Cross-Border Financing Report 2017 Featuring contributions from Chiomenti Jia Yuan Law Offices Loan Syndications & Trading Association Makarim & Taira S Prager Dreifuss Sullivan & Cromwell Talwar Thakore & Associates Udo Udoma & Belo-Osagie Yakubu and Associates Chambers Lead contributor REPORT PARTICIPANTS China Hong Kong India Indonesia Nigeria Switzerland Tanzania UK US Chiomenti Loan Syndications & Trading Association INTRODUCTION 4 & 8 Bouverie Street, London EC4Y 8AX ePmail: [email protected] Customer service: +44 20 7779 8610 EDITORIAL Commercial projects editor James Wilson A great time to be a [email protected] + 44 Q0R 20 7779 8079 Managing editor Tom Young [email protected] +44 20 7779 8596 borrower Editor Amélie Labbé [email protected] S Neal McKnight and Presley L Warner, +44 207 779 8381 EMEA editor: Elizabeth Meager Sullivan & Cromwell [email protected] +44 207 779 8030 Americas reporter John Crabb [email protected] Financing themes +1 212 224 3402 Staff writer Brian Yap [email protected] +852 2842 6915 Three underlying themes describe the current state of the international financial markets: the constrained supply of new debt; the high investor EDITORIAL ADVISORS David Bernstein, Peter K Brechan, Lee C demand for debt; and an agnosticism among investors between bank Buchheit, Simon J Davies, Robert debt and bond debt, leading to the convergence of pricing and terms DeLaMater, Robert Dilworth, Bruce Duncan, Phillip Fletcher, David Graham, Ed Greene, between bank debt and bonds. Philip McBride Johnson, Michael Kenny, Paul Kruger, James Leavy, Juhani Makinen, These have created an environment of tight pricing and borrower- John D Moore, Enric Picanyol, Graham friendly terms in the international financing markets. Penn, Glen Rae, Gilles Saint Marc, Peter Siembab, Patricia Sindel, Bertil Södermark, Philip Wood, Christian Zschocke Managing director 3 LMG Tim Wakefield Constrained supply of new debt Head of business development for IFLR/IFLR1000 Richard Valmarana Production editor Richard Oliver Sub editor Annette Gray “There hasn’t been much new supply and investors have cash they need to spend.” ADVERTISING Associate publisher: Asia Pacific Tom O’Reilly, head of non-investment-grade credit for Neuberger William Lo Berman Group to the Wall Street Journal on August 8 2017. [email protected] +852 2842 6970 Business developer: EMEA Dafydd Elias Geopolitical uncertainty arising after the Brexit vote and the US [email protected] election has helped to reduce new leveraged acquisitions and associated +44 207 779 8766 Copy manager new debt issuances. Recent new debt issuances have resulted primarily Danielle NgwanaPJoseph [email protected] from refinancing or re-pricing transactions, and those do not create a +44 207 779 8151 net increase in supply. At the same time, historically high valuations in SUBSCRIPTIONS US equity markets have been great for equity investors, but M&A UK/Asia Hotline activity leading to new debt issuances has reduced, as principals wait Tel: +44 20 7779 8999 Fax: +44 20 7246 5200 for uncertainty to resolve and for toppy valuations to be justified. These US Hotline Tel +1 212 224 3570 dynamics are particularly pronounced in Europe. Fax: +1 212 224 3671 Email: [email protected] CUSTOMER SERVICES Tel: +44 20 7779 8610 Divisional director, Specialist Information Division: Danny Williams “Institutional investors in the International Financial Law Review is published 10 times a year by Euromoney Institutional Investor PLC, London. The credit markets have proliferated” copyright of all editorial matter appearing in this Review is reserved by the publisher. No matter contained herein may be reproduced, duplicated or copied by any means without the prior consent of the holder of the copyright, requests for which should be addressed to the publisher. No legal responsibility can be accepted by Euromoney Institutional Investor, High investor demand for debt International Financial Law Review or individual authors for the articles which appear in this publication. Articles that High demand for debt comes from various sources. appear in IFLR are not intended as legal advice and should not be relied upon as a • Central banks have been buying government securities and leaving substitute for legal or other professional yield-starved fixed-income investors to scramble for what is left. advice. The views expressed by contributing authors do not necessarily reflect the views • Institutional investors in the credit markets have proliferated as fixed of the firm they work for. income investors reach for yield in a continuing low-interest rate Directors: John Botts QChairmanR, Andrew environment, and many new debt issuances are over-subscribed. Rashbass