The document discusses key trends in acquisition finance, including record high levels of leveraged loan volumes and high yield issuances since 2007 due to low interest rates and excess liquidity. This resulted in borrowers gaining negotiating power over lenders. Terms became more borrower-friendly with suppressed margins, higher leverage levels, and convergence of terms between products, geographies, and jurisdictions. Financial covenants became looser or were removed entirely. However, factors like the Fed drawing QE to an end and weak global growth numbers suggest the balance of power may be shifting back toward investors.

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Throughout this presentation, “Cleary Gottlieb” and the “firm” refer to Cleary Gottlieb Steen & Hamilton LLP and its affiliated entities in certain jurisdictions, and the term “offices” includes offices of those affiliated entities.
International Business Structuring Association Conference
19 November 2014
Key Trends in Acquisition FinanceSui-Jim Ho, Cleary Gottlieb Steen & Hamilton LLP

2. Leveraged loan volumes and high yield issuances at record highs since 2007
Factors:
•Low interest environment.
•Too much liquidity chasing too few assets.
Result: Balance of power moved towards borrowers
Acquisition Finance in 2014
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3. Better pricing: Suppression of margins.
Higher leverage levels.
Fierce competition in terms between products and geographies:
•Convergence between terms of high yield bonds and loans.
•Convergence between English law loan terms and New York law loan terms.
The Rise of Borrower-Friendly Terms
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4. Cov-lite: No financial covenants:
•Traditionally, financial covenant package includes: leverage ratio, interest cover ratio, cash flow cover and limitations on capital expenditure.
•By testing maintenance covenants at regular intervals, investors can monitor the performance of a business on a regular basis.
•Sometimes only one of these covenants is retained on a springing basis for the benefit of the revolving lenders only.
Cov-loose loan –Contains only one or two financial covenants.
Other borrower-friendly terms: generous baskets for acquisitions, incurrence covenant (e.g. debt incurrence), cross-default v cross-acceleration, and removal of material adverse effect event of default.
The Return of Cov-LiteLoans
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5. In Oct 2014, Fed announced that it plans to draw QE to an end.
Weak global growth numbers.
Fall in commodity prices.
Geopolitical factors.
The future: Balance of power is creeping back towards the investors.
Trouble in Paradise
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6. Sui-Jim HoCleary Gottlieb Steen & Hamilton LLPAssistant: wsmith@cgsh.comCity Place House, 55 Basinghall Street London EC2V 5EH, Englandt: + 44 20 7614 2284 | f: +44 20 7600 1698www.clearygottlieb.com | jho@cgsh.com
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