BILT Funding Structure cases ABB Tetley Suzlon

BILT Funding Structure cases ABB Tetley Suzlon - Transcript

BILT
PRESENT TRANSACTION
For the purpose of the Acquisition the Sponsor has formed a wholly owned holding company incorporated in the Netherlands which is funded through cash equity from the Sponsor Sponsor Cash Equity and investment in the form of junior capital from the Junior Capital Investor Junior Capital and together with Sponsor Cash equity the Cash Equity The total consideration for the Acquisition excluding fees expenses which is structured as a share purchase is US 261 0 million This payment will be phased over an 18 month period in three installments and will be financed by a portion of the US 200 0 million senior secured credit facilities the Senior Secured Credit Facilities or the Facility and Cash Equity as follows
At close Close 12mo Close 18mo Cumulative
Senior Secured Credit Facilities 56 00 45 00 36 00 137 00
Cash Equity 124 00 124 00
Total 180 00 45 00 36 00 261 00
Purchase price payment schedule US Million
The remaining portion of the Facility US 63 0 million will be used to finance the i fees and expenses of US 4 4 million related with the Transaction ii fund interest expenses of US 6 0 million for the first 12 months post Close and iii US 52 7 million for the Capex Programme and will be made available to the Borrower at various intervals between Close and 21 months post Close
Sources uses of funds US Millions
Uses of funds I II III
Sources of funds I II III
Purchase price 180 0 45 00 36 00
Tranches A B C 59 40 51 25 36 0
Capex Programme 23 45 40 00
Tranches D E F 1 00 20 50 31 3
Interest expense 5 00
SFI internal accruals 2 40 8 9
Fees expenses 4 40 0 70 0 20
Cash Equity 124 00
Total uses 184 40 74 15 76 20
Total sources 184 40 74 15 76 20

Based on the above outlined source and uses the Group as defined below pro forma capitalization will be as follows
Proforma capitalization US millions
At Close Close 12mo Close 21 mo
Senior Secured Credit Facilities 59 4 132 6 200 0
Cash Equity 124 0 124 0 124 0
After the completion of the Build out Period the Company is expected to generate revenues and EBITDA in Calendar Year 2009 of US 169 million and US 85 million respectively or a Group debt last twelve month LTM Group EBITDA Leverage Ratio of 1 79x
A summary of the terms and conditions of the proposed transaction is as under

The Senior Secured Credit Facilities
The Facility will total US 200 0 million and will comprise
Tranches A B C US 60mm US 51mm and US 36mm will be made available to the Borrower and used to make the first second and third Acquisition payment installments to the Seller as well as fund interest payments US 5mm on the Facility for the first 12 months post Close on the Facility
Tranches D E F US 1mm US 21mm and US 31mm will be made available to the Borrower and on lent to the Company via the Inter company Loan to finance the Capex Programme in amounts and at the times described in the table
The Senior Secured Credit Facilities
Tranches Amount US Million Use Availability Tenor To be Drawn Close
Tranche A 60 00 Acquisition 90 days 86 months 59 40
Tranche B 51 25 Acquisition 18 months 86 months
Tranche C 36 00 Acquisition 24 months 86 months
Tranche D 1 00 Capex 90 days 86 months
Tranche E 20 50 Capex 12 months 86 months
Tranche F 31 25 Capex 21 months 86 months
Total 200 00
US 6 00 from Tranche B to be made available for funding interest expense for first 12 months post Close
Security
The Facility will be secured by a first priority interest in
All existing and future outstanding shares of each of the Borrower and the Company and each of the Company s future subsidiaries excluding the current and future shares of the Company owned by SGS
All existing and future tangible and intangible assets of the Borrower and the Company and each of the Company s future subsidiaries to the extent permissible by Malaysian law
The Inter company Loan between the Borrower and the Company secured by the same above to the extent permissible by Malaysian law
Tranches A F
Close 12 months
Months 13 18
Thereafter based on the relevant Leverage Ratio
5 0x
4 0x x 5 0x
3 0x x 4 0x
2 5x x 3 0x
2 0x x 2 5x
1 0x x 2 0x
1 0x

