Graduate Training Programme for Investment Banking and ... · Programme for Investment Banking and Corporate Finance A 32 Day Course The Banking and Corporate Finance Training Specialist

Graduate Training

Programme for Investment

Banking and Corporate

Finance

A 32 Day Course

The Banking and Corporate Finance Training Specialist

Financial Statement and

Financial Analysis

Days 1-3

This course can also be presented in-house for your company

or via live on-line webinar

▪

Course Overview

Course Overview

The overall objective of the course is to help participants to develop the technical skills and the judgment to use accounting information appropriately according to the context and the purpose of their analysis.

The course takes its cue from the clear statement in the IASB’s 2010 revised conceptual

framework document:

General purpose financial reports are not designed to show the value of a reporting entity; but they provide information to help existing and potential investors, lenders and other creditors to estimate the value of the reporting entity.

The course begins with a selective examination of those fundamental accounting principles

which, individually or in combination with each other, are responsible for the bulk of the problems of financial analysis. Following this introduction, the course discards the ‘logical’ order of a conventional accounting course in favour of a practice-driven approach, in which the

components of commonly used valuation metrics and performance measures (EBITDA, RoE, RoCE, RoNA, asset turnover, working capital and cash flow ratios etc.) are used as ‘pegs’ on

which to hang a more searching examination of the problems and uncertainties lurking behind the accounting figures.

The course is based primarily on IFRS as in force at the time that the course is delivered, but reference to significant national GAAP is made as and when this sheds useful light on the topic

under discussion.

Introduction ◼ The mixed-valuation model and its problems:

• Evolution from a backward-looking exercise in stewardship towards a support tool for forward-looking economic decision making;

• Why this makes life inherently and unavoidably difficult for analysts and investors ◼ Some core qualities of financial statements, with easily understood illustrations from real life:

• Relevance and materiality (example: why inventory valuation is more critical in low

margin businesses) • Comparability (example: closely comparable competitors in an apparently homogeneous

industry, but with different histories of organic growth versus external acquisition, leading to different bases of accounting for intangibles)

• Understandability (example: pharmaceuticals, hi-tech generally)

• Reliable measurement (example: intangible assets in knowledge-based support industries)

• Fair value, time value of money, and discounted present values • Management discretion: the exercise of judgement, and the use of estimation techniques

◼ Introducing the three principal financial statements: their objectives, rationale and limitations

◼ The five elements of financial statements: assets, liabilities, equity, income and expense

◼ Accounting as a record of flows and stocks, of resources (assets) and obligations (liabilities)

Course Content

Focus on earnings-based metrics: unpacking EBITDA

◼ Revision of basic calculation, and any technical problems arising ◼ Questions about ‘Earnings’:

• The Big Question: how comparable are operating earnings (i) over time and (ii) vis-a-vis the competition? Specifically:

• Are the company’s accounting policies for revenue and expense recognition appropriately

selected, clearly described, and consistently applied? (example: Vodafone’s use of proportionate consolidation for JVs)

• How significant are figures for capitalised expense, relative to operating profit? • Does the company also use a non-GAAP earnings measure, and if so what is its stated

(and real) purpose? What are its merits and demerits? (many examples, but interesting

to compare the non-GAAP measures within an industry, e.g. like-for-like in food retailing) • Are stated earnings ‘normal’ - or have they been ‘normalised’ by the exercise of

management discretion? What about income/expense booked through OCI? • Are ‘exceptional’ income and expense separately identified, and are they really

exceptional? (example: in the years 2007-2011, Misys plc reported exceptional income or

expense every year, with an average absolute value of 40% of earnings before exceptionals)

• Do earnings include non-operating items such as gains/losses on non-current assets or on discontinued operations?

• Are there financing elements in some operating items, such as in the payment terms of trade suppliers? (example: supermarkets turning over inventory in 15 days, paying suppliers on 45 days, using the permanent float to finance a whole year’s capex)

• Does a relatively smooth development at consolidated level mask significant (if mutually compensating) swings between operating segments?

◼ Questions about ‘Interest’: • If this is the net figure, what are the gross figures for income and expense, and are there

one-off factors in either of them, e.g. interest received on temporary reinvestment of

disposal proceeds? (Example: Boots 2006) • What do the figures contain, other than interest on conventional debt and financial

investments, e.g. in relation to unwinding of discounts on provisions, pension plans? ◼ Questions about ‘Taxes’:

• Does the overall tax charge, or the current/deferred split, vary significantly from year to

year, and if so why? (example: Deutsche Telekom) ◼ Questions about ‘Depreciation and Amortisation’:

• Does the total include impairment charges (or reversals) or other indications of possible impending problems for future years’ EBITDA?

◼ What does EBITDA not tell us about cash generation? • Working capital management

• Capex requirements – for maintenance and expansion

Focus on balance sheet metrics (‘Return on . . .’)

◼ Key principles revisited:

• Valuation basis: historic cost or Fair Value • Reliable measurement

◼ Specific problem areas, creating very different balance sheets for economically identical

businesses: • Organic growth versus external acquisition. Does it make sense to omit assets altogether

just because their value cannot be reliably measured? (example: internally developed intangibles such as footballers brought up through the academy)

• Differences in accounting for development expenditure (example: Misys, Temenos,

Amadeus)

Differences in accounting for historic mergers (example: substantial difference between

Diageo’s IFRS and US GAAP balance sheets, arising from different accounting bases for GrandMet/Guinness merger – but with no corresponding differences in the other two financial

statements) • What is the basis for Fair Value? Market value or value in use? And how is it measured? • Leased assets: how the use of sale and leaseback change the operating ratios, even

though they are a financing rather than an operating activity (example: differing levels of leasehold versus freehold estate among UK supermarket groups)

• Financial assets: introduction to main problem areas • Different policies for depreciation, amortisation and impairment

Accounting for liabilities:

• Current and non-current • Provisions and contingent liabilities: problems of classification and measurement

• Financial liabilities

Bringing it all together in Financial Analysis

How to use the other sections of the annual report: chairman’s and CEO’s letters: business and financial reviews

Uses and abuses of financial ratio analysis: • The key drivers of profitability

• The key drivers of cash generation • Trends in profitability • Management of working capital, liquidity and solvency

• The identification and management of financial and other risks and uncertainties The importance of knowing what to expect and knowing the industry

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Accounting and Financial

Analysis

Days 4-5

This course can also be presented in-house for your company or via live on-line webinar

Days 1-3

Course Overview

Objectives: To understand the basic elements of a set of financial statements and how they are linked. Participants will be able to construct a set of accounts from scratch.

Audience: Anyone with limited experience of accounting

Prior knowledge: Participants do not need any prior knowledge. Participants will require calculators and a laptop.

Accounting fundamentals ◼ The key accounting concepts

◼ The three key financial statements ◼ Balance sheet, income and cash flow statement ◼ The key linkages between statements

The balance sheet

◼ Currents assets • Inventory • Receivables

• Investments and cash ◼ Long term assets

• Tangible assets and depreciation • Intangibles and amortisation

◼ Current and long term liabilities and provisions

◼ Equity capital and reserves

The income statement ◼ Revenue and operating costs ◼ Non recurring items

◼ Interest and tax ◼ Earnings measures

◼ EBIT(DA), basic and diluted EPS

The cash flow statement

◼ The structure of the cash flow statement ◼ Cash flow from operating, investing and financing

◼ Deriving cash flows using the indirect method ◼ Financial analysis, the key financial ratios

Course Content

Financial Modelling

Days 6-7


This course introduces the theories of financial modelling and best practice using Excel to create a financial model. Delegates will build a forecasting model from scratch in a practical modelling exercise.

Forecast drivers will be created for key P&L, cash flow and balance sheet items, and these will be methodically linked through the integrated model, creating the platform for further analysis.

Prior knowledge: Participants should have attended to Introduction to Financial Statements course or have a good working knowledge of accountancy. Participants will require

calculators and computers.

Review of the modelling process

◼ Good and bad practice ◼ Objectives and approach ◼ Understanding the structure of the model

Forecasting the income statement

◼ Key drivers for modelling • Revenues • Operating costs

◼ Taxation ◼ Provisions

◼ Associates and NCIs

Fixed assets and working capital

◼ Forecasting fixed and intangible assets ◼ Key drivers of capital expenditure and depreciation

◼ Forecasting depreciation, existing and new assets ◼ Forecasting components of non cash working capital

Net income and shareholders’ equity ◼ Forecasting net income

◼ Dividend policy and retained earnings ◼ Forecasting shareholders’ equity

Cash flow statement ◼ Cash flow from operations

◼ Cash flow from investing activities ◼ Cash flow from financing activities

• Modelling the cash waterfall • Scenario capital structures

◼ Interest calculation

Course Content

Course Overview

FRONT PAGE

Equity Valuation

Days 8-9


Delegates will examine a number of valuation methodologies and integrate these with their

modelling skills to enable them to acquire sophisticated and practical valuation modelling expertise. Delegates will then examine a number of relative valuation methodologies and calculate primary comparable multiples. These will then be used to create a market based

relative valuation for a company. Participants will require computers.

