Selected
recent transactions
Offering in January 2014 of €240 million 6.5% senior
secured notes due 2019.
The proceeds were used to repay existing indebtedness,
finance an acquisition and for general corporate purposes.
Offering in November 2013 of €350 million 6.5% senior
secured notes due 2018.
The proceeds were used to repay existing senior and
mezzanine debt.
The PwC
Capital Market Team
www.pwc.fr
The PwC Capital Market Team comprises specialists who
provide a broad range of services to companies and private
equity firms in connection with high yield bond transactions,
including:
High Yield
Bonds

Advising and assisting on preparation of financial
information and Auditors' comfort letter process

Assisting with carve-out accounting

Drafting the financial sections of the offering memorandum

Structuring advice on the issue of high yield bonds

Assisting on the ratings process
Our Services
Offering in July 2013 of €480 million floating rate senior
secured notes due 2019.
The proceeds were used to refinance existing senior
facilities.
Contacts
Offering in May 2013 of €450 million 6% senior secured
notes due 2018.
The proceeds were used to prepay existing senior and
mezzanine debt.
Philippe Kubisa
+33 (0) 1 56 57 80 32
[email protected]
Offering in April 2013 of €350 million 6.5% senior secured
notes due 2020.
The proceeds were used to repay existing debt.
Vincent de Montgolfier
+33 (0) 1 56 57 58 49
[email protected]
Offering in January 2013 of €365 million 7% senior
secured notes due 2020.
The proceeds were used to repay existing mezzanine and
senior loans.
Carole Angot
+33 (0) 1 56 57 86 48
[email protected]
Offering in October 2012 of €200 million 8.75% senior
secured notes due 2019 and $385million 8.375% senior
secured notes due 2019 as part of the financing of the
acquisition of Rexam plc’s worldwide cosmetics business
unit and to refinance existing debt.
© 2014 PricewaterhouseCoopers Audit. All rights reserved. This content is for general information purposes
only, and should not be used as a substitute for consultation with professional advisors. In no event shall
PricewaterhouseCoopers Audit or any member firm of the PwC network be liable for any consequences of a
decision made on the basis of any information contained herein.
The PwC Capital
Market Team
comprises
specialists who
provide a broad
range of services
to companies and
private equity
firms in connection
with high yield
bond transactions
High Yield Bonds
Your questions answered
What is a high yield bond?
High yield securities are fixed or floating rate interest or dividend bearing
obligations of an issuer rated Ba1/BB+ or below by Moody’s and Standard &
Poor's, respectively. In Europe these bonds are usually listed on Luxembourg’s
Euro MTF Market (or other exchange regulated market) and are often
marketed or sold to US investors under Rule 144a.
Why issuing high yield bonds?
The increased use of high yield bonds has been largely driven by the need for
re-financing of existing senior lending in a constrained debt market where
banks may be less able and willing to lend in the same volumes as in the past.
High yield is also useful for companies with a lower credit rating for whom the
more traditional investment grade instruments are not available. High yield
bonds are increasingly used to refinance debt in leverage buy out transactions
and to finance external growth.
What financial information do I need?
Typically the offering memorandum will contain three years of historical
audited financial statements. Also any interim financial information that
is needed to bring the financial information up to date will be included. In
France these can be prepared in accordance with French GAAP or IFRS.
What types of covenants are common in a high yield bond?
High yield bonds have incurrence covenants rather than maintenance
covenants, (i.e. covenants that are only tested when the issuer takes an action
in relation to its debt). The indenture will state that the issuer cannot incur
more debt than a certain financial ratio (debt/EBITDA). This means that when
the issuer’s EBITDA increases, its ability to borrow increases.
How does the ratings process work?
A credit rating is the Rating Agency’s opinion of the general creditworthiness
of an entity or the creditworthiness of a particular debt security or other
financial obligation, based on relevant risk factors. It is possible to issue
unrated notes, but most high yield bond issuances have been rated by at least
two rating agencies. The key element of the ratings process is the presentation
to the rating agencies, upon which they will base a large part of their analysis.
What else should I consider when issuing a high yield bond?
There are a number of structuring issues that need to be considered early
on in the process, such as which Group Company will issue the high yield
bond. There are also opportunities available to maximise the accounting and
taxation attributes of the group structure, which are often overlooked.
Contents of the offering memorandum
The contents of a high yield bond offering memorandum are largely based on a US
style offering memorandum and issuers and their advisers tend to follow market
practice. The table below highlights the content typically disclosed in a high yield
bond offering document.
Summary and selected
financial data
Outlines the transaction and provides summarised
financial highlights and ratios
Risk factors
Includes risks related to the business, the transaction,
notes, company structure, as appropriate
Management
discussion
and analysis
Includes a narrative explanation of the past performance
of the business similar to the discussion that may be
included in a company’s annual report
Use of Proceeds
Description of how the proceeds of the bonds are to be
applied
Capitalisation table
Presentation of how the group's capitalisation is affected
pro forma the offering
Industry and market
overview
Outlines the industry in which the Company operates
Business
Includes description of the Company, including strategy,
products / services, history, competition, regulation as
appropriate
Management and
shareholders
Identifies management and shareholders of the
Company
Related party
transactions
Where there are significant related party transactions
these should be separately disclosed
Description
of the notes
Includes description of covenants and related definitions
and a summary of the key terms of the bond indenture
Tax
Outlines tax considerations relating to the transaction
Plan of distribution
Describes the plan of distribution for the bond
Historical financial
statements
Typically includes audited financial statements for
the last three years as well as latest reviewed interim
financial information if offering document is issued
more than 135 days after the balance sheet date for the
most recent audited financial statements
Pro forma
information
Gives effect to acquisitions/disposals or other significant
events that have occurred or may occur and includes,
sufficient explanation around how the information is
derived
Financial Information Checklist
–Are there audited consolidated accounts available for the bond issuer?
–
Is a carve out required and what are the issues associated with preparing a
set of carve out financial statements?
–Is the Group used to preparing interim financial information?
–
W hich segments will the offering memorandum focus on? Is this the same
as the segmentation in the accounts?
–
Has the Company recently converted to IFRS? How will the three year
track record be created on a consistent basis?
–
How does a planned change to IFRS in the future impact the company’s
bond covenants?
–
Quality of earnings versus adjusted EBITDA measures – what are the likely
differences?
–Have there been any significant acquisitions in the past three years?
–Are there planned divestures?
–
Is the company expecting to use part of the proceeds of the bonds to make
any acquisitions in the near future?
–What is the nature of any related party transactions?
Structuring considerations
–
W here will the issuing company sit within the existing structure? Is there an
opportunity to maximise accounting / distributable reserves and tax benefits?
–
Will structural reorganisation be required to create the proposed security group?
–
If a new holding company is required, has the accounting for this change in
structure been considered?
–
A re multi-currency bonds going to be issued? Have new or existing
hedging arrangements and accounting implications of such arrangements
been considered?
How can PwC help? *

We advise companies on the financial content of the offering
memorandum (including on the provision of interim
financials, relevant pro forma financial data or current trading
information) and support the finance team with the project
management of the overall process and liaison with the other
advisors involved.

We draft financial sections of the offering memorandum such
as the Management Discussion and Analysis, the Capitalization
and Sources & Uses of funds tables, the Summary and Selected
Financial Data section (including the definition, presentation
and reconciliation of adjusted EBITDA).

We provide advice on the accounting and tax structuring
implications when issuing a high yield bond, as well as the
impacts of the flow of funds on the capitalization of the group.

We assist on the ratings process including with the preparation
of presentations.
* The services could not be necessarily be provided as such for PwC statutory audit clients