannesburg, London, Madrid, Milan, Munich, New York and Paris • Documentation training days and courses • Webinar programme – 32 currently available • Spotlight videos – 11 currently available • E-learning programme – 10 modules currently online • Expanded conference programme

12. LMA E-learning Programme – “Understanding the Loan Market” Overview of the Loan product Types of Syndicated Loan and Credit Facilities Introduction to LMA Documentation 10 modules & assessments Servicing the Loan Pricing and Payments Transaction Timetables Protecting the Loan 4000+ delegates worldwide Effecting Change Introduction to the Secondary Loan Market Improving Liquidity in the Secondary Loan Market Free to access for LMA members

13. LMA webinars Introduction to secondary trading Introduction to syndicated lending (English) Introduction to Real Estate Finance Impact of the UK referendum vote to leave the European Union Introduction to the LMA REF Development Facility Agreement Types of facilities in the suite of LMA primary documentation Overview of the LMA secondary trading terms and conditions Introduction to syndicated lending (French) Overview of the LMA Leveraged Facilities Agreement Introduction to the LMA REF Intercreditor Agreement The role of the facility agent Introduction to syndicated lending (Spanish)

14. Mechanics of a syndicated loan

15. Borrower Borrower Mandated Lead Arranger(s) Agent Bank Syndicate Bank A Syndicate Bank B Syndicate Bank C Syndicate Bank A Syndicate Bank B Syndicate Bank C Main parties to a syndicated loan Pre-Financial Close: Borrower will negotiate terms & conditions of the new facility with one or more MLA banks. Post-Financial Close: Facility will be administered by a single Agent Bank & Security Trustee acting on behalf of the syndicate of lenders to simplify dealings with the borrower. • Characteristics: • Can be arranged on an underwritten basis, a ‘best efforts’ basis or as a club deal • Governed by a single loan agreement and set of security documents • Majority lender voting on most requests outside core loan terms • Used in all areas of lending • Able to raise large amounts of debt relatively quickly for event driven / M&A activity • Event driven activity usually underwritten to provide certainty of funds for borrower

16. Mandated Lead Arranger Parties to a syndicated loan – triangular profile Joint Lead Arranger Book Runner Arranger • Takes underwriting risk and manages distribution. League table status • Control the syndication process & final make-up of syndicate Co-Arranger • Leads negotiation with borrower. League table status • Bookrunner will be MLA. MLA also likely to be Agent & Security Trustee Mandated Lead Arranger Participant • May take smaller underwriting risk. Relationship bank. • Usually commits ahead of general syndication • No underwriting risk • Largest hold amount in general syndication • Mid-level ticket in syndication • Limited / no arranging capability Co-Arranger • Lowest ticket available. Smaller banks • Institutions / CDOs / Hedge Funds

17. MLA MLA MLA MLA Arranger Parties to a syndicated loan – trapezium profile

18. Roles and responsibilities • MLA: • Leads the negotiations with the Borrower prior to signing of mandate • Assumes underwriting risk, if any, and acts as Lender • MLA also likely to be Agent & Security Trustee • Bookrunner: • Manages the syndication process and final make-up of syndicate • Manages primary distribution, sells down an underwritten commitment or arranges on a “best efforts” basis • Bookrunner will also be an MLA • Coordinator: • Facilitates the smooth execution of the transaction, liaising with lenders’ counsel and all syndicate banks to ensure fluid communication and consensus on documentation. Tends to be a role on club deals

19. Facility agent Lenders Facility Agent: manages information and cash flows Borrower • Acts as agent for Lenders (and other Finance Parties) but paid by Borrower • Facility Agent plays a key role in the administration of the Facility: • Conduit for all payments under the Facility • Conduit for all notices given under the Facility • Will calculate interest rates • Will receive and pass on all borrower information (annual and semi-annual reports, compliance certificates etc.)