The principles of valuing cash flows

◼ Discounted cash flow theory and rationale • Absolute and relative valuation

• Basis of DCF • Earnings compared to cash flows

◼ DCF in context

Identifying the correct cash flows

◼ Which cash flows to discount? • Core assets vs non core assets • Free cash flow and NOPAT

• Forecasting free cash flows ◼ Mid cycle earnings, coping with cyclicality

Cost of capital – introduction

◼ Cost of capital theory • Irrelevance theory • Trade off theory, introducing tax and default

◼ Why is the cost of capital important? ◼ What do we mean by capital?

Cost of equity ◼ Dividend discounting and the cost of equity

• Gordon’s growth model ◼ CAPM – the overview

◼ Risk free rate • Selecting the appropriate rate

◼ Equity market premium

• What it is and how it is calculated ◼ Betas in practice

• Sources and differences

Cost of debt

◼ Empirical calculation ◼ Building a synthetic cost of debt

◼ Credit premia ◼ Interest tax shield

Course Overview

Course Content

WACC

◼ Combining debt and equity ◼ Industry average capital structure

◼ Target capital structure

Developing the CAPM model ◼ Betas and gearing ◼ Hybrids – a revised capital structure

◼ Treatment of different hybrids ◼ Convertible bonds – calculating cost of capital for a convertible

Terminal values ◼ The key issues in determining terminal value

• How long should the forecast period be? • Importance of terminal value to overall valuation

◼ Terminal value approaches • Stable growth • Liquidation value

• Multiples approach ◼ Terminal value issues

Calculating valuation ◼ Calculating the total value of the firm using DCF

• Dealing with core and non core assets • Building the value bridge between enterprise and equity valuation

◼ Other issues – intra period discounting

Relative valuation in context

◼ Relative valuation vs absolute valuation ◼ Types of relative valuation

◼ Strengths and weaknesses of relative valuation

Relative valuation multiples

◼ Relative valuation multiples in practice • Equity based multiples

• Enterprise based multiples • PEG ratios

◼ Industry specific multiples

The comparative company valuation process

◼ Standardising multiples ◼ Choosing the peer group

◼ Cleaning the numbers ◼ Determining valuation – the market decides

Essentials of Contract Law

Days 10-11



Contracts are critical for and interdependent with commercial relations in that they can enhance or destroy long held commercial relations invested in over time.

The course looks at what parties entering into a commercial transaction need to address and

be aware of such as what is the effect of a pre contract document, do the parties have a binding or non-binding contract. What specific clauses should be inserted for the context and

nature of the transaction and how they are reflected in the contract documents. The course recognises the commercial and legal problems that regularly arise during the life

cycle of a contract. It covers the thorny issue of letters of intent, confidentiality, terms implied by law regardless of whether or not they are set out in the written terms.

Coming to the end of the life cycle of a contract the programme focuses on contract terms to pay specific attention to such as best and reasonable endeavours, time is of the essence, force majeure, termination and jurisdiction.

During the course participants will look at case studies, sample documents and receive

checklists to assist them during and after the course as they apply the learnings in their everyday work.

Introduction – Essentials of a Contract

◼ What are the risks you want to cover? ◼ Key considerations

◼ Drafting ◼ Effectively and easily reading a contract ◼ Interpretation of contracts

◼ Key legal considerations ◼ Letters of Intent (LoI) and Memoranda of Understanding (MoU’s) – Beware

◼ ‘Subject to Contract’

Formation of Contract ◼ What is a contract?

◼ What do you need for binding and enforceable contract ◼ 6 essentials to make a binding contract ◼ Offer and Acceptance

◼ Consideration ◼ Certainty and Capacity

◼ Intention to be legally bound ◼ Formalities

Confidentiality Agreements with Sample Document

◼ What is confidential information? ◼ NDA/Confidentiality letters

◼ Effectiveness ◼ Remedies for breach – injunction or damages

Course Overview

Course Content

Terms and Conditions

◼ Express terms ◼ Implied terms by statute

◼ Implied terms by law and custom ◼ Terms you did not realize were in your contract ◼ Standard terms – whose terms apply

◼ Late Payment of Commercial Debts (Interest) Act 1998

How to Read A Contract & Interpretation ◼ Purpose

◼ Structure ◼ Questions to ask

◼ Interpretation of meaning ◼ Drafting clauses ◼ Amending clauses

Liability and Damages

◼ Exclusion of liability ◼ Limitation of Liability ◼ Liquidated and Ascertained Damages (LAD’s) Clauses

◼ Remedies ◼ Damages

Contract Terms to Pay Specific Attention To ◼ Best and reasonable endeavours – the difference

◼ Time is of the Essence ◼ Entire agreement clauses

◼ Force Majeure ◼ Variation ◼ Notices

◼ Termination ◼ Governing law

◼ Execution of Contracts and Deeds – requirements for validity

Clinic ◼ To discuss and resolve participants contractual questions

Case studies Sample documents and checklists


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An Introduction to UK

Company Law

Day 12


This course is a primer for those without any previous knowledge of UK company law.

The course covers concisely key principles and concepts behind the legal basis and management of companies in the UK based on the UK the Companies Act 2006 the main

source of company law.

It looks at the background to the stages a company can go through in its lifetime, from creation to the end.

Additionally, it looks at the legal obligations placed upon a company and the people who run it including managers and directors.

Participants will gain general overall understanding of company law in the UK.

What is a Company?

◼ History of companies ◼ Sources of company law (CA 2006, case law, constitution)

◼ Incorporation ◼ Types of company ◼ The company as a distinct legal person

◼ The concept of limited liability ◼ Case study

Company Formation

◼ An introduction to the basic concepts of director, shareholder, share and constitution ◼ Forming a company ◼ Acquiring a shelf company

Company Constitution

◼ Memorandum of Association ◼ Articles of Association

The Board ◼ Appointment, removal and disqualification of directors

◼ Role, duties and powers of directors ◼ Decisions of directors – board meetings, written resolutions

◼ Roles and duties of the company secretary

Shareholders ◼ Roles, responsibilities and powers ◼ Shareholders’ written resolutions

◼ Unfair prejudice ◼ Shareholder decisions – general meetings, resolutions

◼ Derivative actions The Board

◼ Appointment, removal and disqualification of directors ◼ Role, duties and powers of directors

◼ Decisions of directors – board meetings, written resolutions ◼ Roles and duties of the company secretary

Course Overview

Course Content

Shareholders

◼ Roles, responsibilities and powers ◼ Shareholders’ written resolutions

◼ Unfair prejudice ◼ Shareholder decisions – general meetings, resolutions ◼ Derivative actions

Share Capital and Capital Maintenance

◼ Allotting shares ◼ Pre-emption rights ◼ Dividends

◼ Classes of Shares ◼ Rationale for capital maintenance

Execution of Documents by a Company – Getting it Right

◼ Capacity - Who can and who should not ◼ Special provisions at to executing documents ◼ When does a signature need a witness

◼ Formalities of deeds

Winding up ◼ Voluntary striking off

◼ Voluntary winding up

Case Studies


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How to Buy A Business

Day 13


Creating shareholder value through the pursuit of a successful M + A strategy has been shown to be a far from risk-free activity. Buyers overpaying or using inappropriate financing methods

can lead to destruction of value and in some cases financial distress.

The course covers topics of risk and return, process, investigation and integration as a practical guide to identifying and negotiating acquisitions.

The Drivers of Growth

◼ Shareholder value ◼ The company life cycle

• The importance of directors recognising the value curve ◼ Risk and return

• Relating risk to the life cycle phase of the company / target

◼ Product market growth and decline • Evaluating niches, substitutes, value in innovation

REVIEW: Comparison and contrast of the lifecycle of three different companies, highlighting how success or failure with acquisitions has determined their fate

◼ ICI

◼ Debenhams ◼ GKN

Growth through Acquisition ◼ Assessing the alternatives

• Investment • JV

• Acquisition

DISCUSSION: Advantages and disadvantages of each approach

◼ Determining the acquisition

• Market objectives ▪ Consolidating a fragmented market ▪ Building the value proposition

• Management issues ▪ Assessing cultural fit

• Price parameters ▪ Knowledge of comparative deals

• Opportunity cost

▪ Is it a “now or never” deal

REVIEW: The Ansoff Matrix, a handy way to categorise potential risks in acquisition strategies

◼ Pitfalls to avoid • Realism of synergies

▪ Risks of prediction, cost and achievement

Course Content

Course Overview

• Accounting standards ▪ Who is the auditor, what principles are followed

• Judging forecasts ▪ Scepticism rules

◼ Commercial factors

• Target’s history • Recurring revenue • Intellectual property

• Customer list

CASE STUDY: Reviewing company information to arrive at a value, taking into account qualitative and strategic factors

The Acquisition Process ◼ Establishing acquisition criteria

• Target size and affordability • Potential synergies • Market / competitor impact

• Regulatory factors • Shareholder impact

◼ Due Diligence • Investigation prior to offer

▪ Public sources

▪ Private sources ◼ Verification

• Contracts • Accounts • Pensions

• Employee disputes • Litigation

CASE STUDY: Reviewing summary information on a company to determine which areas need investigation and who should have responsibility for the task

◼ Deal Strcuturing • Earn-out / deferred consideration • Non-compete undertakings

• Warranties and indemnities • Disclosure letters

Acquisition Integration ◼ Success / failure factors

◼ The importance of the integration team ◼ Earn outs and accounting issues

◼ Incentivising key managers ◼ Establishing clear reporting lines

How to Sell a Business

Day 14



Se

Course Overview

Course Content

Selling a business to achieve a vendor’s target price is frequently a time-consuming and complex process. In addition to the legal and accounting considerations there are

issues of presentation, timing and tactics that are important elements of the campaign to close a successful sale.

