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Company Name Presentation Title - HKVCA

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Company Name Presentation Title - HKVCA Powered By Docstoc
					W01/3316




           September 2002
           Hong Kong




           Financing of leveraged
           buyouts - how does it work?




           Chris Gammons
           Vice President
           Debt Capital Markets

                                         1
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           Asia LBO market observations


                 Favorable liquidity outlook, both debt and equity sources


                 Limited activity in YTD2002 but favourable outlook for
                 deals in 2003


                 Australia, Hong Kong, Korea and Japan key areas of
                 activities




                                                                             2
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           Attractive asset class for senior lenders
            Asset diversification

            Relative pricing improvement

            Disciplined credit structuring

            Strength of world class private equity sponsors

            Follow on business prospects




                                                               3
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           Does LBO financing in Asia work?


            Selected Asia Pacific leveraged buyout transactions
            US$mm
             2,000                                      Actual    Estimated       Avg deal size
             1,800
                                                                                                             1,357
             1,600

             1,400                                                                       1,457
             1,200                              1,329

             1,000
               800                                                    940

               600
               400           528
                                                                                                              450
               200
                  0
                             1998                 1999                 2000                2001                2002
           Note: Selected buyout transactions with transaction value over US$100 million led by Financial Sponsors and
           financed with acquisition debt
                                                                                                                         4
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           Developing investor base
           Improving market sentiment

           Overall syndication hit rate1
           %
                                                                                           70.0%




                                                                              33.3%

                                                     20.3%

                         7.2%


                       ASAT                        Wong's                     Mercury      Haitai
                      Oct. 1999                   Aug. 2000                  Oct. 2000   Sept. 2001
           1 Number   of banks/institutions committed versus total invited
                                                                                                      5
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           Financing LBO/MBO – structuring
           considerations

                                                  Pre-acquisition                                                          Post-Acquisition
           Structuring criteria                                   Acquiror                               Target
              Overall levels of debt based on:           Investment            Investment                                 Investment             Investment
               – Debt/EBITDA                                Fund 1                Fund 2                                     Fund 1                 Fund 2
               – Maturity
               – Total debt/Capitalization

              Due Diligence                                                    Equity

               – Business outlook                 High Yield                                           Shareholder                                    High Yield
                                                                       Holdco       Consideration                                       Holdco
               – Projections                      Debt                              in share           (s) of Target                                  Debt
                                                                                    transaction
              Credit Facilities                      Equity and
                                                       high-yield
               – Senior secured                    debt proceeds
               – Financial covenants
                      • EBITDA/Interest       Senior
                                                                                                                                                      Senior Secured
                                              Secured             Newco                                   Target                       Survivor
                      • Total debt/EBITDA                                                                                                             Bank Loans
                                              Bank Loans                           Consideration in
                      • Fixed charge coverage                                      asset transaction

              Other
               – Mezzanine/High yield debt                                                                                                                Guarantees
               – Currency mix                                                                                                                             of Senior
                                                                                                 Sub 1             Sub 2       Sub 1              Sub 2
               – Legal/Regulatory (Financial                                                                                                              Secured
                                                                                                                                                          Bank Loans
                   Assistance)


                                                                                                                                                               6
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           Financing an LBO/MBO:                                                                      2001
                                                                                                                                                       2001
                                                                                                                                                 Best LBO Deal and
                                                                                            Best Syndicated Loan and              2001

           Case study                                                                        Best Private Equity Deal
                                                                                                  Finance Asia
                                                                                                                            Deal of the Year
                                                                                                                               CFO Asia
                                                                                                                                                    Best Private
                                                                                                                                                   Equity House
                                                                                                                                                     The Asset



           Haitai Confectionery and Foods Co., Ltd

           Situation overview                                                           Transaction structure
            In February and March 2001, JPMorgan worked with a consortium                    CVC                      JPMP
                                                                                                                                                   UBS
             comprising of CVC Asia Pacific, JPMorgan Partners and UBS Capital                                                                    Capital
             to provide acquisition financing for the Consortium’s acquisition of the            33.3%                        33.3%                    33.3%

