Chases Strategy for

Syndicating the HK Disneyland

Loan
Group A5:
Parvathy Rajan PGP/17/100
Divya Thomas PGP/17/140
Leah Zacharias PGP/17/150

Chases Standard Commitment Letter

Terms of the Loan:
Loan tenor= 15 years
Repayment moratorium= 3 years
Permitted ongoing capital expenditure using operating cash flows without putting cumbersome
covenants in place; hence greater freedom to sponsors to expand
Agreed to underwrite entire amount of loan

What Chase wants in return:

Pricing:

Minimum Debt Service Coverage ratios as decided

Standard Market Flex provision/ Standard Clause

Standard Clause: Whats the fuss?

Contents:

IF because of
changes in the HK
Dollar market..

Syndication could
not be completed

Chase can, in
consultation with
Disney and HK
Govt. change any
or all of these to
ensure complete
syndication

Structure- how
much is subunderwritten, etc

Amount of the loan

Pricing- spread over

LIBOR/HIBOR for
each classification

Disney, Chase and the Standard Clause

Why Disney dislikes the clause
While Chase has undertaken to underwrite the
entire loan amount, any untoward change in the
HK Dollar market would trigger an event (which is
entirely out of the control of either of the parties)
which would change the terms of the deal

In essence, this potentially renders the 100%

underwriting pointless- if there are no takers in the
bank market because of changes in the HK Dollar
market, the syndication could be restructured

Negotiating: Finding a middle ground

Should Disney sign the agreement?

Yes, Disney should sign the clause considering that:

Chase has never had to invoke this clause in

the Asian market even in financial crisis of
1997-99

Given current market conditions, the Hang

Seng Index shows strong growth after the crisis

The trigger for the clause is in the HK Dollar

market, which has been keeping steady at
~HKD 7.5 to USD 1 for the past 5 years

Given that the clause completely invalidates the complete underwriting deal, the two parties can
negotiate the terms of restructuring in case of dire market consitions

Syndication Strategies
Strategy
Chase- Sole Mandate
Sub-underwriting- Yes
# of tiers= 5
# of banks= 15

Final hold positions

1 Mandated Lead Arranger= $300
4 Lead Arranger= $300
4 Arranger= $250
4 Co-Arranger= $150

Chase: Exposure

Disney: Comments

Lower exposure for Chase

as compared to sole
mandate without subunderwriting

Chases league table

numbers could be
affected;
Underwriting fee will be
forgone

Disney would have to

settle for many banks with
smaller commitments

Greatest degree of
exposure, compensated
by underwriting fee and
will also boost league
table status

An even larger syndicate

than the joint mandate
with smaller commitments

Administrative costs are

min.
Have to deal only with one
bank

2 Lead Manager= $100

Chase+2 --> Joint Mandate

Sub-underwriting- No
# of tiers= 4
# of banks= 18

3 Mandated Lead Arranger= $300

Chase- Sole Mandate

Sub-underwriting- No
# of tiers= 4
# of banks= 21

1 Mandated Lead Arranger= $300

4 Arranger= $250
6 Co-Arranger= $150
5 Lead Manager= $100

4 Arranger= $250
8 Co-Arranger= $150
8 Lead Manager= $100

Selecting a Syndicating Strategy

Considering the interests of both parties, the
strategy with no sub-underwriting could be
adopted:

From Disneys point of view

Would prefer awarding sole mandate

with sub-underwriting, but with a
smaller number of banks

From Chases point of view

A joint mandate would affect league
table numbers and loss of
underwriting income; instead, a sole
mandate would increase exposure
Disney awarded Chase sole mandate

For Chase- Credit and Syndication risks are

higher compared to other strategies but the
same is compensated for by greater returns

The next point of decision making- Local banks

should be included because:

For Disney- Involvement of local banks would

mean greater political support; also a signal to
other banks of deal quality

Exchange rate fluctuations will have lower

impact because local banks raise and will lend
in HKD