The course covers the practical steps that are required to plan, negotiate, and close a successful sale. Valuing the business to be sold and the effective presentation of the

commercial attractions of the business are key elements, as are choosing the appropriate advisers and running a competitive auction.

Overview of the Process ◼ Motives and objectives of the vendor

◼ Which outcome is preferred • Cash only

• “sale with honour” • Management buyout

• IPO ◼ Timescale

Preparing the Company for sale ◼ Optimising the operations

• Removing skeletons, resolving related party conflicts ◼ Resolving accounting / audit issues

• Tightening up provisions, write offs, stock obsolescence

◼ Clearing legal points • Employee issues

• Customer / supplier disputes ◼ Choosing advisers ◼ Tax considerations

• The vendor’s position • Company PAYE, corporation tax

Quiz: What are the top ten objective of a vendor

Assessing the value of the business ◼ Other factors

• IPR • Market share • Customer base

• Niche products • Strategic value to a buyer

Exercise: Calculating the value of a business using different metrics

Initiating the Process ◼ Choosing advisers

• Investment bank • Merger brokers

• Accountants • Other

◼ Agreeing the mandate

• Fees ▪ Retainer, success, no go

• Exclusions ▪ Companies and territories

• Time limits

• Indemnities ◼ Preparing key documents

• Information memorandum • Support material

▪ Confidentiality undertakings, product information

• Due diligence pack ▪ Reasons for, use of vital data rooms

◼ Management preparation • Confidentiality • Conflicts of interest

• The “sale team” • Presentation material

The Sale Process

◼ The cost / risk / timescale issues in • A trade sale • Buyout

• IPO ◼ Trade sale approaches

• Public auction • Private auction • Bilateral negotiation

◼ Organising an auction • Identifying the purchasers

▪ Tiering prospects into probables, possibles, maybe • Defining the deadlines

▪ The importance of realism

• Contact and confidentiality ▪ Dealing with large company buyers

• Judging the offers ▪ Will a “no price” offer work?

• Conducting the second stage discussions

▪ Company and management visits • Preferred bidder and exclusivity

▪ How long for exclusivity? CASE STUDY: Reviewing an information memorandum on a company sale to assess: the value of the business, the most likely buyers

◼ Sealing the deal

• Earn-outs ▪ Bridging the valuation gap

• Warranties, disclosure letter

▪ Buyer / vendor conflict • Time limits, caps

• Completion accounts • Comfort letters

◼ Alternative outcomes • IPO, timescale • MBO, management conflicts

• Post “exit” lock-in • Ongoing relationship

Private Equity and Management

Buying Outs

Day 15



The sale of companies to management teams backed by Private Equity investors, using a leveraged financing of the acquisition, has become an increasingly common feature of the corporate scene. Whilst appearing simple to arrange, there are complex elements to a

successful transaction.

This course covers the principles and practicalities involved in arranging and negotiating a management buyout. In addition to the legal issues to be addressed, the use of bank debt and other financial instruments is examined in the context of developing a workable structure

for the deal.

The Growth of Private Equity and Leveraged Buyouts

◼ Academic rationale for the use of leverage • Modigliani/Miller theory

• Michael Milken’s research • Growth of shareholder activism

▪ Reviving under performers

• Changes in company law • The development of the European high yield bond and securitisation markets

The Principles of Leveraged Finance ◼ The use of debt to drive equity values

• Cash flow management ▪ Reducing debt to drive equity value

• Operational improvements ▪ Building “need to have”

• Incentivisation of management

▪ Getting rich together • Cash-capture clauses

Exercise: Good or Bad LBO?

Discussion of recent transactions to see which ones the attendees would do, and what lessons can be learned about elements of success or failure

◼ Structuring the transaction

• Target IRR ▪ Assessing the return appropriate to the risk

• Assessing debt capacity

▪ Forecasting future cash generation • Senior / mezzanine debt mix

▪ Judging asset values • Forecasting exit values

◼ Consideration of non-bank finance

• High-yield bonds ▪ Terms and size of issue

• Second lien debt ▪ Too much debt?

• PIK finance

▪ Saint or sinner? • Vendor loan notes

▪ Making the deal look good

Course Overview

Course Content

Case Study: Based on information provided attendees are tasked with structuring

the finance for an MBO. Answers are discussed to identify the critical elements in the financing

◼ Legal elements • Warranties and indemnities

▪ Investor protection • New Memo & Arts

▪ Incorporating P.E. control elements

• Tag along and drag along ▪ Control of the exit

• Veto rights for private equity ▪ Control of management

◼ Management

• Jensen and Meckling agency theory ▪ Why buyouts work

• The envy ratio ▪ Management incentivisation

• Agreeing the ratchet

▪ Carrot and stick • Good leaver / bad leaver provisions

▪ Covering under performance

Exercise: Agreeing the terms of the envy ratio

Identifying and Closing a Good Transaction

◼ Ideal company characteristics • The three golden rules

◼ MBO / MBI • Assessing management strength

◼ Meeting vendors’ expectations

• Structuring the deal ◼ Avoiding conflicts of interest

• Recognising the risks of multi-layered financing ◼ Due diligence

• Investigation and verification

◼ Tie-in with contract terms ◼ Structuring the debt appropriate to the business

Discussion: How to finance the acquisition of Manchester United. The Man U accounts are reviewed with the object of deciding how to finance its acquisition. Answers are

compared to the actual result.

Exit ◼ Control by P.E. house ◼ IPO

◼ Second round financing ◼ Trade sale

◼ The “living dead

Modelling for

Mergers & Acquisitions

Days 16-18



This course covers the key elements of an acquisition or merger, from the initial stand-alone valuation of the target to the more complex accounting and modelling issues to be considered and

finally analysing and assessing the value created by synergy benefits and leverage.

This course is run in an interactive, participative format, where participants learn by doing. The key concepts covered in the main teaching sessions are punctuated and illustrated by detailed

case and modelling work. The approach has been designed to equip participants to put key concepts into practical use

immediately.

Participants will be led through a comprehensive review of analysis practices, from initial principles through to more advanced techniques that are used in transaction analysis.

As part of their work on this course participants model transactions based on real-life companies and scenarios.

Participants will:

◼ Learn about the key drivers on M&A ◼ Master the modelling of integrated financial statements

◼ Learn how to use financial statements to value a business ◼ Get grip with modelling the balance sheet impact of transactions ◼ Gain an appreciation of incorporate synergies into modelling work

◼ Learn how to differentiate between financing and operating synergies ◼ Be taught how acquisitions can be structured

◼ Learn how to work with integrated financial statements ◼ Be shown how to develop the acquisition structure and modelling instruments ◼ Become familiar with running scenarios, iterating and optimising

Each participant should bring a laptop with USB port to the course to facilitate

modelling work

Course Overview

Course Content

M&A model build up: the starting point ◼ Modelling integrated financial statements

◼ Model structure ◼ Key forecast ratios

◼ Sourcing and cleaning historic data ◼ What makes a good model?

Modelling – integrating financial statements: participants complete a partially-developed financial model for a public quoted company which integrates P&L, balance

sheet and cash flow. This company will be the target company used in the merger analysis

Modelling stand-alone valuation

◼ Overview of valuation methodologies ◼ What do investment banks do? ◼ What methodologies could we use?

◼ How should we define firm value? Equity vs. enterprise value ◼ Calculating free cash flow before financing

◼ Understanding and calculating WACC ◼ Discussion – calculating WACC

◼ Key issues with a two stage DCF valuation – WACC and terminal value assumptions

Modelling - valuation: participants calculate the cost of capital and complete a DCF valuation for the target company, producing a stand-alone valuation as a cross check

to the acquisition price

Day Two

Accounting for corporate transactions ◼ Different types of transaction and how they are modelled in practice ◼ Consolidation accounting under the current IFRS 3 an IAS 27

◼ Change of control triggers ◼ Accounting for non-controlling interests (“NCI”)

◼ Accounting for disposals ◼ Partial disposals – creating a NCI ◼ Partial disposal – loss of control

◼ Recent changes to acquisition accounting under IFRS ◼ Definition of control

◼ Calculation of goodwill

Modelling: delegates complete a variety of transaction models incorporating all types of corporate transaction and calculate the effect of a transaction on a set of

consolidated accounts in preparation to perform a merger analysis with the target business and an acquirer

Acquisition finance

◼ Types of transactions and synergies ◼ Availability of synergies and problems in achieving them ◼ Methods available for valuing synergies

◼ Key differences between public vs. private deals, recommended vs. hostile bids ◼ Choices for growth: acquisition vs. organic vs. joint venture

◼ Defence strategies for target companies resisting a hostile bid

Case study: Participants calculate synergies for a case company

Day Three

Structuring acquisition finance ◼ Once price has been agreed, how is it paid? Cash vs. Shares ◼ Financing choices for raising cash for an acquisition: Debt vs. Equity

