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LPC Law Notes Finance and Capital Markets Notes

Banking Consolidation Notes

Updated Banking Consolidation Notes

Finance and Capital Markets Notes

Finance and Capital Markets

Approximately 204 pages

A collection of the best Capital Markets and Loans* notes the director of Oxbridge Notes (an Oxford law graduate) could find after combing through dozens of LPC samples from outstanding students with the highest results in England and carefully evaluating each on accuracy, formatting, logical structure, spelling/grammar, conciseness and "wow-factor".

In short, these are what we believe to be the strongest set of Capital Markets and Loans notes available in the UK this year. This collection is...

Available here

The following is a more accessible plain text extract of the PDF sample above, taken from our Finance and Capital Markets Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Reasons for Banking

¿Why borrow money?

To make money

¿Why Lend?

To make money

¿Why banking matters?

Because people want to make money

Main issues in Banking

First issue:

¿Will the lender get its money bank?

Second issue:

¿Will the borrower be able to make payments when due?

These two issues are the RISKS that the client wants to identify, reduce, manage and eliminate. Everything we did in banking has to do with making sure that these RISKS are dealt with:

Dealing with the risk:

1. Identifying the risk

  • From Lender’s point of view = Due diligence

  • From Borrower’s point of view = ¿Is it sound and for the benefit of the Co. to borrow?

2. Protecting against the risk

  • Reduce the risk to acceptable levels

  • Manage an on-going risk

  • Eliminate unacceptable risk (including not lending)

Bank Loans v Bonds

  • They fundamentally do the same thing, the risks are “in principle” the same

  • The difference are in “scale” and “practicality”

    • Scale = bonds are used for larger amounts (if Co. needs 100s of millions use a Bond, if Co. needs 10s of millions use a loan). Bonds are more expensive to set up therefore they are only economic when raising substantial funds.

- Banks are reluctant (or unable) to lend very large sums because:

a) are required by law to keep a certain amount of money in their accounts

b) the risk may be to high, or

c) because they do not have all the money

- there are more bondholders than banks in a syndicate – so the borrower is spreading the risk as well as the lenders (don’t have to lend large sums).

- Practicality = bonds have very different dynamics:

- Terms are set by the issuer (subject to market advice) not the bank

- No detailed negotiations with bondholders

- No relationship with bondholders

¿Why use a bond? – there are many more potential bondholders willing to invest than banks willing to lend large amounts.

OVERVIEW of BANKING

Unit Topic Risk Objective What it comprises
1

Due diligence

Loans = Banks always do them

Bonds = typically in the form checking the credit ratings of the Co. (AAA or BB)

 Managing the Risk and Identifying/spot risks

Identify the risk:

- Company search – is the borrower company well managed and properly run?

- Business activities – does the borrower co. have a good prospect for future earnings? Do they have enough contracts? Do the contracts have a break/change of control clause?

- Environmental and reputational issues – because the co. has a big problem with contaminated land. The reputation of the co. is bad or is threatened by massive law suits.

- Anyone about to sue them?

If security is to be taken – is it of high value? Is it good?

Once that the risk has been Identified what is going to do next?

- Condition Precedent? (See below WS 6)

- Representation or Covenant?

- repeating or one-off?

- Re-work contractual definitions? i.e. changing the definitions to adjust to potential risks

- Financial Covenants? i.e. make sure that the management of the co. is going smoothly and if something smells fishy the bank can take action. FC have two purposes:

1 to control the borrower’s fiscal behaviour and

2 to trigger an event of default if finances worsen.

These can be used to fulfill purposes 1 and 2.

- minimum net worth

- current ratio/acid test

- EBITDA (i.e. a gross earnings rating)

- Cash-flow tests, etc
2 Financial...

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