How do I find ranking of different notes within a firm's capital structure?
Creating a credit pitch and I'm confused about how to rank some of the notes within the capital structure with respect to seniority. Would really appreciate any analyst/associate advice here, can someone please help me?
There are a ton of notes in the capital structure I'm looking at and I don't see anything about ranking in the filings. Also don't have access to Bloomberg but I do have access to CapitalIQ.
bump. i would really appreciate any analyst/associate advice here, thx
If not broken out in the debt footnote on the Q, you can always go to the debt footnote on the K which should break it out on more detail. You would just need to tic and tie by checking the debt footnote commentary on the most recent Q to see if they paid anything down or issued anything in the last 9 months (if they’re fiscal year is 12/31). Second option is probably a little faster and you can double check the tranches of notes by going to “Securities Summary” on capIQ and the details should be there
If you have access to credit reports / Moody's / S&P they should be there - I know FactSet for sure has ratings listed under Debt as well.
What do you mean by “rank” exactly? Assuming absolute priority, if the collateral packages are the same and notes aren’t subordinated against each other, they’re all pari passu.
If throwing together a cap table would order by secured debt, unsecured and within each tranche order by maturity.
Agreed, but think he might be looking for a credit rating for each note.
Think he wants to know how to order in terms of seniority which above is correct. Odds are they are all pari but not always the case. Can think of one off instances where I’ve seen a company with mostly sr unsecured notes but have a tranche or two or sr secured but unusual (can think of issuers that did this during the beginning the COVID as they really needed liquidity but not normal as it was costly) or will have mostly sr unsecured notes and then a tranche or two of subordinated debentures but it should be easy to check the seniority in the filings or capIQ
This is correct the vast majority of the time. To be precise, you'd need to understand the corporate/guaranty structure too. Normally, secured creditors won't allow themselves to be structurally subordinated, but with foreign subs, sometimes there's nothing they can do (living in the US, we take the UCC for granted).
Case study for example is pyxus which had unsecured foreign lines of credit in their foreign operating subsidiaries. The 1L could only take a security interest in the equity, so it was effectively subordinate.
One other annoying example can be showing secured debt for companies with multiple tranches of secured debt across various collateral packages (so collateral package 1 had a 1L and 2L, collateral package 2 has...). AALs EETCs come to mind (not sure if OP is referring to something similar). Think in that instance, you'd probably still group by secured and unsecured, and just make sure you provide more detail on another page.
+1 on this, good added color thanks. Recent IPCo transactions add similar complexity (e.g. Revlon brandco term loan vs. RCPC)
Aren't EETCs issued by non-recourse SPVs? Would you still consider them as part of the corporate cap table?
hey sorry but i don't fully understand your second paragraph--a little new to this stuff. do you mind elaborating? when you say 1L what are you referring to (first lien with respect to?), and why could the 1L only take a security interest in the equity? thanks
the answer i was looking for. thank you. would debentures be at the bottom then, above common stock but below senior unsecured?
Also, a bit of an amateur question but I'm a little confused on the distinction between an ABL facility, a Term Loan facility, and a Revolver. I get a revolver is like a credit card, and a term loan facility is a bank loan repaid over time, but how is that different from an ABL? And how do all three of those order within the capital structure? Say I have a Senior Unsecured note, would this be sub to the ABL/Term Loan/revolver?
I think you're getting confused between structure, security and seniority.
Structure: Basically, how is the loan structured? You're right an RCF is very much like a credit card, where you can draw down and pay off at will up to your "credit limit." An ABL is similar to an RCF but the "credit limit" (called a borrowing base) is determined with a formula based on assets like receivables and inventory (hence the name asset backed loan). By definition, the ABL is collateralized by the assets that determine its borrowing base. A normal term loan is fully funded at transaction close and is repaid at maturity (subject to amortization requirements).
Security: What assets (if any) are collateralizing the loan and what lien does the loan have on those assets. This is usually independent of loan structure - you can have unsecured RCFs (cash flow revolvers) or 1L RCFs. Likewise can have everything from a standard 1L or 2L term loan, or 1.5 / 1.25L term loans in more complicated capital structures.
Seniority: This is basically the order of repayment. As a general rule, secured debt gets paid first and any senior unsecured debt gets paid before junior or sub debt. In more complicated capital structures, you may find some loans are "FILO" or basically a "first in, last out" in right of payment to the pari tranche, but still senior to the other junior securities.
To answer your last question above, it would depend on whether the Term Loan or RCF were secured. In most practical cases though (always are exceptions), Term Loans and RCFs are secured, so the senior uns would be subordinate to them in order of payment.
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