◼ Calculating the success of a deal, accretion vs value creation ◼ The nature of equity instruments

◼ The different risks and rewards accruing to different parties ◼ The impact of loan stock, convertibles and preference shares on WACC ◼ Calculating returns to key participants

Case study: Calculating accretion/dilution and the effect of hybrids on cost of capital

Merger modelling case study ◼ Completing a merger model

◼ Getting to DCF valuation for the combined business • Combined WACC

◼ Valuing operating synergies ◼ Valuing financing synergies

◼ Accretion/dilution analysis vs wealth creation ◼ Sense-checking the output and adjusting the capital structure

Modelling – bringing it all together: participants complete a complex merger model for an acquisition of the target business incorporating synergy analysis and varying

capital structure. The transaction is analysed on an accretion/dilution analysis and a wealth creation/return on capital analysis

At the end of this session participants will have a working acquisition model

incorporating a variety of different forms of transaction analysis

Course conclusion: best practice in transaction analysis ◼ Participants will have improved their understanding of and have had experience of

modelling mergers and acquisitions from first principles ◼ Simple and clear reference Excel models - providing participants with a platform for future

internal modelling efforts and aiding decision making ◼ Participants who, at the end of the course, understand the drivers on transactions and

how transactions can be modified to suit the various parties


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Introduction to the Takeover

Code

Day 19



On this introduction to the Takeover Code course, participants will learn about how the Takeover Panel and the Takeover Code operate. The course will examine the circumstances when the Takeover Code is applicable, the relevance of the key principles and rules of the

Takeover Code and their application in practice.

The course will cover the issues involved in approaching target companies, making announcements, giving independent advice and complying with share dealing restrictions.

Participants will also gain a strong understanding of voluntary, mandatory and partial offers and the conduct of the parties during an offer period. The course concludes by looking at the timetable for a bid executed by contractual offer or by scheme of arrangement.

In addition to comprehensive slides, the course documentation includes detailed notes on the

rules and the current annual report of the Takeover Panel.

Course Overview

Course Content

Introduction to the Takeover Code ◼ How the Takeover Panel operates ◼ Companies, transactions and persons subject to the Code

◼ Enforcement of the Code

The Six General Principles and their application Key Code definitions

The approach, announcements and independent advice (Rules 1-3)

◼ Secrecy ◼ When announcements are required ◼ Announcements of possible offers and naming

◼ Terms and pre-conditions in possible offers ◼ Automatic 28 day PUSU

◼ Firm offer announcements (Rule 2.7) ◼ Consequences of statement of intention not to make offer ◼ Irrevocable commitments

◼ Independent advice

Dealing restrictions, disclosures and share purchases ◼ Prohibited dealings ( Rule 4)

◼ Consideration to be offered (Rules 6 and 11) ◼ Consequences of certain dealings (Rule 7) ◼ Disclosure requirements in offer period (Rules 8 and 38)

◼ Timing restrictions on acquisition of shares and exceptions (Rule 5)

Mandatory offers (Rule 9) ◼ When required ◼ Conditions which are possible

◼ Price payable ◼ Whitewash procedure

◼ Purchase of own shares (Rule 37)

Voluntary offers

◼ The acceptance condition (Rule 10) ◼ The CMA and the European Commission (Rule 12)

◼ Pre-conditions and conditions in firm offers (Rule 13) ◼ Partial offer requirements (Rule 36)

Provisions applicable to all offers ◼ Multiple classes of share capital (Rule 14)

◼ Convertibles and warrants (Rule 15) ◼ Special deals with favourable conditions (Rule 16) ◼ Announcement of acceptance levels (Rule 17)

◼ Restrictions following offers and partial offers (Rule 35)

Conduct during the offer ◼ Standards of care for Information (Rule 19) ◼ Responsibility for information

◼ Unacceptable statements ◼ Post-offer undertakings and statements of intention

◼ Equality of information (Rule 20) ◼ Restrictions on frustrating action (Rule 21)

Documents ◼ Overview of document rules (Rules 23 to 27)

◼ Distribution of documents and checklists (Rule 30)

Profit forecasts, QFBS and asset valuations (Rules 28 and 29) ◼ Different types of profit forecast ◼ Reporting requirements

◼ Disclosures for Quantified Financial Benefit Statements ◼ Consensus forecasts

◼ Asset valuation reporting requirements Outline timetables (Rules 31 to 34 and Appendix 7)

◼ Contractual offers ◼ Schemes of arrangements


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Introduction to The FCA Listing, Disclosure

and Transparency and Prospectus Rules Day 20


Participants will learn about the general principles which underpin the Prospectus Rules, Listing Rules and Disclosure and Transparency Rules and be taught about their practical

application regarding obtaining listings and executing further transactions.

They will gain a strong understanding of the role of the sponsor, the conditions and methods of listing, the listing procedures and the contents of prospectuses and all aspects of

continuing obligations, including the disclosure of inside information. They will appreciate how the provisions of the EU Prospectus, Market Abuse and

Transparency Directives have been brought into UK regulation and examine the different requirements of premium and standard listings compared to those of AIM.

In addition to comprehensive slides, the course documentation includes detailed notes on the rules, summaries of FCA/FSA enforcement cases for breaches of the rules, and extracts from

the different types of prospectus and circular covered in the course.

Background to the regulation ◼ The EU Prospectus Directive, Market Abuse Directive and Transparency Directive

◼ How the regulators operate ◼ Standard and premium listings

◼ Recent problems with controlling shareholders: Bumi and ENRC

Listing Rules ◼ Listing principles

◼ General requirements for listing ◼ Requirements for a premium listing

• Three year track record

• 75% of business • Independence

• Requirements for companies with controlling shareholder • Special types of issuer

◼ Types of flotation

◼ Listing application ◼ Suspension, cancellation and restoration of a listing

• Reverse takeovers ◼ Sponsors

• Role and responsibility • Criteria for approval

◼ Continuing obligations

• Continuing eligibility requirements • Pre-emption rights

• Transactions after flotation • Model Code • Documents requiring prior approval

◼ Significant transactions • The class tests

• Possible adjustment to/disregarding of profits test • Break fee rules

◼ Related party transactions

◼ Share buy-backs

Course Overview

Course Content

The Disclosure and Transparency Rules

◼ Principal concepts ◼ Effect of Market Abuse Regulation (MAR) on Disclosure Rules

◼ Disclosure and control of inside information by issuers • What constitutes inside information? • Is an immediate announcement necessary?

• Selective disclosure • Market rumours

◼ Disclosure of PDMR dealings ◼ Annual reports and interim reports ◼ Disclosure of shareholdings

• Thresholds • Timing

◼ Access to information ◼ Corporate governance

Prospectus Rules

◼ Requirement to produce a prospectus ◼ Exemptions ◼ Contents of a prospectus

• Example of rights issue prospectus • Omissions

• Incorporation by reference • Historical financial information • Forecasts and pro formas

◼ Approval and publication of a prospectus ◼ Advertisements

◼ Supplementary prospectuses ◼ Passporting and third country issuers ◼ Responsibility for prospectus

Key regulation differences with AIM

◼ Comparison of premium and standard listings and AIM

http://redcliffetraining.com [email protected] +44 (0)20 7387 4484


Debt Finance

Days 21-22



Course Overview

This programme has been designed to provide a thorough review of debt financing principles, markets and products. We will use real life case study examples to illustrate the financing

techniques and products throughout the programme.

Participants will require laptops with MS Excel for the exercises and case studies.

The broad objectives of the programme are:

◼ To provide a complete review of debt financing theory and debt products ◼ To identify funding requirements both short and long term ◼ To explain asset based financing

◼ To explain the real world use of debt financing techniques using current examples ◼ To explain yield curves, debt pricing in the primary and secondary markets

◼ To explain measures for risk management in debt instruments including interest rate and credit spread sensitivity (duration and convexity)

◼ To demonstrate how interest rate and foreign exchange risk can be managed using

derivatives ◼ To explain the world of securitisation post 2009

Course Content

Day One: The objective of Day-1 is to ensure that participants understand why and how

companies borrow money, the effect that borrowing money has on the financial statement of the company and the role that the bank plays in the process. It also

covers sources of finance, products used and investors together with their objectives and expectations.

This module introduces participants to customer funding needs, why they arise and

their nature. ◼ Principles of debt finance

• Linking finance and corporate strategy

• Cost of capital and risk • Theory of optimal capital structure

◼ Start-up capital • How to calculate the amount • Where to get it

◼ Working capital • Banks

• Peer to peer lenders ◼ Debt versus equity

• Advantages and disadvantages

• Relative costs ◼ Cash flow forecasting

◼ Long and short term financing

Case study: Writing the first year’s business plan and cash flow statement.

Module 2 explores the instruments that are available to raise finance and will provide recent examples of products. The following products will be explained:

◼ Fixed and Floating Rate Bonds

• How to choose between fixed and floating rate

• The bond and swap concept • Raising finance in a third currency and swapping into a desired currency

◼ Convertible Bonds

• Types of convertible

▪ Conventional ▪ Mandatory

• Advantages for issuers and investors • Pricing a convertible bond • How convertible bonds exist after issue

▪ Asset swaps ▪ The call component

◼ Commercial Paper

• Commercial paper programmes

• The dealer panel • Pricing, investing and liquidity

◼ Project Finance

• an overview of project financing.