QCEOR, Colin Jones, The Viscount Rothermere, Sir Patrick Sergeant, Paul • The increase of private credit providers willing to ‘lend and hold’ Zwillenberg, David Pritchard, Andrew Ballingal, Tristan Hillgarth has further increased demand for fixed-income paper. In addition to underwriting banks sourcing financings and syndicating debt to Printed in the UK by Buxton Press, Buxton, England. institutional bank loan and bond investors, borrowers can approach International Financial Law Review 2013 ISSN 0262P6969. CROSSPBORDER FINANCING REPORT 2017 | IFLR.COM | 1 INTRODUCTION private credit providers who will lend and hold for the long term and save borrowers from syndication and pricing risks. Private credit providers can often offer more leverage than commercial banks or underwritten financings (sometimes in connection with an equity-kicker). • Chinese outbound M&A is often financed S Neal McKnight Presley L Warner by Chinese banks rather than international Partner, Sullivan & Cromwell Partner, Sullivan & Cromwell lenders. In addition, the One Belt One New York, US London, England Road (OBOR) initiative and constraints T: +1 212 558 3316 T: +44 20 7959 8900 on domestic Chinese lending are likely to F: +1 212 558 3588 F: +44 20 7959 8950 increase Chinese banks’ participation in E: [email protected] E: [email protected] the international financing markets, which W: W: will add to the players competing to invest https://sullcrom.com/lawyers/SNeal- https://sullcrom.com/lawyers/PresleyL in debt financing. McKnight -Warner About the author About the author Investor agnosticism between Neal McKnight is co-head of the firm’s Presley Warner is a member of bank and bond debt finance and restructuring group. He Sullivan & Cromwell’s corporate and advises financial institution, sponsor finance, credit and leveraged finance, Institutional investor agnosticism between and corporate clients on a broad and restructuring and bankruptcy bank loans and bonds, when combined with range of corporate financing practices. Warner advises financial high demand and limited supply, is leading transactions, including capital markets institutions, private equity and towards an increasing convergence of pricing offerings, revolver and term loan corporate clients on a broad range of and terms between bank debt and bond debt facilities, receivables and asset-based cross-border financing. for many credits. facilities, and securitisations. His private equity transactions But this convergence leads investors to get McKnight has particular expertise in include advising sponsors and lenders the worst of both worlds – not the best. acquisition financings, and has acted on leveraged private and public-to- Borrowers get the economic benefits of bank in a number of refinancing and private transactions in the UK and debt (floating rate, limited call protection, recapitalisation transactions in the Europe through first lien, mezzanine, limited disclosure) with the covenant bank and bond markets, as well as PIK and hybrid instruments, leveraged structure of bond debt (incurrence covenants financings in distressed contexts. recapitalisations, bid financings, and related flexibility, which vastly reduces the McKnight’s securities experience Opco/Propco structured financings need for waivers during the life of the includes debt and equity offerings and related intercreditor instrument). Borrowers raising financing in (including high yield debt offerings) arrangements. Warner’s corporate Europe have lately been preferring loans to under Rule 144A and Regulation S, transactions include advising bonds because they get the benefit of loan SEC-registered offerings, exchange corporates and lenders on event- pricing and flexibility with bond-like offers, project and infrastructure driven investment grade financings covenants. bonds and structured financings. He and build-out transactions, and his The erosion of (or in some cases has also acted in a number of M&A restructuring transactions include disappearance of) financial maintenance and joint-venture transactions. advising creditors and corporate and covenants is a good example of the McKnight’s clients have included private equity-owned debtors on consequences of bank/bond convergence. In AT&T, Bayer, Canadian Pension Plan restructurings in the UK, Europe and the bank loan world, historically financial Investment Board, Crescent Capital, the Middle East. maintenance covenants were the key Gartner, Goldman Sachs, Ontario protection for banks. Financial maintenance Teachers’ Pension Plan Board, Rhône covenants gave banks an early warning of Capital and United Rentals. financial difficulty and allowed banks to take Neal was resident in the Firm’s control of