Case study
ABB s Credit Facility
ABB to activate 3bn credit facility
ABB the heavily indebted Swiss Swedish engineering giant has underlined its growing problems in tapping the short term money markets by activating a 3bn credit line which would be used to pay back short term commercial paper which the group can no longer roll over
The group which employs 157 000 staff in more than 100 countries is also seeking the help of its bankers to enhance the flexibility of the 3bn one year facility which was established last December by Credit Suisse First Boston and Citigroup
ABB s decision to start drawing down on the 3bn credit facility comes only a week after it publicly acknowledged that it was facing funding bottlenecks in the commercial paper market Its borrowings in that market jumped from 1 9bn to 3 3bn last year
Nearly half of ABB s 9 8bn of debt excluding operating leases falls due this year Until now ABB has relied heavily on the commercial paper market to cover any funding short falls
But ABB in common with some other companies has been effectively shut out of the commercial paper market in recent weeks as investors have become increasingly nervous about its stretched financial ratios and its inability to cap its unquantified exposure to growing US asbestos insurance claims
ABB is also suffering from the more aggressive approach being taken by the credit rating agencies They have been heavily criticised for not giving more advance warning of the buildup in problems which led to the collapse of Enron the US energy giant
Last week Moody s the US credit rating agency lowered ABB s short term debt rating from Prime 1 to Prime 2 partly because of ABB s dependence on confidence sensitive funding sources such as the commercial paper market By contrast Standard Poor s a rival rating agency said it saw no reason to lower ABB s rating because it had significant alternative funding sources available to compensate for any bottlenecks in the commercial paper market
ABB borrows money through five separate commercial paper programmes with a theoretical upper limit of 6 6bn However Moody s decision to lower ABB s long term debt rating from A2 to A3 and maintain its negative outlook has reduced ABB s financial flexibility This is because the banks have the right to terminate the new 3bn credit facility if ABB s Moody s rating falls below its current A3 level
Peter Voser ABB s new chief financial officer said that ABB would use the 3bn of cash to pay back commercial paper as it falls due and add 1bn to its cash reserves
Mr Voser said the 3bn facility means that ABB would have more than enough cash available under foreseeable circumstances as the group lessens its reliance on the present volatile short term capital markets
By William Hall
Excerpted from the Financial Times March 21 2002
Assignment What were ABB s alternatives Assess the choices made by the company Is its debt excessively shrt term For the future can ABB rely on its banking relationships

TATA TEA GB LIMITED
The proposed acquisition
As part of Tata Tea s strategic intent to rely less heavily on black tea revenues and position itself to benefit from the growing convergence between the tea beverages business and other beverage segments Tata Tea and the Tata Group have recently acquired a 30 equity stake the Acquisition in Energy Brands Inc Energy Brands for an overall consideration of USD677m Energy Brands is a new age beverage company that was formed in 1996 and is engaged in the branding and marketing of enhanced water It is one of the fastest growing beverage companies in the USA CY2005 revenue growth of 89 and sales of USD176m
Of the 30 shareholding acquired in Energy Brands 25 the Tetley Percentage has been acquired by a 100 subsidiary of TTGB Tata Tea GB Investments The Tetley Percentage has been financed by a mixture of debt and equity raised at TTGB level and through a limited recourse ring fenced loan raised in Tata Tea GB Investments The remaining 5 equity stake the TS percentage has been acquired by Tata Limited a 100 subsidiary of Tata Sons
The company
Tata Tea and Tata Tea GB
In March 2000 Tata Tea Limited Tata Tea acquired The Tetley Group Ltd for 271m through its UK subsidiary Tata Tea GB Limited TTGB or Tetley or the Borrower representing what was then the largest cross border acquisition by an Indian company Acquisition finance on the Tetley balance sheet at the time of 205m represented 5 1 times the proforma FY2000 EBITDA Tetley has performed steadily since its acquisition by Tata Tea and has undergone two refinancings By April 2006 Tetley had significantly reduced its leverage level as represented by the Total debt EBITDA ratio to 3 57
Tata Tea the majority shareholder in TTGB is one of the largest dedicated vertically integrated tea companies in the world It is part of the Tata Group one of India s foremost industrial conglomerates which has interests in over 90 companies and is active in a number of business sectors from chemicals to consumer products The Tata Group has annual total sales of Rs 967 billion USD22 0bn
The Tata Tea Group with its Tata and Tetley brands is the second largest branded tea business in the world behind Unilever Plc with its Lipton and PG Tips brands The majority of TTGB group sales and earnings are derived from the UK where Tetley is the clear market leader of the tea bag market for black tea with a market share of 28 by volume for the year 2006 representing a 7 increase in market share by value since 2000 Tetley is one of the UK s leading food and drink brands and therefore a must stock item for supermarket retailers TTGB blends packs markets and distributes tea products principally in the UK producing over 12 billion tea bags per annum It also operates internationally in Canada US Australia the Czech Republic Russia Poland South Africa Pakistan and Bangladesh and exports to more than 30 other countries
Acquisition structure

