HK Disneyland

Question 1

What is the Sponsors’ Motivation to raise $423m of non-recourse bank loans?

Answer 1

Disney: aiming for international growth; theme parks have the highest operating margin ratio; third biggest revenue stream
HK Government: increase tourism attractiveness after recession; Project would generate new jobs; creating social activities; increase tourism

Question 2

Describe/ explain the decision CMB had to face regarding a bid on the project.

Answer 2

• 3 ways to approach a deal: bid to win; bid to lose; no bid
• CMB decision: Bid to lose → to protect its reputation; if it happened to win the mandate, it would have to be on terms that met the banks earnings thresholds

Question 3

Describe the syndication process.

Answer 3

• Assess the Loan’s credit issues: including Disneys term sheet (as close as possible)
• Decide to underwrite the full amount
• Commit to an underwriting fee and interest rate spread (analyze comparable transaction + adjustments)
• Develop a preliminary syndication strategy
• Add some creative features

Question 4

Name the possible options regarding the syndication strategy.

Answer 4

Option 1: Sole mandate: Fully underwrite the deal: sole mandate lead arranger; 4 banks as sub-underwriters with lead arranger titles
o Advantages for Disney: Administrative simplicity (only has to deal with one lead bank)
o A. for Chase: reduced underwriting risk; possibly easier syndication given the sub-underwriter support
Option 2: Joint Mandate: Chase and 2 other banks would share a joint mandate and a joint underwriting commitment
o Requires only 2 additional underwriting commitments instead of four prior to the general syndication
o Sharing league table status; giving up two-thirds of the underwriting fee

3 relevant decisions: sole mandate vs. joint mandate; fully underwritten vs. best effort; general syndication vs. sub-underwriting + general syndication

Question 5

What are the benefits of having few banks with large ownership positions vs. many banks with small ownership positions?

Answer 5

Few Banks with large ownership:
- Less amount of arranging and operational load
- Less risk by having sub-underwriter
Many banks with small ownership:
- High amount of arranging and operational load
- More profit for the underwriter and the highest tiers

Question 6

What (in general) is meant by a syndicated loan?

Answer 6

• the process of syndication unites a group of banks under a common set of documents for the purpose of providing credit to a borrower (investment banking)
• syndicated loans mark one of the largest sources of capital in the world
• a syndicated loan is a loan that is provided to the borrower by two or more banks, known as participants, which is governed by a single loan agreement.
• structured by the arranger and managed by an agent