20. Borrower delivers utilisation request to Agent Agent notifies Lenders of amount of the loan Agent calculates LIBOR/EURIBOR Agent notifies Borrower and Lenders of LIBOR/EURIBOR Agent receives funds from Lenders on utilisation date Agent pays funds to Borrower on utilisation date Utilisation – Agent’s role Example of Facility Agent’s role on utilisation of a single currency facility

21. Instruments • Term Loan • Revolving Credit Facilities • Standby Facilities • Swing Line • Letter of Credit Facilities

22. Pricing components: Margin (grid) Commitment fee Front end fees Agency fees Transaction expenses [Rating Agency fees] Instruments: Term loan Key parameters: • Amount • Final maturity • Availability period • Grace period • Multi-currency options • Amortisation schedule • Documentation

23. Instruments: Term loan alternatives

24. Instruments: Term loan alternatives

25. Pricing components: Margin Commitment fee Front end fees Utilisation fees Agency fees Transaction expenses [Rating Agency fees] Instruments: Revolving credit facility (RCF) Key parameters: • Amount • Final maturity • Multicurrency • Drawing Periods • Documentation • Conditions Precedent (CPs)

26. Instruments: Revolving credit facility (RCF)

27. Multicurrency facilities • Term Loans and RCFs can be single currency or multicurrency • Optional currencies are usually limited to: • readily available currencies that are freely convertible into the base currency • any other currency that is approved by all the Lenders • Interest basis for certain currency drawings • In order to switch between currencies: • RCF: draw a new loan • Term Loan: switch to a new currency at the end of an interest period • Exchange rate risk is mitigated by adjusting back to base currency - usually subject to a 5% fluctuation threshold

28. Other instruments Standby facilities: • Standby facilities - specific amount of money that may be drawn down on a revolving basis during life of the facility, however, expectation is that no drawdowns will occur Swing line facilities: • When borrower wants same day funding (usually USD or Euro) Letter of credit facilities: • One bank usually remains the principal obligor backed by the syndicate and syndicated L/C follows the documentation of commercial L/Cs

29. Timetable - General corporates Phases Pre-mandate Post-mandate Closing Post-closing 6-8 weeks

30. Pre-mandate phase • Banks agree “market” terms and conditions with Borrower • Banks will obtain credit approval • Banks will formulate and execute syndicated strategy • Balance of Borrower’s “wish list” against market realities: credit risk/market risk/distribution risk/documentation risk • Mandated Lead Arranger(s) appointed by the Borrower in the mandate letter (underwritten/best efforts/club deal)

31. Post-mandate phase • Prepare the information memorandum • Launch the syndication • Instruct counsel to commence the documentation • ‘Sell the deal’ • Negotiate documentation with the Borrower • Negotiate documentation with the Banks • Allocate participations

32. Closing and post-closing phase • Collect administration details from all parties and powers of attorney • Organise signing arrangements • Arrange completion meeting if required • After signing, Facility Agent is now responsible for the transaction

33. Mandate awarded Prepare information package Prepare invitation to banks First draft of facility agreement from legal counsel Review first draft of facility agreement Second draft of facility agreement from counsel Invitation/confidentiality letters sent to banks Information packages sent to banks Banks seek credit approval Negotiate facility agreement with borrower Final draft facility agreement from legal counsel Banks review facility agreement Negotiate facility agreement with banks Collect administration details Final allocations made Arrange signing Signing/Closing Satisfy conditions precedent - Drawdown possible Typical timetable of events Event Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8