GBP 104 5 m GBP14 9 m GBP 14 9 m
USD 194 4 m USD 27 8 m USD 27 8 m
Total Equity Contributed by shareholders GBP 134 4 m
Tetley Loan USD 250 0 m
GBP 284 m
USD 538 8 m
TTGB Equity Investment GBP 233 7 m USD 434 5 m USD 564 m for a 25 equity stake USD 113 m for a 5 equity
Tata Tea GB Investments Limited A 100 subsidiary of Tata Tea GB that will acquire a 25 equity stake in Energy Brands

Financials
2 5 1 Introduction
The Management projections derived from the Review of Business Plan EBITDA which
incorporates the Latest Estimates LE for FY2006 07 and forecasts for the remaining
four year period through to the end of FY2010 11 The forecasts have been built on a
full bottom up basis with detailed projections for every business entity level within the
group
2 5 2 Key Points to Note
Going forward the key drivers of volume and value growth are increasing GB
sales from new products e g speciality teas and innovative tea products for outof
home consumption growth in Other International tea sales notably from
Canada USA and Poland and from Ready To Drink RTD products
Growth has remained broadly consistent excluding acquisitions with that
achieved over the previous two years
The financial projections assume a successful acquisition of Poland s leading fruit
tea brand The acquisition discussions are at an advanced stage and are expected
to be concluded by March 31 2007 The estimated acquisition consideration is
4 8m while the business had annual sales of 9 1m and EBITDA of 0 7m in
2006
The decline in Gross Margin from FY2005 06 largely reflects the increased sales
in lower margin markets and products such as decaffeinated ready to drink
Jemca and Good Earth
Overheads have increased by 3 1m over the 2006 11 period as Group and US
restructuring savings partially offset volume related increases
EBIT margins are set to rise from 14 5 in 2006 07 to 16 1 in 2010 11 due to
the fixed cost base being spread over a higher level of sales and due to the impact
of identified cost savings The planned cost savings include a 1m 3m p a cost
saving achieved through a reorganisation of the US and UK businesses
The assumption with regard to tea prices underlying the Medium Term Plan
Forecasts is US 1 76 or 0 93 per kg on average based on a US exchange rate
of 1 89 in FY 2005 06 This should fall to 1 69 for 07 08 and then level out at an
equilibrium level of 1 65 thereafter
Media costs have risen from 8 2m in 2006 07 to 18 0m in 2010 11 in support of
higher top line growth and in order to protect the margins
The table shows the breakdown of Advertising and Promotion spend and the yearon
year growth in spend Total A P is set to increase by 27 9 over the 2006 11
period with advertising growing from 13 to 22 of the total share This is in
line with the Company s aim of further building the Tetley brand equity and
awareness of distinctive new products and of reducing the level of price discount
promotions aimed at consumers The year on year growth projections show
clearly that the intention is for Consumer Promotions to reduce as a component of
A P while advertising is forecast to grow
The MTP assumes full tax deductibility for the accrued PIK Loan interest in the
TTGB group despite the fact that the interest is capitalised and the PIK Loan has
been structured without any recourse to Tetley This assumption has been
validated by appropriate tax

