Debt

Question 1

What are some different sources of equity you can finance a project with?

Answer 1

Retained earnings
Partners shares
Rights issue
Shareholder loan

Question 2

Describe the term real estate financing.

Answer 2

The term generally used to describe an investor’s method of securing funds for an imminent deal.
It is the long-term financing of an independent capital investment, which is a project with cash flows and assets that can be distinctly identified.

Question 3

What is a syndicated loan?

Answer 3

Is a loan extended by a group of financial institutions to a single borrower.

Question 4

Rank the sources of financing by seniority - from most to least senior.

Answer 4

Short-term senior debt, long-term senior debt, subordinated/mezzanine debt, and equity.

Question 5

What are the types of senior short-term debt?

Answer 5

Factoring, confirming, and receivable discounts.

Question 6

What are the types of senior longer-term debt?

Answer 6

Bilateral loan, syndicated loan, project finance.

Question 7

Securing financing can be done in 2 types of markets. Which 2? Name some examples.

Answer 7

Public and private.
The public can include an IPO, bonds, and note programs.
Private can include various types of private equity and debt.

Question 8

Describe corporate financing.

Answer 8

Bilateral leading or Syndicated / Club
Deals for corporate and investment needs.
* Financing industrial projects and business
expansion, corporate
acquisitions, LBOs, MBOs, take-over financing, debt restructuring, forward Start Facilities, and backup facilities.

Question 9

Describe Project and Asset Finance.

Answer 9

Specialized Lending
deals to finance renewable energy projects (wind, hydro-electric, thermos, solar), infrastructure projects (transport,
roads, hospitals), hotels.

Question 10

Describe Global Trade Finance

Answer 10

Focused on Export Financing design, as well as financing projects located outside Spain, with the support of an Export Credit Agency (ECA), Private Insurance Companies, and special programs.

Question 11

Describe Residential Development Finance.

Answer 11

Build to Sell residential Financing projects. Residential development for real estate companies where all residential units are planned to be sold.

Question 12

Define the difference between a sponsor and a borrower.

Answer 12

A sponsor is an investment fund, PE, or a family office. A borrower is an SPV (Special Purpose Vehicle) that has no other assets or income-producing sources. The SPV is further split into an OpCo (generates income and has a lease to PropCos assets) and a PropCo (only has assets).

Question 13

What does GLA mean?

Answer 13

It refers to the gross lease area, the surface or units to be rented.

Question 14

Define what each of these parties do in the real estate value chain:
Shareholders, fund managers, asset managers, property managers, and facility managers.

Answer 14

Shareholders own the fund.
Fund managers decide where and how much to invest.
Asset managers decide on strategies (buy&sell, buy&lease).
Property managers take care of daily operations (insurance, taxes, rents are being paid).
Facility managers take care of the actual property (oversee maintenance, security, and cleaning).

Question 15

Who is a bookrunner?

Answer 15

The principal underwriter or lead coordinator overseeing an initial Offering

Question 16

Who is an MLA?

Answer 16

Mandate Lead Arranger: Entity that determines the terms and conditions when structuring a syndicated loan in such a way as to make them attractive to lenders

Question 17

What is the upfront fee?

Answer 17

The structuring fee for structuring the financing.

Question 18

What is the commitment fee?

Answer 18

The fee the developer pays to show it is committed to getting the financing. A fee on the undrawn loan amount paid prior to the first withdrawal.

Question 19

What is the agency fee?

Answer 19

It is the fee payable to the agent that is coordinating parties in the syndicated loan.

Question 20

Define LTC and LTV and assess which one is better under different scenarios.

Answer 20

LTC - loan to cost, the proportion of loan to the total investment amount. Less easy to manipulate, more frequently used.
LTV - loan to value, the proportion of loan to the total property value estimated by the appraiser.
Easy to manipulate, depends on yields. Good for stable income properties.

Question 21

What is DSRA?

Answer 21

Debt Service Reserve Account. The reserve account is annually updated with the minimum cash required with the purpose of covering coming Debt Service commitments in case the company is running out of cash.

Question 22

What is DSCR?

Answer 22

Debt Service Cover Ratio. Defined as the ratio between Generated Cash Flow and Debt Service
Debt Service: for a given period, the amount of interest and fees generated by the Senior Debt, plus the Senior Debt principal repayments.

Question 23

What is ICR?

Answer 23

Interest Cover Ratio. Defined as the ratio between Generated Cash Flow and Interest Service (grace periods or Bullet structures).

Question 24

What are the 3 ways to hedge against an increase in interest rates?

Answer 24

Interest rate swap (IRS), Collar, and Cap.

Question 25

Describe the IRS hedging strategy.

Answer 25

IRS transforms a floating interest rate into a fixed one. There are no premium payments, only positive or negative settlements depending on the interest rate movement.

Question 26

Describe the collar hedging strategy.

Answer 26

Rates will fluctuate within a tunnel, that is, they will have a floor and a ceiling. It involves buying a put and selling a call ( a right and an obligation). No premium payment, but both positive and negative settlements.

Question 27

Describe the cap hedging strategy.

Answer 27

The interest rate will be capped with a ceiling, but there is no floor (which is beneficial). For that reason, a premium must be paid. Only positive settlements (only a right).

Question 28

What does CFIMITYM mean? Explain.

Answer 28

Cash flow is more important than your mother. Before providing financing a cash flow analysis is performed for the entire financing (underlying) period to assess whether debt can be repaid.

Question 29

Describe the stages of the underwriting process.

Answer 29

The client requests financing.
Preliminary review (debt sizing).
Indicitative term-sheet.
Detailed analysis (Credit Paper Proposal).
The Bank Credit Committee needs to approve.
Binding Term-Sheet.
Closing (Senior Facility Agreement, guarantees, legal DD, valuation, fee letter).