• a typical project finance structure • the parties and their objectives

• the key issues for lenders

◼ Bank Loans • The typical bank loan • Security and covenants

• Maturity and spreads

◼ Syndicated Loans • What are syndicated loans? • How are they structured and sold?

• Who invests in syndicated loans? • The advantages of syndication versus self-negotiated loans

◼ Private Placements

• What are private placements?

• Who invests in private placements and why? • How are private placements structured and sold?

◼ The Repo Market

• The government bond repo market

• The corporate bond repo market • Classic repo

• Central clearing, collateral, haircuts and mark to market • Why use repo and reverse repo?

Case study: Issuing a corporate bond

◼ In this exercise delegates will undertake the roles of the participants in a corporate bond syndication and will:

• Liaise with investors to obtain orders • Place orders into the selling syndicate • Create and manage the “book of interest”

• Calculate the allocation and pricing for book building • Allocate the bonds and calculate the cost of funds for the issuer

Day Two:

The objective of Day-2 is to ensure that participants understand yield curves and how to interpret them. Once participants are familiar with yield curves they will

learn how to manage currency and interest rate risk. Finally, participants will learn about securitised products.

◼ Yield curve construction

• The government bench mark curve • The forward curve and the likely path of rates in future

◼ The likely cost of money for the borrower for new bond issues

◼ How credit spreads are set • Loss given default

• Expected default probability • Implied default probability

◼ How to decide whether to issue a fixed coupon bond or an FRN

• Your view of expected future interest rates compared to the forward curve ◼ Pricing a bond in the secondary market

• Which interest rate to use • Which credit spread to use • Building a discount factor

• Cash flow mapping and discounting future cash flows

Case study: Understanding yield curves, forward rates and credit spreads and pricing a corporate bond

◼ Government bond risk management ◼ Macaulay and Modified duration

• Definition and understanding

• Applications • DV01 the key to trading, hedging and risk management

◼ Maturity ladders and portfolio management ◼ How banks and portfolio managers run their portfolios ◼ Convexity

• Calculating • Applications

◼ The complete view of risk • Maturity ladders • Duration and convexity

• DV01

Exercise – Budgeting interest rate risk in a company

◼ Basic hedging tools for currency and interest rate risk management

• Interest rate swaps • 90 day LIBOR Futures

• Swaptions • FX Outright Forwards • FX Options

• Currency Swaps ◼ Types of exposure

• Interest rate risk • Currency risk

▪ Transaction

▪ Translation ▪ Economic

◼ Examples of how to hedge each type of risk using derivatives

Case study: hedging interest rate and FX transaction exposure using derivatives

Asset Securitisation

◼ Structure of a typical securitisation deal ▪ The Asset pool

▪ The Special purpose vehicle ▪ The Capital Structure

◼ Types of securitisation

▪ Residential mortgage backed securities ▪ Auto loans

▪ Credit card receivables ▪ Collateralised loan obligations ▪ Covered bonds

◼ Structure properties ▪ Weighted average ratings factors (WARF)

▪ Historical default probabilities and receivable arears ▪ Credit enhancements and subordination pre and post crisis

▪ Portfolio returns ◼ Funded and synthetic structures

▪ Advantages and disadvantages

Case study: Building a collateralised loan obligation.

Participants will be provided with a pool of available assets and will be asked to build a CLO, calculate the WARF, build the capital structure, price the notes and calculate the expected return on first loss piece


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Treasury Management

Day 23


Course Overview

The purpose of this module is to:

◼ Explain the role of treasury in an organisation and the importance of internal and external

relationships required to fulfil this role.

◼ Describe how a treasury function is structured and the processes and controls needed to enable its effective running.

◼ Explain the types of treasury technology that are available and how technology can be used effectively when carrying out treasury activities.

◼ Describe how the organisation’s cash and short term liquidity are managed on a day to

day basis.

Course Content

Session 1

◼ Introduction to how treasury works within an organisation • Core treasury functions of funding, cash management, liquidity and risk management • Understand what the business does

• Contribution to business unit decisions

Session 2 ◼ The importance of strong internal and external relationships ◼ The key internal and external relationships that treasury requires to fulfil its role and why

they are important. • Internal relationships

▪ Head office functions and operating units • External relationships

▪ Banks ▪ Services provided by banks ▪ Types of bank relationships - relationship or transactional

▪ Managing bank relationships ▪ Rating agencies

▪ Importance of credit ratings and why they may change ▪ Short and long-term credit ratings ▪ Ratings outlook and credit watch

Session 3

• The structure of the treasury department. • How a treasury department is structured to reflect the needs and culture of the

organisation.

▪ Degree of centralisation ▪ Advisory, agency role and in-house bank

▪ Organisational structure ▪ Treasurer, front office, middle office and back office

Session 3 • Introduction to the importance of policies.

• The typical contents of a treasury policy and how policy is set and approved. • Why setting policies is important • How a policy is structured:

▪ Guidelines for content, ▪ Derivation, approval, implementation and review processes

Session 4

◼ The day-to-day activities and controls required of a treasury function to fulfil its role efficiently and effectively.

• Key activities – ▪ Treasurer: compliance with policy, oversight, review, risk and funding, internal

and external relationships

▪ Front office: deal transactions ▪ Middle office: valuation, modelling and analysis

▪ Back office: confirmation, settlement and accounting ▪ How a deal is processed:

▪ Trading, deal input, internal checks, authorisation, confirmation issuing

and matching, settlement and accounting ▪ Controls – Segregation of duties

▪ Other operational controls – System controls and business continuity management – Reporting, audit and review

Session 5

◼ The daily cash management cycle and understanding how cash is managed on a day-to-day basis to ensure the safety and availability of cash resources as required for use in the

organisation. • Forecast short term cash needs a 3-5-day time horizon

• Ensure cash is in the right place at the right time in the right currency • Types of bank accounts: current, overdraft and deposit – Currency – Location – How to

move funds between different accounts

• How to raise short term funds • Handling, storing, transporting cash and associated controls – Bank opening hours

Session 6 ◼ An introduction to cash flow forecasting

• Compile a simple cash forecast to assess the short-term cash needs of the business and facilitate planning to meet those needs in the most efficient manner.

• Receipts and payments forecast • Receipts and payments data • Translate foreign currency items at given exchange rates

• Closing balances and sensitivity of balances to changes in input data



Derivative Products

Days 24-26


Course Overview

This module introduces participants to derivative products that are commonly used in the

markets by corporations, traditional fund managers and hedge funds. The module takes the following format:

◼ What are derivative products

◼ Who might use derivative products and why. ◼ How derivatives are priced ◼ How derivatives are risk managed

Interspersed throughout this module are exercises in which the participants will use their

new-found knowledge to advise clients of derivative strategies that can be used in the day-to-day operations of their businesses.

Participants will need to use Microsoft Excel and PowerPoint extensively in this module.

Course Content

What are the products? ◼ Derivative Products

• Futures ▪ Stock Index Futures

▪ STIR Futures ▪ Bond Futures

• Options ▪ Single Name Stock Options ▪ Stock Index Options

▪ Interest Rate Options on: ▪ Swaps – Swaptions

▪ Short Term Interest Rates ▪ Caps and Floors ▪ Options on STIR and Bond Futures

▪ Swaps ▪ Interest Rate Swaps

▪ Equity Swaps

Who might use them and why?

◼ Derivative Products • Stock index futures

▪ Used by hedgers to change portfolio risk ▪ Used by macro hedge funds to speculate on future value of the stock market

• STIR futures

▪ Used by hedgers to change short term interest rate risk from fixed to floating or vice versa

▪ Used by macro hedge funds to speculate on the future direction and level of short term interest rates

• Bond futures

▪ Used by fund managers to manage duration risk and hedge against future changes in the government yield curve

▪ Used by macro hedge funds to speculate on future direction and level of long term interest rates

• Interest Rate Options ▪ Used by companies, traditional fund managers, banks and hedge funds for a

variety of reasons including ▪ Hedging of interest rate risk

▪ Directional trading ▪ Portfolio hedging

▪ Volatility trading • Interest Rate Swaps

▪ Used by companies, traditional fund managers and hedge funds for a variety of

reasons including ▪ Hedging of interest rate risk

▪ Directional trading ▪ Portfolio hedging ▪ Curve trades

• Equity swaps ▪ Used by both traditional fund managers and hedge funds for a variety of reasons

including ▪ Directional trading ▪ Portfolio hedging

▪ Equity pairs trading

How are they priced? ◼ Futures contracts by a combination of

• Buying the underlying asset

• Financing the purchase of the underlying assets • Receiving dividends on the underlying asset

◼ Options using a variant of Black-Scholes Pricing model which requires inputs for: • Stock price • Interest and dividend returns

• Stock price volatility ◼ Equity Swaps, by calculating the present value of the future cash flows from the

underlying equity and the interest funding costs

How are they risk managed?