Spv s 100 subsidiaries set up by suzlon energy limited
SUMMARY TERMS AND CONDITIONS
GENERAL
Borrower Borrowers for Tranche A A E Rotor Holding AERH and Suzlon Energy Limited Mauritius SELM Both AERH and SELM are wholly owned subsidiaries of the Sponsor and Guarantor
Borrower for tranches B and C Any direct or indirect wholly owned subsidiary of the Sponsor and Guarantor
Target Repower Systems
Sponsor and Guarantor Suzlon Energy Limited Suzlon
The Transaction Tranche B and C to be utilised for direct purchase the Acquisition by Borrower BidCo of up to 100 of the Target for an amount not exceeding EUR 925 million and certain subsidiaries together with the Target the Target Companies in a form and manner acceptable to the Lenders Tranche A to be utilised for refinancing existing debt
THE FACILITY
Facility Secured Credit Facility with an aggregate commitment of up to Euro 1 300 mln the Facility Amount
The Facility Amount will be available in three tranches
Tranche A Up to EUR 375 mln
Tranche B Up to EUR 300 mln
Tranche C Up to EUR 625 mln
Purpose Tranche A To prepay certain existing debt of AERH and SELM both wholly owned subsidiaries of Guarantor by 14th of March 2007
Tranche B To finance part of the Transaction whether by way of a public offer or by way of open market purchases and for general corporate purposes
Tranche C To finance part of the Transaction whether by way of a public offer or by way of open market purchases and for general corporate purposes
Maturity Date Tranche A 5 years after Financial Closing Date
Tranche B 7 years after Financial Closing Date
Tranche C 18 months after Financial Closing Date
Facility Availability Period Upon signing of the Facility Agreement
Tranche A 3 months
Tranche B 9 months
Tranche C 9 months
Repayment Tranche A will be repaid in semi annual amounts after 12 months moratorium period from the drawdown The first repayment will commence after 12 months from the date of drawdown
Tranche B will be repaid in semi annual amounts after 12 months moratorium period from the drawdown The first repayment will commence after 12 months from the date of drawdown
Tranche C will be repaid in full on or prior to the Maturity Date with the proceeds from an Equity raising by the Borrower Guarantor or any of its subsidiaries to the exception of EVE Holdings and Hansen or any other entity which comprises the business of Hansen
Mandatory Prepayment i Tranche C must be prepaid with the proceeds from any equity raising by the Borrower Guarantor or any of their subsidiaries to the exception of Hansen
ii Illegality A Lender may cancel its commitment and or require prepayment of its shares in the Advance
iii Increased Costs Tax Gross Up and Tax Indemnity the Borrower may cancel the commitment of and prepay any Lender that makes a claim under these provisions
iv On each quarterly calculation date if the Net Debt to EBITDA ratio exceeds 3 50x all excess cash held on account after taking account of scheduled debt repayments shall be applied towards principal prepayment of Outstanding Principal
No prepayment penalty shall be applicable on Mandatory Prepayment
Optional Prepayment Tranche A B and C may be prepaid in amounts of Euro 5 million on not less than five 5 Business Days notice If Prepayments are made prior to the end of an interest period reimbursement of breakage funding costs will be required as discussed and mutually agreed between borrower and lender
Cancellation Tranche A B and C may be cancelled by the borrower in whole or in part in integral multiples of EUR 10 mln without penalty at any time on giving ten 10 Business Days prior notice of such cancellation
Utilisation Following satisfaction of the Conditions Precedent Tranche A of the Facility may be utilised in a single Advance on written notice to the Facility Agent prior to 10 00am on the third Business Day before the proposed drawdown date
Following satisfaction of the Conditions Precedent Tranche B of the Facility may be utilised in maximum 2 lots and with a minimum of EUR 100 mln per tranche on written notice to the Facility Agent prior to 10 00am on the third Business Day before the proposed drawdown date
Following satisfaction of the Conditions Precedent Tranche C of the Facility may be utilised in maximum 3 lots and with a minimum of EUR 75 mln per tranche on written notice to the Facility Agent prior to 10 00am on the third Business Day before the proposed drawdown date
Guarantee Unconditional and irrevocable on demand pari passu guarantee from the Guarantor in respect of all of the Borrowers obligations under the Facility
Security The security package will comprise a the shares owned by i the Guarantor in the Borrower ii the Borrower in the Target and iii the Guarantor in certain material subsidiaries to the exception of AE Rotor Techniek and Suzlon Energy BV both these companies are wholly owned subsidiaries of AERH and b the Guarantee all subject to regulatory approvals and where applicable German capital maintenance rules also including a protection for acts endangering the continuing existence of the relevant German Obligors and German thin capitalisation language
And
c Negative pledge on the shares of EVE Holdings
The security listed at b above shall be created in a form and manner satisfactory to the lenders prior to issuance of guarantee clear funds commitment disbursement of Facility The security listed at a and c above shall be created within 90 days of signing of the Facility Agreement
INTEREST FEES and MARGIN
Interest Rate Interest will be determined for the single period Interest Period of one or three months by the Borrower and will be at an annual rate equal to the European Interbank Offered Rate EURIBOR for corresponding deposits of Euros plus the Margin plus mandatory costs However till the closure of syndication the interest period will be determined by the MLA in order to facilitate subsequent participation by prospective lenders
EURIBOR will be determined by reference to the applicable Telerate Screen Page as of 11 00 a m on the Quotation Day for the offering of deposits in Euros at the Interest Period Interest on EURIBOR advances shall accrue on the basis of a 360 day year and shall be payable at the end of the Interest Period
All principal and any other amount owed under the Facility to the extent not paid when due will bear interest at a rate of 2 per annum above the rate otherwise applicable to the loans under the Facility
Payment of Interest on Loans Interest is payable on the last day of such Interest Period
Margin In addition to EURIBOR set forth herein and the payment of any mandatory costs the Borrower will pay the following Margins over those rates per year
Tranche A
First 12 months 1 65 thereafter
Consolidated Net Debt to EBITDA
4 5x
4 5x and 3 5x 3 5x
1 65 1 40 1 15

