Hello everyone! Hope everyone is doing great :)
Just got a case study for an interview and it is somewhat interesting structure that I am not entirely familiar with - therefore would like to discuss here with you lot regarding (i) risks; (ii) key financing structure and terms (especially those deal specific ones); (iii) any other key considerations that you would highlight?
Below the case info:
- a listed non-IG real estate company ("ListCo") wants to raise a loan ("Loan") at its offshore holdco, which currently owns a land ("Land") through some intermediate holdcos
- the ListCo has now entered into SPA with a buyer for the sale of the Land, with the sale expected to complete 1.5 years after (i.e. all the conditions under the SPA being satisfied)
- the ListCo wants to raise the Loan now, and the repayment is likely from the payment from the buyer
Key consideration that comes to my mind will be the risk is predicated on the buyer - and believe due diligence on the SPA (i.e. payment terms) will be essential. believe we can have security over the Land holdco as well, if not the Land itself.
Thanks everyone!
Feel free to PM me (I would think that you have more details) but here are some thoughts:
1) Does the land generate any cash flows? If yes enough to meet interest payments over your next 1.5 yr? If no - structure it as a PIK instrument ubkess ListCo is willing to pre-fund interests payments but have a toggle to PIK in the event that the sale gets delayed
2) Look at the LTV based on the value of the Land, is there any flex in the SPA to re-negociate the value of the land? If so what is the market value of the land (likely below the purchase price)
3) Is there any value leakage? - you will need downstream guarantees given that the LoanCo seems to sit above the Land HoldCo, If you have security over the Land HoldCo (check if 100% ownernship) that owns the land, assuming there is cash pooling / 100% upstream and downstream guarantees you should be fine - easiest is often to have a single point of enforcement.
4) Any Contingent liabilities in between you and the cash coming from the sale? is the sale 100% cash upfront?
5) How is the Land HoldCo and the land Capitalised? Is it a building worth 100 financed with 90 of debt and 10 of equity already? or is it all equity?
Thanks a lot - thats very helpful let me PM you!
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