With contributions from the leading international financial institutions, Euromoney Encyclopedia of Debt Finance is an essential text for all new entrants into debt markets and a useful reference book for those already specialised in one area but seeking a broader perspective.
With contributions from the leading international financial institutions, Euromoney Encyclopedia of Debt Finance is an essential text for all new entrants into debt markets and a useful reference book for those already specialised in one area but seeking a broader perspective.
"Tony Rhodes has selected a first-class group of contributing authors … a concise summary of the key products in today's sophisticated debt markets. I highly recommend it." Rick Watson, Managing Director, European Securitisation Forum.
A bank's client borrowers are continuously seeking the lowest-cost funding from their executive management boards. With the increasingly sophisticated and integrated debt capital markets over recent years, bankers are expected to have knowledge of the entire spectrum of debt products relevant to a client's situation and their credit standing. Euromoney Encyclopedia of Debt Finance includes a comprehensive examination of the short-term, medium-term and long-term markets covering:
• The commercial paper markets • The highly flexible loans markets • The US private placement market • The medium-term note markets • The bond markets • The securitisation markets • The covered bond markets for financial institutions • The convertibles market • Sukuk (Islamic Bonds) structures
You are provided with invaluable examples of the use of these markets in practice, including:
• How corporates and financial institutions can access the commercial paper market • How to use the loan market for leveraged acquisition • How to access the US private placement market • How to set up a medium-term note programme • How to finance projects • How to finance aircraft • How to enhance credit • How to account for hybrid debt as equity; and • The capacity of the covered bond market for new issues
Author Biographies
About the general editor
Tony Rhodes works as an independent consultant. His last full-time employment was at HSBC which he joined in 1998 as Global Head of Syndicated Finance responsible for primary and secondary markets. Before this, Tony worked at Credit Suisse (CSFB) for nearly 3 years where he was responsible for primary and secondary loan syndication in Europe, Middle East and Africa, having previously spent 15 years in a variety of positions in debt capital markets at Bank of America International Limited (BAIL).
Tony started his career in the project finance unit of Shell International Petroleum Company, being based first in London, then in Paris. He then worked for a Paris-based consultancy which specialised in financing projects in the Middle East before moving to Liverpool, England, to join the Treasury Department at Ocean Transport & Trading Limited. His final position prior to joining BAIL was in the project finance unit at Lloyds Bank International Limited.
Tony read Natural Sciences and Business Management Studies at Corpus Christi College, Cambridge, and holds a Master of Arts degree. He has been a regular speaker at conferences on syndicated lending, has been course director of the Euromoney training seminar entitled Syndicated Loans for Practitioners since its inception in 1990, is the Author and General Editor of the book (now in its 4th Edition) published by Euromoney Books entitled Syndicated Lending: Practice and Documentation and was a founding director of the Loan Market Association (LMA).
About the contributors
Silvio Angius is a Managing Director in European Structured Finance at Lehman Brothers, where he is responsible for the origination and structuring of the firm’s structured finance business for southern Europe. Before joining Lehman Brothers in 2001, Silvio held a similar position at UBS Warburg in London, and prior to that he was a Director in the structured finance group at rating agency Standard & Poor’s for five years. Silvio is an experienced securitisation and structured finance professional, having worked in complex transactions involving a wide range of asset classes and jurisdictions. He has authored numerous articles on securitisation and participated in many conferences in Europe and the United States. Silvio holds a degree in economic studies at LUISS University in Rome and an MBA from Bocconi University in Milan.
David Bassett, Managing Director and Global Head of Loan Markets, joined The Royal Bank of Scotland in January 2004 and is responsible for the Loan Markets division, an integrated loan capital markets, syndicate and distribution platform with over 100 professionals in seven offices around the world. Prior to RBS, David was with Citigroup for more than 12 years, starting in New York and moving to London in 1997. In London, he was Managing Director and Head of European Loan Distribution, and prior to taking that position he was responsible for originating and structuring acquisition and telecom loan financings. In New York, David worked on a variety of leveraged and high-grade loan transactions. David also spent two years with Wharton Econometrics in Philadelphia as an analyst for forecasting and modelling US economic performance. David holds a BA in Economics from Williams College in Massachusetts and an MBA in Finance and International Business from the University of Michigan.