◼ Equity sensitive instruments • VaR

◼ Options • Delta and gamma silos for underlying stock price risk • Vega ladders for volatility risk

• Phi and rho for interest rate and dividend risk • Theta for the impact of time decay

Trading Strategies.

◼ Equity delta 1 products • Directional strategies • Pairs trading – long short

◼ Interest rate swaps • Carry trades

• Steepeners and flatteners • Butterflies

◼ Options

• Directional trading • Volatility trading

• Spread trading • Income enhancement

Examples of Mark to Market

◼ Mark to market for single stock and indices • Changes in stock price • Dividend income and financing cost (carry)

◼ Mark to market for futures and equity swaps • Changes in stock price

• Dividend income and financing cost (carry) • Changes in interest rates • Passage of time

◼ Options • Change in stock price

• Changes in volatility • Changes in interest rates and dividend

• The passage of time



Equities and Equity Capital

Markets

Day 27


The program aims to introduce all the basic concepts around equities, equity capital markets and asset management - traditional and alternative.

On the capital markets side, the course will discuss the key aspects of how the markets work, types of investors, role of the investments banks, regulation, liquidity and other basic features.

The course will then move into equity capital markets specifically, looking at the different transactions, such as capital increases, accelerated bookbuilt offerings, rights issues, convertible bonds and spin-offs.

The course will also include a basic understanding of indices and derivatives, such as futures and options.

On the asset management side, the course will discuss the history and the framework of the traditional asset management industry. Then the content will shift into alternative investments, starting with the hedge fund segment, and moving into real estate investing,

The course will include two case studies. One will discuss the IPO process of NetMedia, with a particular focus on the valuation and price discovery process, the bookbuilding, pricing and

aftermarket of the stock. The second one will illustrate the foundation and listing of the company Betanzos Bank, which required separating part of the toxic Real Estate assets in a bad bank ahead of the IPO.

The course will briefly discuss the required due diligence process around the equity business from different points of view.

Finally, the course will offer a basic education on the corporate finance theory to value equities.

Introduction to Equity Capital Markets I

◼ Savers and users of capital ◼ The capital markets – a venue where issuers and investors meet

◼ Capital spectrum ◼ Shares – what they are and how they work ◼ Mechanism of the market. Buying and selling

◼ The spread ◼ Liquidity requirements

◼ The risk of decreased liquidity in the markets ◼ Capital markets regulator ◼ Insider trading, front-running and other financal crimes

◼ Best execution ◼ Public and private transactions

Introduction to Equity Capital Markets II ◼ Role of investments banks

• Basic description of the different businesses inside • Role in the Equity Capital Markets

◼ Block trades ◼ Hard Underwriting ◼ Measuring liquidity through days of trading metric

◼ Types of investors ◼ Blue-chips vs. small caps

◼ Selling restrictions ◼ The role of Sovereign Wealth Funds ◼ Index inclusion

◼ Flowback ◼ Flow-forward

◼ Spin-offs ◼ Letter stock

Course Overview

Course Content

Introduction to Equity Derivatives

◼ Indices ◼ Futures

• Working on margin ◼ Options

• Put

• Call • Collar

• Other ◼ Equity Swaps ◼ Hedging strategies

Dividend Policy

◼ Introduction to dividend policy ◼ Theory or Irrelevance (Modigliani & Miller) ◼ Relevance Theory

◼ Gordon growth model ◼ Expectations theory

◼ Key Dates ◼ Key forms

◼ Example of different dividend policies ◼ Stock Split ◼ Dividend metrics

◼ Comparison of dividend yield and bond yield ◼ Buyback

◼ Investors preferences Equity Research

◼ Role of Equity Research ◼ New regulation

◼ Methodology of Equity Research reports ◼ Sum of the parts ◼ Buyside analysts

◼ Target prices and recommendations ◼ MIFID 2

IPOs ◼ What is an IPO?

◼ Reasons to float ◼ Primary and Secondary

◼ Desktop valuation prior to IPO ◼ Pilot fishing ◼ IPO Discount

◼ Analyst presentation and investor education ◼ Roadshow

◼ Bookbuilding ◼ Pricing and allocation ◼ Greenshoe and stabilization

◼ Aftermarket

Betanzos Bank - IPO VCase Study In this case study, students will analyze the valuation framework of Betanzos Bank, the separation of part of the Real Estate assets, which resembles the creation of a bad bank. The

capital need to cover the potential losses on Real Estate assets, the implications of raising more capital at lower valuation on dilution of the controlling shareholders, the desire of investors for

a larger size instead of a smaller one to make sure there would not be further dilution along the road…. The case brings multiple valuation themes that deserve to be discussed.

Capital Increases

◼ Pre-emption rights ◼ Rights Issues

◼ Capital raising without rights ◼ Accelerated Bookbuilt Offerings (ABOs) ◼ Consistency of capital calls and dividend policy

Convertible Bonds

◼ Description ◼ Key features ◼ Mecanism of conversion

◼ Cash settlement ◼ Mandatory convertible bonds

◼ Exhangeables ◼ Other transactionns: Spin-offs, letter stocks

Due Diligence in Capital Markets Transactions ◼ Objectives. The Underwriter as the link between investors and issuers

◼ Transaction Due Diligence ◼ Prospectus / IOC

◼ Forward looking statements ◼ Access to US investors ◼ Reg S / 144A / Fully registered offers. QIBs and “Big Boys” letters

◼ Legal Due Diligence ◼ Corporate Governance

◼ Publicity guidelines ◼ 10b-5 ◼ Analyst presentations and research

◼ MD&A ◼ Force Majeure

◼ Role of auditors. Proformas. Comfort letter. Tick and tie. ◼ OFAC ◼ Sanctions

◼ Bring-down Due Diligence ◼ Inclusion of retail investors

Capital Markets Case Study – IPO of NetMedia plc The C.P. IPO of NetMedia plc will describe the complexity of financial DD in capital markets

transactions, the price discovery mechanism, the process of setting the price range / deciding final pricing, and the risk of a drop in share price once the company is listed.

Investing & Asset Management ◼ Asset classes

◼ Strategic vs. tactical asset allocation ◼ Grwoith vs. value

◼ The role of dividends on shareholder compensation ◼ Sharpe ratio ◼ Passive investment

◼ Barbell investment ◼ Client base (different types of clients & diffeent strategies)

◼ Distribution ◼ Behavioral finance ◼ Morningstar and other Ratings

◼ Economics of the asset manager ◼ Calculating NAVCalculating NAV

Hedge Funds & Alternative Investment ◼ Alpha

◼ Hedge Fund Strategies • Quant

• Long-short • Event-driven • Others

◼ Measuring exposure ◼ Prime brokerage

◼ Risk management ◼ Fundraising ◼ Funds of funds

◼ Real Estate Funds

Introduction to Equity Valuation ◼ Summary of valuation techniques ◼ Equity vs Firm Valuation

◼ Introduction to DCF ◼ Pros and Cons

◼ How to build a good model and a sensible set of projections ◼ Discounting cash flows ◼ Terminal value

◼ Issues to be addressed ◼ WACC

◼ CAPM ◼ Valuation based on comparable companies



Intermediate Early Problem Loan

Workout and Debt Restructuring

Days 28-30


In a low interest rate environment, bankers and financiers are under increased pressure to undertake more corporate business at higher returns, but at the same time complying with risk asset weighting regulations. Given that the business climate remains uncertain and

volatile, the risk for bankers of developing problem loans through their lending activities, is therefore increasing. The most effective method of avoiding those problem loans is to

identify early warning signals that can be a portent to potential trouble ahead. This course has been designed for graduate bankers and financiers to develop a holistic,

applied approach to identifying problems inherent in client companies, before they escalate. It also focuses on undertaking early problem loan workout through a range of different

techniques currently applied in UK and international finance. It aims to provide the attendee with a comprehensive overview of the challenges of problem loan workout and with an insight into some of the key methods than can be implemented to assist in the recovery of

the bank’s financial exposure.

By offering a range of different case studies, financing scenarios and potential solutions to workshop case studies, the attendees will be able to develop a broad applied overview of debt restructuring techniques. This is particularly important in an area of finance where ‘one

size fits all’ solutions are not possible and where the financier needs to be open minded, flexible and quick to react to changing circumstances.

The programme draws from the experience of a range of different high profile debt

restructuring case studies as well as the experience and project work of the trainer’s 23 year experience in debt structuring, restructuring and problem loan workout. A number of the case studies used during the course are those that have been undertaken directly by the

trainer. The course is highly interactive, with the course attendees working in project teams. They

will be required to work in their project teams in devising solutions and providing recommendations to the rest of the delegates who will cross examine their proposals in a credit committee environment.

During the programme, the attendees will use forecast cash flow analysis as part of the

strategic business review for the restructuring candidate. A working knowledge of Microsoft excel will therefore be an advantage for attendees.

