Report from the webinar – “Private Debt in Poland as a form of financing. Structuring the transaction.”

On July 1, 2020, a webinar was held on how to finance enterprises in the form of debt and a hybrid of debt and certain features of equity capital, i.e. generally speaking – mezzaine. These forms of capital supply from the investment side and are also a very profitable way of allocating free financial resources of individual and institutional investors. The meeting was very practical, thanks to the participation of professional entities from the capital market like Prosper Capital Dom Maklerski S.A. and Mount TFI S.A., in this webinar.

The meeting was started very precisely at 11.00 am by Mr. Sylwester Wybranowski, President of the Association’s Board, who on behalf of the Association’s Board welcomed all participants, guests and partners of the meeting. The partners then also presented their operational and business activities. The Brokerage House was represented by Mr. Radosław Jodko, who is a Member of the Management Board responsible mainly for the sales division, and on behalf of Mount TFI S.A. Mr. Michał Ferenc, an outstanding manager of debt investment funds.

When it was time for the presentation, the lecturer initiated the meeting with a few definitions that were necessary to understand the whole lecture. These terms were derived from the capital structure of the company and included sub-groups of financing that span the spectrum from classical senior debt to classical equity. We then went on to explain these definitions with examples of company balance sheets. Here we were able to find out how Unitranche financing is created and how it differs from Mezzaine financing. In addition, we got to know the form of collateral that can be established for a loan company.

In the next stages of the training, the subject classes of assets were discussed from the angle of risk and profitability, how the assets under management in Private Debt funds look like, or the goals of incurring this type of debt. An important conclusion was that Mr. Michael stemmed from historical data as well as his vast experience, “debt class type Private Debt characterized by attractive returns and relatively low standard deviation of annual returns from the asset class.” From an analytical point of view, this can be interpreted as follows: these asset classes can offer attractive investment premiums over the long term as the risk premium offsets historical investment failure.

Then Mr.Michał described the details of the realities of his work at Mount TFI S.A. ie negotiations with issuers, determining investment details through the Term Sheet, investment approval scheme by the investment committee, what the historical project pipelines looked like, how to structure the transaction by understanding the issuer’s capital group, what are the stages of the investment process. All these aspects are very important from the point of view of the source of the bond repayment and the security of the fund and the money invested by investors.

In the following minutes, Mr. Michał presented the basic errors in the analysis of the company’s balance sheet and profit and loss account (including the so-called “asset pumping”, the quality of the receivables portfolio or off-balance sheet liabilities). Attention was also paid to soft data in the company’s analysis, such as the quality of the management board and shareholders. This information was presented on the example of specific issuers operating on the debt market and listed on the Catalyst WSE.

In the following slides, Mr. Michał talked about the mistakes in “establishing security”. The problems of hardening collateral, minority shares, no voting rights, no power of attorney or the real value of the collateral at the time of issue and during the life of the issue (especially at buyout) were discussed.

During the next slides, Mr. Michał went through the practical aspects of structuring the transaction. Exemplary Term Sheets (TS) were discussed, as well as TS analysis through the prism of including it in the transaction and the potential issuer. In addition, the advantages and disadvantages of the most popular securities that we can see in the structuring of Private Debt transactions were discussed. We could also find out which protections are generally better in the opinion of Mr. Michał and which have hidden imperfections.

Finally, Mr.Michał referred to the aspects of the coronavirus and his opinion on the impact of the virus on the types of financing and the prospects of the debt market. Then Mr. Radosław and Mr. Michał referred to the participants’ questions and finished the lecture.

In the future, there will be further “investment” meetings where practical details of the functioning of Corporate Finance and the support of “business” thanks to capital markets will be discussed. In this way, we will want to satisfy the hunger for knowledge caused by this training. However, if any urgent questions regarding the presentation arise, please contact us at the following e-mail address:

Thank you for participating

The Management Board of the Association together with Prosper Capital Dom Maklerski S.A. and Mount TFI S.A.

Private debt PCDM Private debt PCDM PRESENTATION