Mezzanine Financing of Credit Suisse

1
Mezzanine Financing of Credit
Suisse
CONFIDENTIAL

• Urs Peter Gauch
• 16th March, 2006

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Content

• Mezzanine in between equity and debt capital
• Use of mezzanine financing
• Credit Suisse's product offer
• QA

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Gap in financial market product range
assets
liabilities
debt capital

• Sufficient senior credit facilities in the market
  offered by banks
• Equity financing needs covered efficiently by the
  capital market
• Mezzanine as a new financing alternative

mezzanine
equity
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Positioning of Mezzanine
standard loan
mezzanine
equity
Economically
equity
debt capital
equity
Legally
debt capital
debt capital
equity
no tax-deductibility, subject to capital tax
Tax implications
usually tax-deductible interests
tax-deductible interests
Co-determination financing partner
direct co-determination
no direct co-determination
no direct co-determination
Maturity
4 - 5 years
5 - 8 years
long-term
Due-date
maturity loan
indefinite
to be determined
Intended use
contractually determined
not determined
not determined
usually secured through i.e. pledge
Securities
without securities
without securities
Financing object
investment financing
growth and succession financing
risk capital
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Mezzanine - a advantageous substitute for equity
interest p.a. ()
private equity
20
Step-Up 15
CSA Mezzanine
10
current account
PREPS
secured loan
no tax deductibility
tax deductibility
economic equity
debt capital
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Content

• Mezzanine in between equity and debt capital
• Use of mezzanine financing
• Credit Suisse's product offer
• QA

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Use of mezzanine financing

• equity base cannot sustain
  expected
  turnover growth

• mezzanine complements equity capital and creates
  growth opportunities

growth

• acquisition price cannot be generated through
  equity and loans
• mezzanine closes the financing gap

• Payoff of partner should be done through an
  equity capital reduction
• mezzanine helps compensate equity loss

mezzanine
change of partner
acquisition
optimize balance sheet structure

• despite high profitability
  unstable bank relationship
  due to lack of
  equity base

• mezzanine strengthens the equity base and
  stabilizes creditors

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Content

• Mezzanine in between equity and debt capital
• Use of mezzanine financing
• Credit Suisse's product offer
• QA

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What is CSA Mezzanine?

• CSA Mezzanine is a specifically created asset
  class of Credit Suisse investment foundation
• The idea was developed by Credit Suisse and CSA
  to facilitate Swiss Small and Medium Enterprises
  (SMEs) the access to economic equity capital and
  risk capital respectively
• Simultaneously CSA Mezzanine offers the Swiss
  pensions funds the possibility to invest into the
  SME-market

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CSA Mezzanine structural overview
KMU
Credit Suisseinvestmentfoundation
Pension funds
(borrower)
(Investors)
subordinated loans
Funding
(creditor)

• Mezzanine decision
• Administration (extern)

Erwerb Anspruch
interest, Fees
CSAM

• Credit Suisse
• (Servicer)
• Deal Sourcing
• Financing analysis
• Portfolio management
• Rating (Moody's)
• Administration

CSAM
Credit Suisse
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CSA Mezzanine Factsheet loans

• Mezzanine Issuer Credit Suisse Anlagestiftung
  (Assetgroup CSA Mezzanine)
• Mezzanine deptor Focus on Swiss SME with turnover
  of about CHF 10m into maturity-, growth-,
  vendingphase excluded amongst others
  reorganizations, Start-Ups
• Credit Risk Investment grade equivalent credit
  risk
• Reasons e.g. Expansion, succession/MBO,
  reorientation
• Form Subordinated loan
• Single volume CHF 0.5 5.0m
• Maturity 5 8 years
• Amortization When due, no amortization during
  maturity
• Participation No direct participation on
  company's result

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PREPS Preferred Pooled Shares The European
issuing platform for SME
EUROPEAN CAPITALMARKET
Capital Efficiency Group AG (,CEG) runs an
European issuing platform where medium sized
enterprises can finance themselves indirectly
within a larger group of companies on the
international bond market
PREPS 2005-2
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PREPS operating mode
Single Ratings
Agreement
Portfolio Rating
Placement
Moodys, Fitch
JPM, HVB, CS
Moodys RiskCalc, Partner Bank
Company 1
Mandate
Investor 1
Bundling to portfolio foundation special purpose
entity
Senior Note
Company 2
Mandate
Investor 2
Company 3
Mandate
Investor 3
Company n
Mandate
Subordinated Junior
Private Indiv
Company m
Mandate
Private Indiv
Company l
Mandate
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Development of interest rates by capital market
based Mezzanine financings
PREPS has optimized the traditional existing
price level
Traditional mezzanine financings
COST ADVANTAGE FOR SME
PREPS 2004-1 7.9
interest rate
PREPS 2004-2 7.5
PREPS 2005-1 6.8
7 years Euro interest Swap
Source ÖNB, CEG
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Preferred Pooled Shares (PREPS) a new market
2005 - 2
2005 - 1
PREPS
2004 - 2
2004 - 1
PREPS 2005-2 is a logical continuation of the
three transactions, that established the PREPS
program
62
51
No. of companies
67
34
360
313
Transaction volume in m EUR
616
249
D, A, CH, B, I
D, A
Countries
D, A
D
6.8-7.1
6.80
Interest rates
7.50
7.90
3
3
3
2
Bonds
MoodysFitch
MoodysFitch
Rating agency
MoodysFitch
Moodys
HVB, CS, JPM
Issuing banks
HVB, CS, JPM
HVBCS
HVB, CS, JPM
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Why is PREPS interesting for medium sized
enterprises?
PREPS fulfills all desirable criteria at an
attractive price

• Enlargement of the investors base
• No change in franchise and ownership
• No participation on assets or capital gain of the
  company
• Attractive price at fixed interest rates in EURO
• Equity related financing in a banks point of view
• Tax-deductible interests and costs
• Long term related without orderly right of
  cancellation
• Rolling Financing or follow-up financing possible
• No securities and restriction in intended use

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Leading bank for corporate clients in Switzerland
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Content

• Mezzanine in between equity and debt capital
• Use of mezzanine financing
• Credit Suisse's product offer
• QA