Tranche B
First 12 months 1 85 thereafter
Consolidated Net Debt to EBITDA
4 5x 4 5x and 3 5x 3 5x
1 85 1 45 1 15
The abovementioned ratio excludes the EBITDA and the debt raised by Hansen
Tranche C
Final Maturity of 18 months interest payable on a quarterly basis upto 12 months and on a monthly basis thereafter
Month 1 6 Month 7 12 Month 13 18
1 00 1 25 2 50

Commitment Fee 60 bps per annum of the undrawn amount of the respective Tranches payable at the end of respective commitment periods and on cancellation amount of the Facility at the time of a full cancellation is effective
Arranging and Underwriting Fee
Tranche A 115 bps payable on drawdown or commencement of syndication whichever is earlier
Tranche B 140 bps payable on drawdown or commencement of syndication whichever is earlier
Tranche C 75 bps of the Facility amount payable within 2 business days of signing the facility documentation In the event
i of the drawdown not fructifying in part or full after signing of the facility document but prior to commencement of syndication lenders would arrange to reimburse the Borrower 37 5 bps of the undrawn amount
ii Of the drawdown not fructifying in part or full after signing of the facility document and after commencement of syndication lenders would not reimburse any fee on the undrawn amount

Financial Covenants Typical for a transaction of this type and tested on a quarterly basis including but not limited to the following
a Net Debt to EBITDA Ratio with respect to the Guarantor is not more than the following
03 2007 03 2008 09 2008 03 2009
5 95x 4 95x 3 95x 2 95x
b Net debt to Equity ratio with respect to the Guarantor is not more than 2 75x for 03 2007 not more than 2 35x for 03 2008 not more than 1 00x thereafter during the tenor of the facility
c Earnings before interest and taxes divided by interest expenses for the same period Interest Cover Ratio is not less than 3 00 and
d Debt Service Cover Ratio is greater than 1 33 where
Total Debt Term Debt Short Term Debt excluding non fund facilities availed for working capital requirements Current portion of Term debt Financial Guarantees issued by Sponsor its subsidiaries
Net Debt Total debt Cash and cash equivalents
Equity Paid up Equity Capital Free Reserve and Surplus and not including preference capital and deferred tax liability
EBITDA over 12 months last twelve months
Interest Cover Ratio EBIT for the previous 12 month period divided by Interest expense due in that period
DSCR Free cash flow Cashflow available for debt service for the previous 12 month period divided by the Principal and Interest in that period

Tata Enterprises
Overseas
Tata Sons
Tata Tea Subsidiaries
TTGB
Tata Sons Subsidiary
Energy Brands
Tata Tea GB Investments