34. Loan market overview 2008 to present day

35. Global loan volumes by region Source: Dealogic

36. UK club deals Source: Dealogic

37. EMEA loan volumes by borrower nationality Source: Dealogic

38. EMEA loan volumes: refinancings v acquisitions Source: Dealogic

39. EMEA loan volumes by currency Source: Dealogic

40. EMEA loan volumes by maturity Source: Dealogic

41. EMEA loan volumes due to mature Source: Dealogic

42. LMA documentation – the background

43. LMA documentation – points to note • Different documents for different types of syndicated loan facility (e.g. investment grade, leveraged, REF etc) • Corporate loans may consist of a hybrid of LMA templates (e.g. a secured loan to a mid-market corporate may consist of features of both investment grade and leveraged. This is because the leveraged template contemplates security and also contains additional lender protections applicable to the sub-investment grade nature of the credit) • Although the documents are designed for syndicated facilities, LMA terms are also commonly adapted for larger bilateral transactions • Although the LMA provides recommended forms of facility agreement, the expectation is that they will be individually negotiated between lender(s) and borrower(s) • As a result, there is no guarantee that template LMA wording will feature in every loan agreement

44. The LMA family tree (English law) LMA Investment Grade Facility Agreements(“the Primary Documents”) LMA LeveragedFacility Agreement LMA Developing Markets Facility Agreements LMA Private Placement Facility Agreement LMA Commodity Finance Facility Agreements LMA Leveraged/High Yield Facility Agreements LMA Real Estate Finance Facility Agreements

45. Benefits of standardisation • Provides common basis for documentation between lender and borrower/issuer • Avoids negotiation of boilerplate terms and increases efficiency • Commercial aspects left open for negotiation • Standardised deal structure with options which can be adapted to transaction specifics • Consistency of drafting and terminology • Streamlining of representations, covenants, events of default etc – not exhaustive or absolute • Creates standard protections for participants • Seeks to address documentation risk

46. Assumptions and structure of LMA Investment Grade Facility Agreements • Drafting basis • Investment grade transaction • Corporate Obligors incorporated in England and Wales • English law • No Security • No controls on capital structure • Process • Working party • Borrower side involvement: Association of Corporate Treasurers

47. Assumptions and structure of LMA Investment Grade Facility Agreements, cont. Company Lenders Subsidiary Subsidiary Subsidiary Subsidiary

48. Assumptions and structure of LMA Investment Grade Facility Agreements, cont. • Options • Term facility • Revolving facility • Term and revolving facility • Multicurrency/single currency • US$/EUR Swingline • Letter of Credit • Published facility agreements • Multicurrency Term and Revolving Facilities Agreement (MTR) • Multicurrency Term and Revolving Facilities Agreement with Letter of Credit (MTR.LC) • Multicurrency Term and Revolving Facilities Agreement incorporating a Swingline facility (MTR.SL) • Multicurrency Term Facility Agreement (MT) • Multicurrency Revolving Facility Agreement (MR) • Multicurrency Revolving Facility Agreement incorporating a Swingline facility (MR.SL) • Single Currency Term and Revolving Facilities Agreement (STR) • Single Currency Term and Revolving Facilities Agreement incorporating a Swingline facility (STR.SL) • Single Currency Term Facility Agreement (ST) • Single Currency Revolving Facility Agreement (SR) • Single Currency Revolving Facilities Agreement incorporating a Swingline facility (SR.SL)

49. Assumptions and structure of LMA Leveraged Facility Agreement • Drafting basis • Leveraged acquisition • Corporate Obligors incorporated in England and Wales • English law • Security • Tightly controlled capital structure and use of intercreditor agreement • Process • Working party • No formal borrower side involvement

50. Investors Assumptions and structure of LMA Leveraged Facility Agreement, cont. Equity Investment by way of subscription for Shares of Parent (including Preference Shares) Equity Investment by way of Loan Notes Vendor Note Vendor Parent (deferred Purchase Price) Subscription for shares of Company (downstreaming equity investment) Warrants Mezzanine Loan Senior Loan Mezzanine Lenders Company(Purchaser) Senior Lenders Structural Intra Group Loan (downstreaming equity investment) (Term Facilities A, B and C plus Revolver) Target Hedging Hedge Counterparties Subsidiary 1 Subsidiary 2 Subsidiary 3