             Confectionery Businesses of Haitai Confectionery Company Ltd                                     Cash Equity

                                                                                                              Korea Confectionery
            The acquisition of and the financing for the confectionery businesses
                                                                                                                 Holdings N.V.
             were structured around the bankruptcy regulations in Korea, as the
                                                                                                                  Equity       100%
             Seller had been declared insolvent in late 1997; at the end of August,                                                     Term Credits
             court approval for the sale/acquisition was granted                                                     Haitai                                 Banks &
                                                                                                                 Confectionery &       Rev olv ing Credit
                                                                                                                                                           Financial
            Haitai had been in business for over 45 years, and the core                                         Foods Co., Ltd.                          Institutions
             confectionery business was ranked #2 in Korea



           Syndication highlights                                                       Transaction benefits
            First Korean LBO financing to include a 7-year institutional tranche        The private equity funding helped complete the corporate
                                                                                          restructuring of Haitai Group
            Highly successful syndication with 24 oversubscription raising in
             excess of KRW800 billion                                                    Avoided liquidation of the company and job loss in the sector
            Diverse domestic and international syndicate at 20 financial                After the first year of operations, sales were already up by 10% and
             institutions                                                                 EBITDA margin improved to 14% from 12% at closing
W01/3316




           Credit requirements for LBO financing have
           become more exacting


           Leverage                                                                                                           Coverage
           7.0x                           Senior Debt/EBITDA        Sub. Debt/EBITDA            EBITDA/Cash Interest                 5.0x
                                6.1x
           6.0x                                                     5.6x                                                             4.5x
                               0.9x                      5.3x
                                                                                 4.9x                                                4.0x
           5.0x                              4.7x                                                                3.6x       3.6x
                                                                    2.1x                     4.2x       3.3x
                    3.9x                                2.2x                                                                         3.5x
                                                                                1.4x
           4.0x                              1.4x                                                       3.5x     3.5x       3.5x
                                                                                             0.9x
                                                                                                                                     3.0x
                    1.4x                                                                                0.8x     0.8x       0.6x
           3.0x                             3.1x                                2.4x
                               5.2x                     2.2x        2.0x                     2.7x                                    2.5x
           2.0x
                    2.2x                     3.3x                   3.5x        3.5x         3.3x                                    2.0x
                                                        3.1x                                                                2.9x
                    2.5x                                                                                2.7x     2.7x
           1.0x                                                                                                                      1.5x
                               1.7x

           0.0x                                                                                                                      1.0x
                  Early 80s   Late 80s     1990-1991 1992-1993 1994-1998         1998      1999-2000    2001       LTM      1Q2002
                  "Growth"    "Roaring"   "Recession" "Rebirth" "Bull Market"   "Crisis"   "Continued           3/31/2002
                                                                                             Growth"

           Source: S&P/PMD, JPMorgan estimates
                                                                                                                                            8
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           Conservative valuation views have resulted in
           reduced transaction multiples

               Total sources of US$500mm or more
               Multiples (x)


                                                   8.3x            8.5x
                                                                          7.9x
                        7.1x       7.2x                                          6.7x   6.4x
                                                                                                5.6x



                      1994/5       1996            1997            1998   1999   2000   2001   1Q2002


               Total sources of US$250mm to US$499mm
               Multiples (x)


                                                   7.9x            8.3x
                                                                          7.3x   6.7x
                        6.4x       6.4x                                                 6.3x    6.0x



                      1994/5       1996            1997            1998   1999   2000   2001   1Q2002
           1Purchase price multiples excludes fees and expenses
           2Trailing EBITDA - Non-adjusted pro forma trailing EBITDA
           Source: S&P/PMD
                                                                                                        9
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           Prospects for mezzanine financing in Asia
           Pacific
            Although the leveraged buy-out market is relatively new in Asia, the
              growth in M&A activity and the spate of recent corporate restructurings
              has resulted in increased activity in this sector