By the end of this course participants will understand: ◼ Fundamental concepts in early problem loan workout; ◼ Early Warning Signals in spotting potential problem loans;

◼ International classifications of problem loans; ◼ The fundamental methods and application of successful restructuring and rescheduling;

◼ The key methods that can be applied to successfully restructuring debt facilities; ◼ Different types of corporate recovery applies in the UK and Internationally; ◼ Application of international frameworks to management the restructuring process

including those provided by the International Finance Corporation; ◼ The importance of believing the restructuring strategy and the need for the independent

business review; ◼ The use of forecast cash flows in identifying the key risks of the recovery strategy and in

assessing the client’s ability to honour its debt service going forward;

◼ The use of the ‘Standstill’ process in controlling the credit recovery process; ◼ The application of the Standstill Agreement and the cooperation of the other creditors;

◼ Key security and guarantees required in securing the lender’s position; ◼ The use of debt equity swaps and debt asset swaps in restructuring;

◼ Methods used in safeguard a healthy return for the bank, through the restructuring process.

Course Overview

DAY 1

Session 1 Introduction to Debt Restructuring – Key drivers

◼ Non-performing loans and the challenges faced by bankers ◼ When to recognise the non performing loan

◼ How to deal with problem clients that have not defaulted ◼ Introduction to a framework to deal with covenant breaches ◼ Review of common reasons for company default and the creation of non performing

loans ◼ Understanding the attitude of problem clients and the difference between ability to pay

and willingness to pay ◼ When to restructure / reschedule and when to accelerate.

Workshop – Advanced discussion of different alternative scenarios in dealing with loans in default and covenant breaches from case study examples.

Session 2 Early Warning Signals of potential distress

◼ Review of key financial EWS ◼ Key ratios that should be included as part of the restructured facility going forward ◼ Danger levels of different financial covenants in different industries

◼ EWS derived from the financial statements ◼ Identification of the manipulation of the financial statements

Workshop: delegates in their project teams will review an IT company that has gone into liquidation. They will identify the financial signals that should have

allowed an analyst to identify the company’s distress and diagnose the final reason for the company’s demise.

Session 3 Early Warning Signals of potential distress

◼ Using univariate and multivariate frameworks to identify financial distress ◼ Application of the Z Score to distressed scenarios to identify potential failure ◼ Review of the IFC’s classification and check list of Early Warning Signals

Session 4

Workshop

Delegates in their project teams will be required to identity the key Early

Warning Signals of distress from the corporate case study of a major

international company in the automotive sector. The team will be required to

identify the financial early warning signals including the company’s Z Score. A

selected team will present their findings to the rest of the group.

Course Content

DAY 2

Session 1

External and Qualitative Risk Analysis for problem loans ◼ The importance of identifying key external factors affecting corporates ◼ The application of GNPESTEL model to external risk analysis

◼ Systemic risk and its impact on problem loans ◼ Identifying defects and mistakes committed by the company ahead of time

◼ Management risk and its impact on corporate recovery ◼ Interrogating problem management and understanding gaps and areas for improvement ◼ The role, power and limitations of the lender in restoring management effectiveness

◼ Strategic risk and its impact on the problem client ◼ How to ‘Mend and Extend’ not ‘Extend and Pretend’

Workshop – Delegates in their project teams will analysis the external and qualitative risks facing a case study problem loan, providing recommendations for

how a lender could seek to improve those risks and protect itself from potential risk crystallisation.

Session 2 Identifying work out solutions versus insolvency solutions

◼ The importance of understanding whether the problem loan can be ‘worked out’ as a going concern

◼ The importance of and belief in the recovery strategy

◼ Using cash flow forecasts to believer the business plan and recovery strategy ◼ Expectations of financial performance and financial covenants under the recovery strategy

◼ Deciding whether to leave the borrower in collateral possession or not ◼ Application of the Butler Matrix ◼ The IFC framework for problem loan resolution

◼ The use and application of sensitivity analysis in understanding the strength of the company’s recovery plan.

Session 3

Case Study Workshop – During this session, the delegates will be given a case

study project complete with forecast financial projections designed by management. Having applied the Butler and IFC frameworks to the case study, the

delegates will use the excel financial model provided by the trainer, to undertake a sensitivity analysis of the forecasts financials. The aim will be for the attendees to assess whether they believe the company’s recovery strategy and its ability to

honour the restructured loan’s debt service going forward.

Session 4

Different restructuring and recovery methodology ◼ The concept of automatic stay and protection of the going concern from other creditors

◼ Administration ◼ Receivership ◼ Liquidation

◼ Automatic stay in administration ◼ Different rescue procedures

◼ Cram down of creditors ◼ Position and rights of management ◼ Personal liability of directors

◼ Ranking and claims of creditors ◼ Time limits of filing claims

◼ Introduction to Standstill Agreements

Case Study Workshop – During this session the attendees will review a number of short case study examples highlighting the different types of restructuring and

recovery methodology introduced during the session. Furthermore, using the case study introduced during the previous session, the delegates in their project groups will draft a standstill agreement for the problem loan restructuring.

DAY 3

Session 1 Implementing the Restructuring process

◼ Understanding different stakeholder objectives ◼ Creating the restructuring team

◼ The 10 point plan for effective restructuring ◼ The case for and against a moratorium ◼ Mediation

◼ Workout arrangements and responsibilities within the lending institution ◼ Protecting security throughout the workout

◼ Undertaking the strategic review ◼ Managing the banking strategy and renegotiation of finances to ensure a workable

outcome is achieved.

◼ With appropriate financial structures and incentives in place, the organisation is afforded a firm foundation to rebuild its business.

◼ Financial projections and sustainable cash flow and debt ◼ The importance of the Independent Business Review ◼ Negotiations and pricing the workout

Workshop – Having reviewed the implementation process and the various worked examples developed during the session, in their project teams the attendees will

review a new major new case study problem loan complete with financial forecasts. The attendees will draft the Scope of Works for an Independent Business Review.

Session 2 How Debt for Equity Swaps and Debt for Asset Swaps can be used in restructuring

◼ Criteria for Using Debt for Equity Swaps ◼ How much debt to swap?

◼ How much equity in return? ◼ Which classes of equity? ◼ Establishing an Asset Management Unit

◼ Structure ◼ Involvement of private equity

◼ Involvement of industry/ equity skills

Sessions 3 & 4

Final Case study - Implementing the restructuring process in practice.

Final Case Study Workshop – Using the case study introduced during the day, the

attendees working in their project teams, will provide a complete restructuring / workout solution to the problem loan on the basis of the information covered during the course. They will required to identify the key EWS inherent in the

problem loan, review the sensitivity of the forecast financial projections in the excel model and propose a schedule of the restructured loan. The team will also

include terms of a Standstill Agreement, if required. A selected team will asked to present their restructuring solution to the rest of the delegates.

Loan Documentation & Security

Issues

Day 31


Course Overview

Course Content

The programme will review the impact of the draft ECB guidance on leveraged transactions.

This course provides a full coverage of all of the important aspects of lending. It sets the scene

by explaining the banks approach to lending, the roles of the key departments in the bank and the key documents in the process.

The programme then proceeds to discuss where to focus in analysing the loan and examines the key commercial terms in the loan and security documents from the perspective of both the

lender and the borrower. Reference is made to established case law (Spectrum) and to recent cases, such as Stabilus and Urvasco and their relevance to key clauses and aspects.

Whilst Loan Market Association precedents are widely used as a point of departure for loans throughout Europe, there are a number of key clauses which are left “blank” for negotiation, in

particular the various “permitted” baskets which need to be tailored on a case by case basis. Furthermore, syndicated (and club) loans raise additional issues which are not relevant in bilateral loans, such as voting thresholds and transfer restrictions.

In view of the standardised approach to lending across Europe, the course is presented so that

it has a pan-European relevance. The course will also discuss briefly the potential impact of Brexit on existing and new

documentation. The longer term impact on loan documentation will depend upon what is agreed

between the UK and the EU.

Facilities in general ◼ Investment grade vs high yield - key dividing line in credit markets, why & how it matters ◼ Preliminary issues for the borrower – the 7 key aspects

◼ Types of bank facilities & key issues • Committed vs uncommitted facilities

• Overdraft, term loans, RCFs, multiple option facilities, swingline facilities ◼ Obtaining a loan - bi-lateral vs club vs syndicated deals

• Key differences

◼ Repayment styles and what drives them • Amortising vs balloon vs bullet

• Lenders approach to amortisation

Overview: Key documents & their uses

◼ Commitment and mandate Letter ◼ Term sheet

◼ Fee letter ◼ The loan facility agreement ◼ Security documentation

Case Study: Review key aspects of a sheet in the context of a relevant deal including

the market flex

The key players in a loan & their roles ◼ Dramatis personae in the loan (bilateral, clubs & syndicated) ◼ The mandated lead arranger

◼ Origination & syndication departments ◼ Credit department

◼ Portfolio department ◼ The facility agent & security agent

• key lessons from the Stabilus case

Issues relevant to syndicated (& club) deals

◼ The various types of Lenders & what they want • Banks, CDOs, institutional lenders, credit & hedge funds, direct lenders

◼ Role and importance of “The Instructing Group” ◼ Critical voting thresholds ◼ Transfer restrictions

General approach to the loan

◼ The Lender’s approach to the Loan ◼ The borrower’s aims

◼ Interplay of the various “models/scenarios” ◼ How to “read” a loan facility agreement

• What to do and what not to do • What are the key areas to focus on

◼ Generic drafting issues

• Materiality • Reasonableness

• De minimis / permitted baskets • Other conditional clauses (might, may, will, would etc) • Further assurances – provide less assurance since Ford v Polymer Vision

