major intercreditor issues in multi-tranche project financing transactions john d. taylor june 9,...
TRANSCRIPT
2
Sample Financing Structure
ProjectCompanyBorrower
CommonAgreement
LoanAgreement
MultilateralFinancial Institution
NationalDevelopment Lender
Capital MarketsLenders
LoanAgreement
Indenture/NotePurchase
Agreement
LoanAgreement
Lead Commercial Banksas Agents/Underwriters
CollateralAgency/
TrustAgreement
CollateralAgent/Trustee
Syndicate ofCommercial Banks
ExportCredit Agency
PoliticalRisk
GuaranteeSecurity Agreements:
Cash Collateral AgreementPledge Agreement
Assignment AgreementMortgage
3
Elements of Intercreditor Agreement
• Appointment of Intercreditor Agent
• Sharing Provisions
• Voting/Decision-making
• Default/Remedial Action
4
Sharing Provisions
• General Rule: Pro Rata Sharing Payments Security
• Some Exceptions Separate Security (pledge of additional security,
additional reserve account, etc.) Political Risk Insurance Proceeds “Preferred Creditor” Status
5
Voting/Decision-Making I → Who Decides?
• Allocating Voting Power Purely Proportional Consensus 800-pound Gorilla
• Lender Goals Efficiency Minimize Hold-out Risk Protect Key Interests
6
Voting/Decision-Making II → How Are Decisions Made?
• Role of Agent Unilateral Action: Agent as decision-maker Group Action: Agent as decision-facilitator
• Voting Mechanics
7
Lender Decision-making Timeline
TriggeringEvent/
BorrowerRequest
AgentSolicitation
VotingDeadline
LenderDecision
Consultation/Voting Period
8
“Required” Lenders
Lender Voting Group
Unanimous Lenders
Supermajority Lenders
Majority Lenders
Single Lender (Veto Right)
Single Lender (“Interested” Lender)
Description/Comment
Fundamental matters for which each lender must consent/approve
Fundamental matters for which lenders seek a “heightened” voting threshold
A common “baseline” for decision-making relies on majority rule
Matters for which a lender requires a veto right due to its heightened sensitivity to matter
Matters that are only of interest to individual lender
Examples
Tenor/pricing of loans; release of collateral
Incurrence by Borrower of additional debt; amendments to security documents
Approval of budget; approval of insurance arrangements
Environmental matters; potentially matters identified in Credit Committee approval
Non-material changes to a lender’s facility agreement
Lender Voting Group
Unanimous Lenders
Supermajority Lenders
Majority Lenders
Single Lender (Veto Right)
Single Lender (“Interested” Lender)
Description/Comment
Fundamental matters for which each lender must consent/approve
Fundamental matters for which lenders seek a “heightened” voting threshold
A common “baseline” for decision-making relies on majority rule
Matters for which a lender requires a veto right due to its heightened sensitivity to matter
Matters that are only of interest to individual lender
Examples
Tenor/pricing of loans; release of collateral
Incurrence by Borrower of additional debt; amendments to security documents
Approval of budget; approval of insurance arrangements
Environmental matters; potentially matters identified in Credit Committee approval
Non-material changes to a lender’s facility agreement
Lender Voting Group
Unanimous Lenders
Supermajority Lenders
Majority Lenders
Single Lender (Veto Right)
Single Lender (“Interested” Lender)
Description/Comment
Fundamental matters for which each lender must consent/approve
Fundamental matters for which lenders seek a “heightened” voting threshold
A common “baseline” for decision-making relies on majority rule
Matters for which a lender requires a veto right due to its heightened sensitivity to matter
Matters that are only of interest to individual lender
Examples
Tenor/pricing of loans; release of collateral
Incurrence by Borrower of additional debt; amendments to security documents
Approval of budget; approval of insurance arrangements
Environmental matters; potentially matters identified in Credit Committee approval
Non-material changes to a lender’s facility agreement
Lender Voting Group
Unanimous Lenders
Supermajority Lenders
Majority Lenders
Single Lender (Veto Right)
Single Lender (“Interested” Lender)
Description/Comment
Fundamental matters for which each lender must consent/approve
Fundamental matters for which lenders seek a “heightened” voting threshold
A common “baseline” for decision-making relies on majority rule
Matters for which a lender requires a veto right due to its heightened sensitivity to matter
Matters that are only of interest to individual lender
Examples
Tenor/pricing of loans; release of collateral
Incurrence by Borrower of additional debt; amendments to security documents
Approval of budget; approval of insurance arrangements
Environmental matters; potentially matters identified in Credit Committee approval
Non-material changes to a lender’s facility agreement
Lender Voting Group
Unanimous Lenders
Supermajority Lenders
Majority Lenders
Single Lender (Veto Right)
Single Lender (“Interested” Lender)
Description/Comment
Fundamental matters for which each lender must consent/approve
Fundamental matters for which lenders seek a “heightened” voting threshold
A common “baseline” for decision-making relies on majority rule
Matters for which a lender requires a veto right due to its heightened sensitivity to matter
Matters that are only of interest to individual lender
Examples
Tenor/pricing of loans; release of collateral
Incurrence by Borrower of additional debt; amendments to security documents
Approval of budget; approval of insurance arrangements
Environmental matters; potentially matters identified in Credit Committee approval
Non-material changes to a lender’s facility agreement
9
Default/Remedial Action
• Goals - Requirements vs. Reality
• Procedures - Notice of Default/Consultation Period/Waiver or Exercise of Remedial Action
10
Remedial Action – Decision-making
Default
Agent Noticeto Lenders/Request forInstruction
If No LenderDecision/
Commencementof WAITING PERIOD
No Remedial Actionuntil requested by Required Lenders –
STEP DOWN–MECHANIC
If NecessaryLenders agree
to waiveWAIVER
If NecessaryLenders elect to
enforceremedies
RemedialAction
If NecessaryLenders
subsequentlyagree to waive
WAIVER
11
Remedial Action – “Step Down”
% ofLenders
30 Days 90 Days
Time
100
66⅔
51
60 Days 120 Days
Non-Fundamental Default
Fundamental Default
12
Swap Provider Issues
• Risks and Benefits of Swap Involvement
• Nature of Swap
• Coordination and Integration of Swaps Swap Voting Rights Swap Termination Rights Swap Termination Payments
13
Equity-related Intercreditor Issues
• Role of Borrower Borrower Interest in Intercreditor Matters Spectrum of Structures
• Sponsor Debt