Moorad Choudhry is Head of Treasury at KBC Financial Products, the London-based derivatives and convertible bond trading arm of KBC Bank N.V., Brussels. He joined there from JPMorgan Chase Bank, where he was a vice president in Structured Finance Services sales and marketing. Prior to that he was a gilt-edged market maker and money markets trader at ABN Amro Hoare Govett Sterling Bonds Ltd. He began his City career at the London Stock Exchange in 1989. Dr Choudhry is also a Visiting Professor at the Department of Economics, London Metropolitan University, a Visiting Research Fellow at the ICMA Centre, University of Reading, a Senior Fellow at the Centre for Mathematical Trading and Finance, Cass Business School, and a Fellow of the Securities and Investment Institute.
Richard Cole is Chief Executive of HSBC’s Global Project and Export Finance Division. Richard is responsible for PEF’s global activities including the management of over 200 staff across 15 international locations. Under his direction, HSBC has expanded its global project finance activities to be ranked in 2005 ‘Global Number 1 Adviser’ by Dealogic and selected as ‘Global Adviser of the Year’ by Thomson PFI. Richard joined the HSBC Group in 1980 and has an MA from Cambridge University and is also an Associate of the Chartered Institute of Management Accountants.
Paul Eardley-Taylor is a Director in HSBC’s Project Finance Power & Utilities team. Paul joined HSBC in 1998 and has eight years’ project finance experience. Notable transactions he has worked on include Financial Adviser to WEC on the Shuaibah and Shuqaiq IWPPs (Saudi Arabia, 2006), MLA on the Saltend IPP acquisition financing (UK, 2005), MLA on the Normanglade IV IPP portfolio financing (global, 2004), MLA on the Umm Al Nar IWPP (Abu Dhabi, 2003), and MLA on the Ras Laffan IWPP (Qatar, 2001). Paul is presently completing a MBA at Henley Management College, UK.
Andrew Ellis works within the Investment Banking Division at Goldman Sachs where he is currently Head of Money Market Origination in Europe, a position he has held since 2004. He joined the firm in 1997 and spent the first part of his career in the Investment Management Division, where he was responsible for the establishment of Goldman Sachs' businesses in European sub-advisory/third-party distribution and cash management. A history graduate from the University of Durham in the UK, Andrew spent the early years of his banking career at Robert Fleming. This followed three years in Brussels as an advisor on European public policy.
Jackie Ineke is a Managing Director covering European banks at Morgan Stanley and is based in Zurich. Jackie is responsible for setting strategy for fixed income bank research, globally. She has been with Morgan Stanley since May 2000, joining from UBS Warburg, where she spent three years analysing the European banks sector. In 2006, the European Banks team was ranked #1 by Institutional Investor for the All-Europe Fixed Income Research Team (investment grade banks). Prior to these roles, Jackie worked at the Bank of England in the supervisory and foreign exchange divisions. Jackie holds an MSc from St Andrews University and an MES from College d'Europe, Belgium.
Harris Irfan is a Director in the Global Markets division of Deutsche Bank, with responsibility for Islamic structuring within the Emerging Markets team. He has over 12 years’ experience in investment banking, spanning corporate and project finance origination and execution, and capital markets institutional sales and structuring. He transferred from Deutsche Bank's London office to Dubai in 2001, and is currently responsible for the creation of shari'a compliant investment products, including a number of unique capital markets instruments for multi-billion dollar projects and acquisitions. Prior to joining Deutsche Bank in 1998, he worked as a project financier at Hambros Bank Limited, and initially trained as a business modelling specialist at Andersen Consulting. He graduated with a Masters in Physics from Oxford University in 1993.
Hussein Hassan trained in both law and Shariah. He studied law in the UK first at the University of Lancaster and then at Oxford. He studied Shariah in Hadhramawt in South Yemen and in East Africa. Hussein has practised law specialising in commercial law. He has been a member of the Faculty of Law at Oxford University and a Fellow at the Oxford Centre for Islamic Studies teaching Islamic and Comparative Law. He has also been a consultant with a number of financial institutions and now works for Deutsche Bank as Vice President in the Islamic structuring team.
Heiko Langer is a Senior Analyst for Covered Bonds at BNP Paribas and has worked there since July 2005. Within the bank’s London based credit research department he covers the full range of international covered bond markets. Before Heiko joined BNP Paribas, he worked for four years as an analyst for the covered bond and agency market at ABN AMRO in Frankfurt in 1996. Having graduated from the University of Cooperative Education in Karlsruhe in Germany with a diploma in Business Administration, Heiko joined L-Bank in 1994, where he worked in the international funding division in the field of investor relations and transaction management.
Jean-François Mazaud began his banking career at Banque Indosuez in 1990, where he worked in aircraft financing in Paris and in Tokyo until 1993. He joined Société Générale in 1993, as Vice President in ECM, where, amongst other things, he advised the French Treasury on its privatisation programme. In 1997, he was named Director and headed the bank’s UK ECM group. In 1998, he became Managing Director and was given the task to develop SG’s equity-linked business. Jean-François became head of DCM corporate origination in September 2004 and currently heads a team of 25 corporate originators based in Paris, London, Madrid, Frankfurt and New York. His team currently ranks number 2 in Europe.
Andrew Menzies has been with Société Générale's Debt Capital Markets Origination team for three years. Andrew became an Associate last July and is predominately focused on working for UK, Italian and Nordic clients. Andrew was integrally involved with the origination and execution of Eurobond benchmark transactions for Finmeccanica, Kingfisher and British American Tobacco and a large private placement for Telecom Italia. He has also worked in the US private placement market supporting the execution of such deals for European borrowers. Prior to joining Société Générale, Andrew graduated with a Masters in Economic and Political Geography from Edinburgh University.
Christine Miyagishima is an Associate covering European banks and insurance companies at Morgan Stanley and is based in London. In 2006, the European Banks team was ranked #1 by Institutional Investor for the All-Europe Fixed Income Research Team (investment grade banks). Prior to this role, Christine worked at Lehman Brothers in the investment banking division for four years. Christine holds an MBA from UCLA Anderson and a BComm from Queen’s University in Canada.
Cecilia Park is Executive Director at UBS Investment Bank, Transportation Asset-Backed Finance Group, and is responsible for origination, structuring and execution of transportation related asset-backed transactions. Cecilia was the primary banker responsible for the ACG Trust III securitisation completed in December 2005. She joined UBS in June 2005 from Morgan Stanley, where for several years she was a transportation structured finance banker, focusing on EETCs as well as aircraft securitisations, having led Iberbond 2004, Airplanes Pass Through Trust 2001 and AerCo 2000, among others. Cecilia received a BA from Columbia University and an MBA from the Wharton School of Business at the University of Pennsylvania.
Franck Robard is Head of the Hybrid Capital Group of Société Générale. He runs a team specialised in structuring tax efficient hybrid capital for financial institutions and corporate issuers with a strong emphasis on raising regulatory and rating agency capital. Before joining SG in 2000, Franck was Head of Credit Research at Ixis CIB, where he originally started is career in 1994 as a credit research analyst. During his tenure at SG, he has structured and executed hybrid capital transactions for major European Groups totaling above €15bn in volume. Franck is based in Paris.
Gerry Rawcliffe is a managing director in Fitch Ratings’ financial institutions group. Gerry is responsible for developing the group's franchise with major European institutional investors and other capital markets participants. Gerry rejoined Fitch in September 2002 from Dresdner Kleinwort Wasserstein, where he was global head of investment grade credit research. He previously worked for Fitch’s forerunner firm, IBCA, between 1993 and 1998, when he was responsible for covering German, UK and Middle Eastern banks. Gerry is a chartered accountant and has a BA and MA in German Studies from the Universities of Warwick and London.
Sriram Soundararajan is a member of the European ABS research team at Lehman Brothers. The team produces regular publications that cover a wide range of topics on the ABS markets and also provide market leading analytics such as the Lehman Brothers European ABS Index and European Mortgage Cashflow Calculator. Sriram joined the team in 2003 and covers several sectors including CMBS, treasury securitisations and SME CLOs. He holds an MBA from the Indian Institute of Management and prior to that worked as an engineer with Caterpillar India.
Zarrar Sehgal is an associate in the Global Transportation Finance Group of Milbank, Tweed, Hadley & McCloy LLP. Mr Sehgal has experience in representing underwriters, lenders, lessors, and governmental agencies in a wide variety of aircraft finance transactions, including portfolio securitisations, leveraged leasing, EETC transactions, secured lending, structured financings and credit enhancements. Mr Sehgal received his J.D. from Georgetown University Law Center and his undergraduate degree from Boston University.
Michael Thilmany is currently Managing Director focusing on cross-border transactions, previously having responsibility for this segment of the market at BZW, Merrill Lynch, and Lehman Brothers (latterly where he headed fixed income and mezzanine private placements). He is based in New York and has also worked in London and Frankfurt. He has 20 years of industry experience. Michael received his MBA from New York University and his BSFS from the School of Foreign Service, Georgetown University.
Table of Contents
Euromoney Encyclopedia of Debt Finance
Part I – Core products and issues
1 Commercial paper and medium-term notes Andrew Ellis, Goldman Sachs Commercial paper Medium-term notes
2 Syndicated loan market David Basset, Royal Bank of Scotland Introduction Background Loan market overview Syndicated loan segments Syndicated loan process Summary
3 United States private placements Michael Thilmany, HSBC Introduction – what is a private placement? Issuer appeal Characteristics of a private placement issue Private placement process The market for private placements Annex 1 – engagement letters Annex 2 – summary of principal terms and conditions ~
4 The bond markets: focus on senior bonds, EMTNs, hybrids and high yield Jean-François Mazaud and Andrew Menzies, Société Générale Introduction to bonds Relevance of bonds Types of bonds Profiles of issuers Profiles of investors Leading players – league tables of banks leading bond issues Why use the bond markets? Common reasons for bond issuance Pros and cons of using the bond markets Documentation, tax and accounting issues Sample termsheet Secondary market, trading and investors Methodology for pricing Distribution methods Listing requirements
5 Securitisation – core concepts Sriram Soundararajan and Silvio Angius, Lehman Brothers Introduction A brief history of securitisation What can be securitised? The basic concept and structure Structuring a securitisation – the nuts and bolts The issuer’s perspective – why securitise? The investor’s perspective – why buy asset-backed bonds? Risks and returns – pricing an asset-backed bond Secondary markets and liquidity Accounting, tax and regulatory issues Outlook
6 Covered bonds Heiko Langer, BNP Paribas Introduction – what is a covered bond? Issuers of covered bonds Type of collateral assets Asset-liability matching Cover monitor Rating covered bonds Risk weighting The jumbo concept Difference between covered bonds and MBS
7 Convertible bonds Moorad Choudhry, KBC Financial Products Introduction Basic features Advantages of issuing and holding convertibles Convertible bond valuation
Part II – Applications
8 Instruments for Islamic issuers Hussein Hassan and Harris Irfan, Deutsche Bank AG London Introduction Sukuk structures Sukuk al ijara Sukuk al musharaka and sukuk al mudaraba Financial risks Non-financial risks of sukuk Conclusion
9 Ratings Gerry Rawcliffe, Fitch Ratings Introduction The credit rating agencies What are credit ratings? The definition of default and rating time horizon The rating process Corporate finance ratings Structured finance Project finance
10 Commercial paper issuance – financial institutions and corporates Andrew Ellis, Goldman Sachs Introduction Basic definitions Some statistics and issuer characteristics The importance of ratings and pricing Discernible patterns and trends Thoughts on corporate issuance Programme management Close
11 Leveraged acquisition finance and acquisition finance David Basset, Royal Bank of Scotland Introduction Background Telefónica – investment grade case study Metrovacesa – cross-over acquisition case study LBO acquisitions Gala – LBO acquisition finance case study Conclusion
12 Project finance Richard Cole and Paul Eardley-Taylor, HSBC Introduction Motivation Process sequence Relevant structures Risk analysis and mitigation Conclusion
13 SES Global’s billion dollar private placement Michael Thilmany, HSBC Precursor to a private placement Decision to approach the private market Transaction execution The SES roadshow Circling and pricing Investor due diligence Finalisation of documentation Successful execution
14 Hybrid bonds for corporates Jean-François Mazaud and Franck Robard, Société Générale Introduction to hybrid corporates’ bond Market take off in 2005 Types of bonds Why use hybrid instrument and when does it make sense? Investors: what’s in it for fund managers? Methodology for pricing Case study: Vinci
15 Bank Capital: Tier 1, Upper Tier 2 and Lower Tier 2 Jackie Ineke and Christine Miyagishima, Morgan Stanley Introduction Setting the guidelines The different tiers of capital Regulatory limits and calculating ratios Capital limits Not all capital is created equal . . . The view from the ratings agencies
16 The Italian state securitisations Sriram Soundararajan and Silvio Angius, Lehman Brothers Introduction Why is securitisation a valuable tool for governments? Italy’s experience with securitisation Leading by example The SCCI transaction – a case study in state securitisation Are there only benefits from securitisations? Eurostat’s view on state securitisations The future looks bright
17 Back to the future: aircraft portfolio securitisations Cecilia Park, UBS and Zarrar Sehgal, Milbank, Tweed, Hadley & McCloy Introduction In the beginning Offerings Acquisition financing Characteristics of recent transactions Role of monolines in the revival of the market Aircraft finance players Return to the future
18 Development and structure of the jumbo covered bond market in Europe Heiko Langer, BNP Paribas Market development The main jumbo markets Spread drivers and differentiation Conclusion
19 Convertibles bond case studies Moorad Choudhry, KBC Financial Products Introduction Gujarat NRE Coke Limited USG People N.V.
Annex 1 – ‑termsheet for Gujarat NRE Coke Limited convertible bond Annex 2 – termsheet for USG People N.V. convertible bond Index
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