            As the Asia Pacific region undergoes the economic and organizational
              restructuring that Europe saw in the 1990’s, LBO activity is expected to
              grow

            So far, the growing volume of financial sponsor related buy outs has
              primarily been financed by equity and senior debt

            Mezzanine financing has not been widely utilized, but represents the
              next step in the evolution of the Asian leveraged buyout market




                                                                                         10
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           Aside from Australia, mezzanine application
           is limited
              Selected Asia Pacific transaction capital structures

                                                         Asia ex Japan
                                                                       Sr. Debt     Sub. Debt   Equity and other


                                                             41%             36%         40%        37%            44%

                                                             59%             64%         60%        50%            56%

                                                                                                    13%

                                                             Haitai       Mercury       Wongs       ASAT        Asia
                                                                                                               Printers




                Japan                                                                            Australia/NZ
                           Sr. Debt     Sub. Debt     Equity and other                                     Sr. Debt      Sub. Debt     Equity and other

                                                                                                     31%        26%           30%         31%        32%
                     83%              45%             65%              39%
                                                                                                     15%                                  13%
                                                                                                                   74%        8%                     29%
                                                                       11%                                                                58%
                                      55%                              50%                           54%                      62%                    39%
                     7%                               24%
                     10%                              11%                                          Bradken     Penrice       Pacific     Repco     Amatek
                   AmLead             Tocalo        VictoriaCo        ICS Inc                                                Brands


              Source: JPMorgan, publicly available information
              ASAT and Amatek’s sub debt are high-yield notes issues
              Repco’s sub debt is a subordinated retail notes issue
                                                                                                                                                            11
W01/3316




           Asia Pacific LBO transactions parameter
           summary

               Senior debt tenor                                                     Leverage – Debt/EBITDA
               Years                                                                 Times                                      Senior debt
               8                                                                                                        4.3         4.2
                       7.0                              7.0        7.0       7.0
               7                                                                                             3.6                                3.1
                                                                                        3.0
                                            6.0
               6                  5.5                                                              2.2
                                                         6.0                                                            3.3
                                                                                                                                    3.6
               5                            5.5
                       5.0       5.0                               5.0      5.0
               4
                     Haitai     Mercury    Wong's      Bradken   Pac Dun    Tower       Haitai   Mercury   Wong's     Bradken     Pac Dun      Tower
                                 Corp      Circults              Brands    Records                Corp     Circuits               Brands¹     Records




               Initial loan spread (US$ LIBOR)                                       Coverage – EBITDA/cash interest expense
               bps                                                                   Times
               400      375                                                                                                                     6.2
               350                                                          325
                                   310        298
               300                                       275       275                   3.6
                        300        300                                                             3.6                  3.0
                                              288                                                            2.7
               250
                                                                                                                                    N/A
                                                         225       225      225
               200
                       Haitai    Mercury    Wong's     Bradken   Pac Dun Tower         Haitai    Mercury   Wong's     Bradken    Pac Dun       Tower
                                  Corp      Circults              Brands Records²                 Corp     Circults              Brands¹      Records

           1   Pac Dun Brands leverage ratio is based upon 2002E EBITDA; coverage ratio not available
           2   Tower Records loan spread is based on TIBOR and not the US LIBOR
                                                                                                                                                        12
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           Will the Asia Pacific LBO market continue to
           develop?

            Demand                               Supply
             World class private                 Non-core assets
              equity sponsor                       divestments
             Steady flow of                      Low market valuations
              regional funds

                                     Favorable
                                      market
                                      outlook
            Liquidity                            Environment
             Regional and                        Increasing profile of
               international banks                 LBO’s
             Local and US$                       Economic & credit
               funding                             cycle



                                                                           13

				
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