◼ Negotiating tactics in handling the banks • What do the lenders want – the 3 key areas

• Knowing where to focus your negotiating firepower • How to handle the lenders when things “go wrong”

Different types of facilities – use and key issues ◼ Overdraft - why these are unsuitable for corporates

◼ Term Loans • Uses – general corporate purposes, M&A, capex • Typical terms

• Tranching and alphabet notes – rationale and use ◼ Revolving credit facilities

• Typical terms & problem areas • Fee /margin structure – what’s market for committed amounts • Clean-downs – why they matter, what to look for

• Rollovers & cashless rollovers (lessons from Lehman) • Dealing with “headroom”

The senior facility agreement – the key commercial terms ◼ Primary loan senior facility agreements

• when and where are they used ◼ Scope of the Loan

• “the Restricted Group” - where and why it matters ◼ “Permitted baskets” what they are and why they matter ◼ Interest & fees

• Arrangement fees • Commitment fees

• Typical margins • Utilisation periods

• Use and interaction with hedging (SWAPS) ◼ Default vs. events of default and cross default

• LMA approach vs market

• Impact of a breach; theory vs practice

◼ Covenants generally

• Information • General undertakings (the negative pledge & guarantor coverage test)

• Financial covenants – typical covenants ◼ MAC / MAE

• Does it matter

• Impact of the recent Urvasco case

Case Study: Discuss specific terms in the Senior Facility Agreement specifically various formulations of the MAC clause, the maintenance covenant package (which ones should be used and why), the role of the “Permitted” baskets

Types of security

◼ Debentures defined (UK only) • Companies Act (UK) approach vs case law (impact of recent Fons case)

◼ Mortgages

• Charges – fixed vs floating • Key differences

• Key issues for lenders & why it matters (Spectrum & Brumark Cases) ◼ Pledges

◼ Liens ◼ Security re intellectual property and contracts ◼ Security in the EU – general approach

• Parallel debt arrangements ◼ Collateral in the US – general approach

Case Study: Discuss some of the key issues affecting security from both lender’s and borrower’s perspective

Registering & perfecting security

◼ Registering security interests created by companies & LLPs • Charges created on or after 6 April 2013 • Charges created before 6 April 2013

• Charges created by overseas companies ◼ Registering security over land

◼ Registering security over intellectual property ◼ Priority between company mortgages and charges ◼ Methods of perfecting security

• The five key questions

Impact of Brexit on loan documentation ◼ Events of default ◼ Mandatory prepayments (illegality)

◼ MAC clauses ◼ Force majeure

◼ Other matters (repeating reps, gross up) ◼ Passporting issues ◼ Governing Law and Jurisdiction

Sale & Purchase Agreements

- The Commercial Issues

Day 32



A simplistic view of an acquisition is that the actual price paid is paramount but experienced practitioners recognise that price is but one aspect of the deal and that there is the potential for significant value leakage in arriving at the actual price and also from claims arising after

completion.

The “price” paid may seem a simple concept but, in practice, requires an understanding of how this is derived. Most private acquisitions are based on a “cash-free, debt-free basis” with

adjustments for working capital or net assets. Buyers typically develop an enterprise value which is then adjusted to derive an equity value by adjusting for cash, debt and working capital all of which needs to be captured in the Sale & Purchase Agreement (“SPA”). When the consideration

is to be paid in a foreign currency, a range of issues can intervene to create problems for both parties.

English law is widely used for many contracts and the recent decision in Arnold v Britton has clarified decisions in earlier judgements and clarified the how the courts and parties will

approach this in the future. The course reviews these and the differing approach to this in the USA.

Negotiating and documenting these items is not as straightforward as one might expect; for example, does “cash” include “trapped cash”, what does debt include, what is wrong with using

“average” working capital and how can parties minimise subsequent disputes? Additionally, the choice of the completion mechanism (completion accounts or locked box) creates further

opportunity for further value transfer. Even after completion the seller may find further value erosion through claims arising under the warranties and indemnities.

There is no right or wrong answer to many of these questions and the ultimate position will be dictated by the negotiating strength of the respective buyer and seller. Despite that, a sound

grasp of the key commercial and legal issues can minimise value loss for parties. This programme focuses on transactions involving the purchase of shares but also covers areas

of specific relevance to asset purchases. It provides a step by step template to the basics but also covers the critical legal and commercial aspects in the transaction from the perspective of

both buyer and seller. Reference is made to recent or relevant leading cases. Please note that this course covers material that is also covered on the Advanced Negotiation

Issues in M&A course.

Course Overview

Course Content

SPA structure & Interpretation issues ◼ The skeleton structure of the SPA: overview

◼ General approach to interpretation of contracts • UK vs USA vs Europe

• Influence of Arnold v Britton case ◼ Interpretation – Forex issues re price / currency (avoiding the traps) ◼ Implied terms & “duty to negotiate in good faith”

• Position in the UK • Position in the USA

• Position in Europe / civil law - Traps for the unwary ◼ The spectrum of “endeavours/ efforts” –Best vs Reasonable other variants ◼ Force majeure –

• Doctrine of Frustration • Problems in English law

◼ Dispute Resolution ◼ Jurisdiction & choice of law

Ancillary agreements

◼ Confidentiality letters ◼ Exclusivity agreements

◼ Heads of agreement / letter of Intent • Checklist of key issues • Drafting guidelines

• Migrating the terms to the SPA • Pros & cons

◼ Side letters • What’s in a name

The purchase price: reconciling enterprise to equity value ◼ Common purchase price protections

• Cash free/ debt free (What should be included in Debt) • Cash vs trapped cash? • Equity / NAV adjustments

• Capex issues • Debt – what is included?

◼ Adjustments for working capital • Receivables

• Inventory • WIP – problem areas • Normalised working capital

Other adjustments to the price – warranties & indemnity claims

Completion mechanisms & non-simultaneous exchange & completion ◼ How this can affect the deal, source of value loss ◼ Locked box vs completion accounts

• Key differences ◼ Completion accounts

• Pros & cons • Problem areas – access post completion

◼ Locked box

• Pros & cons • Leakage vs permitted leakage

• Other areas of potential dispute ◼ Issues with the “accounts”

• Impact & role in the deal – why they matter

• Which accounts? Consolidated vs individual, statutory, audited, management ◼ Issues to consider when exchange & completion not simultaneous

• Conditions to completion • Matters between exchange & completion • Other matters – warranties, costs, breach by seller

Representations & misrepresentations

◼ Representations vs warranties vs indemnities • Representations vs “term” (of contract)

◼ Critical negotiating issues (buyer vs seller friendly)

• Financial statements “fair presentation” representation • “No undisclosed liabilities” representa0tion

• “Full disclosure” representation ◼ Manner of misrepresentations

• Statements of opinion vs statements of law

◼ Types of misrepresentations & their remedies • Fraudulent vs negligent vs innocent misrepresentations

◼ Accuracy of representations

• When must representation to be accurate – agreement vs closing date • Accuracy of representations - in all vs material respects vs MAE qualification

Warranties ◼ Warranties – rationale

◼ Warranties and interaction with disclosure ◼ Purpose of warranties

• Retrospective price adjustment ◼ The common areas of warranty protection ◼ The information warranty (on the target)

• Quality of information – information is “true, accurate, complete and not misleading”

• Accuracy of information in the disclosure letter / bundle • The “full disclosure / sweeper” warranty

◼ Who provides the warranties

• Issues with multiple sellers, limits on liability • Sales of subsidiaries

• Sales by trustees • What about the directors?

• Private equity issues - managers (not owners) Disclosure

◼ Why & how it matters ◼ General vs specific disclosure

◼ The disclosure letter & disclosure bundle ◼ When should disclosure be made? ◼ Seller’s vs buyer’s approach to disclosure

◼ What is disclosed – the data room? ◼ How full & complete must disclosure be

◼ What is fair disclosure? Indemnities

◼ Purpose of & rationale for Indemnities ◼ Key issues

• Sandbagging (buyer’s ability to seek redress despite prior knowledge) • Indemnification as the exclusive remedy (carve-outs)

◼ Main areas of Indemnity coverage

• Environmental • Product liability

• Litigation (esp IPR) Limitations on liability under the warranties & indemnities

◼ Awareness carve-outs ◼ Time limits

◼ Financial limits • De minimis limits • Threshold for aggregate claims

• Overall cap ◼ Other limits

◼ Security for breach of warranty • Retentions & escrow accounts

• Set-off • Bank guarantees

◼ Warranty & Indemnity insurance – a viable solution? • Buyer vs seller policies – key differences

Tax; what‘s best covenant, warranty, indemnity? ◼ Why is a tax covenant needed - rationale

• Benefits vis-à-vis the tax warranties • Scope of the covenant

◼ Why & when is a tax warranty also required?

◼ Impact of the Zim Properties case



Tailored Learning

All of our training courses can be tailored to suit your company’s exact training needs.

We will work closely with you to help develop a training programme with content that is unique for your

organisation.

Please email us on [email protected] for more information

E-Learning This course can also be presented as a bespoke e-learning programme created by you to fit your exact

requirements.

Redcliffe has provided in-house training for the following companies:
