SW 7-9 Flashcards
Debt-Equity Swap: What is that?
- liabilities are transferred into equity
- economically: debt position is reduced and new equity is created
- legal perspective: debt-equity swap is a cap. increase with contribution in kind (offset)
- controversial before if legal: issue should be regulated with the new revision of the Swiss Code of Obligations
Non performing loans
FINMA Defintion (name all 5)
- 90 days unpaid interest
- 90 days overdue amortization
- 90 days credit overdraft
- breaking of financial covenants
- granting special conditions due to financial difficulties
What kind of taxes does exist in Switzerland? (4 levels)
- indirect vs. direct
1. Federal
2. State(Cantonal)
3. Commune (Gemeinde)
4. Church
Difference between genuine restructuring gains vs. not-genuine restructuring gains
Genuine restructuring gains:
- represent taxable income
Not-Genuine restructuring gains:
- are tax neutral
- tax deductible (future) losses may still be off-set
Tax on capital increase
- generally subject to Swiss Stamp Tax -> Capital Issue Tax
- tax rate: 1%
- Capital increase costs are deductible (including the tax itself)
- a tax relief may be granted
- no income tax applicable
What is an A-fonds-perdu-payment?
- payment goes directly into reserves
= third party who is givig the money, doesn’t receive anything (no shares, no certificates, etc.)
- a payment that is lost
A-fonds-perdu: tax
-> why is it relevant, who the payments do?
Possible payers:
- shareholder
- affiliated companies (angeschlossene Firmen)
- third parties
* *Shareholders and affiliated companies**:
not-genuine/restructuring gains
Third parties (unrelated):
genuine restructuring gain
A-fond-perdu: What is the triangle theory?
- in case of affiliated party’s payment (siehe Bild -> Tochterges. B zahlt etwas an Tochterges. A
- contribution which are not at arms-lenght
a) transaction is considered a concealed dividend from sister comp. to parent comp.
b) then considered to be a concealed capital injection from the shareholder to the company - > be sure to not run into this triangle issue!
A-fonds-perdu: What is the VAT (Value Added Tax)?
Payments from Third parties (not shareholders or affiliates -> here issue tax)
-> VAT: payments from third parties are considered as “donations” and are subject to input tax reductions
Capital reductions: tax
- Capital reductions are efforts by the shareholders and therefore treated as a grant
- issue tax payable
- tax relief possible (if you ask for it)
revaluation: tax
- are considered as a genuine restructuring gain
- > it will reduce future ability for taking tax deductions
subordination agreements: tax
- not a problem for Swiss tax purposes
- may be an issue for a German parent company issuing a subordination agreement with a Swiss company
- > German tax consequences to be considered (consult with German tax expert)
Debt-Equity Swap: tax
- transaction leads to new equity
- > issue tax
A-fonds-perdu-payments: What are the consequences for the grantor (the one giving the money)?
non deductible capital loss (= nicht abzugsfähiger Kapitalverlust)
Loan agreement: there are 2 types of contracts
- Loan agreemnents
- > timing bereits vorher vereinbart - contract on opening credit lime
- > Kontokorrent
contract for a loan
(Pflichten der beiden Parteien nennen)
- > Agreement between bank and client
- > Pflichten Bank:
transfer money
- > Pflichten client:
1. accept the sum
2. pay interest
3. repay the sum at a predefined time
contract on opening a credit line
- > agreement between bank and client
- > Pflichten Bank:
provide funds up to limit
- > Pflichten client:
1. payment of interest
2. payment of fees
3. repayment of amounts due
What are the formal requirements for loans?
per law:
- no requirements (freedom of contracting)
- possible per oral agreement or based on implied intent
in practice:
-> normally written form, for evidence
What are the contents of a loan agreement?
- Form of debt (Fester Vorschuss, Kontokorrent, Festkredit, Hypothek?
- Limit/ loan amount
- mutual rights and obligations (e.g. amortization, termination, etc.)
- “use for…”/ purpose
What are covenants? (loan agreements)
- > clauses in contracts
- > many cases: financial covenants also other covenants
- > if breach (Verstoss) -> lender can terminate the contract (beenden/künden)
Examples of covenants other covenants
- change of ownership
- if company is sold to another shareholder, with this covenant you can terminate the loan contract
- no further indebtedness
- Pari Passu
- almost any bank contract
- you want to have the same conditions than any other lender (at least the same conditions)
- no granting of collaterals
- no assets should be put up as a collateral, withouth the acceptance of the bank
- Cross default clause
- if one of many bank contracts is violated, every contract is violated
- “MAC” -> material adverse effects
- if anything changes materially, you could get out of your contract
Example of covenants: financial (mainly ratios)
- Financial ratios
- level of equity
- minimum cash
- debt factor, etc.
-> Measured regulary
What is a Pricing Grid?
- > the more risk a bank has with his client, the higher are the costs for the client (margin)
- > example (screenshot): the higher the debt factor = the higher the risk for the bank = the higher the interest rate
Security Assignment: Construct Principle
- pledger (Verpfänder) transfers to the pledgee (Pfandgläubiger) the mortgage notes for fiduary (treuhänderisches) title holding
- additional agreement on the use (Sicherungsvereinbarung)
What are some other collaterals?
Shares
- all rights are transferred
Accounts Receivable
Social Security Funds (2nd pillar)
- not to be pledged
Insurances
- only individual insurance policies
- Life-insurance -> Re-purchase value
Risk Map:
Diesen 4 Risiken sind alle Ug ausgesetzt:
- Financial Risk (FX, Interests, Funding)
- Business Risk (R/D, Organization, Internalization)
- Event Risk ( War, Natural disaster, Regulatory)
- Operational Risk (HR, Technology, Supply Chain)
Non-Performing Loan
1. Defintion (finma)
2. Result
- 90 Days unpaid interests
- 90 Days overdue amortization
- 90 Days credit overdraft
- breaking of financial covenants
- granting special conditions due to financial difficulties
–> es muss nur eine der aufgezählten Bedingungen zutreffen, dann muss Loan abgeschrieben werden
Risks in TM for Banks:
Early detaction is key.
How? (3)
- IT Systems (behavioral monotoring)
- yearly review process (Reporting requirements in contract)
- compliance (MLD)
Specific Banks Risks (6)
- Credit Risk (!)
- Country Risk
- Liquidity Risk
- Market Risk
- Operational Risk
- Model Risk
The Risks in Lending (2)
- Counterparty
- Default Risk
–> Lending wird auch Commerical Banking genannt
Turnaround-Instrument:
Name one Instrument that have a very good shorterm impact but a negative impact in the longterm
- Restructuring Loans
Turnaround-Instrument:
There are two Instrument which are very postive in the shortterm and very positiv in the longterm (je 2 Daumen nach oben)
(2)
- Cancellation of claim
- Purchase of Interst (equity stake) –> Cash contribution
Banks and liability issues in TM
(5)
The banks should/don’t want to do this
- Taking of Equity Stakes
- Role as Restructuring
- Defintion of the turnaround concept
- retardation of bankruptcy
- engravement of the solvency situation
Alternative to banks in TM-Situations?
(5)
platforms / crowdfunding
supplier financing
distressed loans investors
funds
private equity investors
