Medium-Term Notes

White Paper & General Information on Medium-Term Notes

By: Manny Singh, Esq. and Laurence S Isaacson 6/5/2020

Our company’s expertise lies in the structuring of the money raised through debt or equity. We specialize in creating Customized Structured Financial Solutions. We suggest/structure solutions based on the needs of the Developer/Issuer/Borrower (“Borrower”). Each deal is, therefore, customized.

The Medium-Term Note (“MTN”) is a type of alternate debt financing that can be for real estate, contracts, power purchase agreements, large infrastructure type projects, and large construction deals. It can be also be done for a New Project or an Acquisition. The MTN is a corporate bond secured by all assets of the Borrower.

 The Borrower entity needs to bring in expertise, team, project, and the ability to pay the coupon. The deal has to make sense. Borrowers and Issuers are the same parties and are used interchangeably in this document.

This type of raise is generally for entities that have (or are acquiring assets) that have recurring income.

An MTN is an alternative financing instrument to raise large and small sums of money in an interest-starved environment and especially in the current circumstances of the world.  

Advantages of an MTN:

MTN’s are flexible in its terms with some of the following advantages and features:

1.      This alternative financing method has much less onerous terms, conditions, and documentation than traditional financing methods.

2.      The Issuer does not need the large “down-payment” (like in traditional financing). The Borrower only has to come up with less than 2-3 percent of the total project.

3.      This is debt offering based on cash flow, team, and ability to pay and not valuation.

4.      The maturity and other issue terms can be structured to suit specific Borrower requirements, which allows Borrowers to respond quickly to “windows of opportunity”.

5.      No personal guarantees are required from the Borrowers.

6.      Rate is fixed at issuance for the duration of term at the time of issuance of the bonds.

7.      This type of raise can be done for a new company also.

8.      An MTN Program Debt offering has flexible terms of up to 10 years.

9.      The instruments can be issued in any currency (no currency devaluation risk). The preferred currency is US Dollars or Euros.

10.  The ability to offer Borrowers tailor-made solutions with respect to issue size, coupon structures, or maturity preferences allows Borrowers to achieve lower overall funding costs.

11.  The Borrower also has flexibility over the number of notes to be issued at any one time (in tranches) and MTN documentation makes issuance in smaller amounts economically viable over time.

12.  These MTN’s are sold to Institutional Bond Investors and not Individuals or banks or family offices.

Key Information:

 Nominal down payment:

The Borrower may not need to bring more than a small down payment. In traditional financing, the lender requires 20%-30% or more of cash participation. In this type of financing, the Borrower may not need to bring in a large down payment but does need to bring in the recurring revenue project, assets, expertise, team, and ability to pay the costs and escrows. The Valuation of the assets is not as important as the ability to pay.

 The minimum funding requirement:

Minimum Fundraising is usually US$10 million (“$”) or more in the United States and Canada and €15 million or more for deals outside of the US.

The costs are approximately the same for a S$10 Million raise or $100 million raised (other than commissions and some variable costs).

The Time to complete the Offering:

The whole process takes an estimated 60 to 90 days to complete (dependent on the market, timing, and related factors).

Coupon Rate:

The coupon rate is usually recommended by the Placement Agent and Bond Dealers (“PA/BD”) that will sell the MTN (both are duly licensed in their jurisdictions) and is dictated, among other things, by the buyer, the market, the currency and is negotiated by all parties. Most of the time these are set for one year LIBOR plus 300 to 600 basis points (at the time this was written up, the one year LIBOR was only 12 basis points, (one percent is equal to 100 basis points-you can check the rate on Google).

The rates will be higher if issued in local country currency. The rate once set and when bonds are sold becomes fixed.

Success Fees and Costs:

The choices for success fees and costs are listed in Exhibit A.  The costs depend on the amount of the raise, circumstances, market factors, and requirements of PA/BD, such as rating fees and audit costs. The approximate amounts will be part of the Term Sheet. These figures can be lower if you already have the audited financial statements, feasibility studies, valuation reports, and other required documentation. The costs are also lower if Borrower is a public company.

Breakup Fee for the benefit of Originator - Escrow Required:

There may also be a requirement for a refundable breakup fee to be placed in an escrow account upon the signing of the Term Sheet. The escrow amount is deal dependent and ranges from 1 to 3 percent.

Success Fee for the Originator (“Originator or Author”) :

The success fees for the Originator will be negotiated with the Borrower and is a cash fee and a portion of the equity at funding. Please review Exhibit A for Originator Success Fee choices for doing the MTN.

 The Five Stages to Funding:

Stage 1: Introduction and Indicative Term Sheet (“Term Sheet”)

·        We need an Executive Summary (“Summary”) of the company. The company has to be able to show that they can pay the coupon on the MTN’s for 3 to 10 years. We will give you the recommended format and help you tweak it.

·        Once we have a Summary, we may ask questions and may request other documents including assurances/proof that if qualified you will have the ability to pay the expenses and refundable deposits of doing the MTN

·        After that, we have a phone call with the principals and other involved parties to introduce what we can do. We will give you as much information as possible before the call.

·        After the call, we have an internal meeting of the main partners to see if we can set up a structure and want to take the project on.

·        If it is a yes, then we present it to the PA/BD that will eventually sell it and to industry experts for a “soft yes”. If it is no, we may explain and give alternatives.

·        If it is a yes, we will verify the ability to pay the expenses and the refundable deposit.

·        Once we have satisfactory proof, we will issue a Term Sheet that will be sent to all parties to review and discuss and to consult their experts.

·        After that, we will request a conference call with all the parties to discuss what we can do, reasonable expectations, and respond to any questions on the Term Sheet.

·        Depending on the time and prevailing travel issues we will ask the principals to come to meet us to discuss the details, compatibility, and whatever else that is not clear.

·        We also determine the compatibility of the people involved, as this process can consume several months of everybody’s time. Not only does it take time, effort, and money to go through the pre-Term Sheet process, but we also have to make sure that the payday is there for all of us at the completion of the funding.

·        The time for this part of the process is about one week from receipt of an acceptable Summary of the Project.

 Stage 2: Legal Documents preparation, business model feasibility, financial due diligence, hiring of professionals, and hiring of Rating Company.

Once the Term Sheet has been signed and we have been engaged, we will go forward.

·        The first steps are to set up the proper structure in a friendly jurisdiction and to streamline the process, getting the required documents, the story, and other information necessary for funding of this project.

·        Simultaneously we will engage the PA/BD to start advising us on the market, the ratings required, the soft selling of the MTN, guiding us on what will be needed, what the market wants as a return, and what will it take to sell the offering.

·        One of the first determinations is whether we need a rating company or just the insurance wrap or both. An insurance wrap helps get a better rating.

·        Hiring of a Rating Company and to get their requirements to issue the Rating and co-ordination to get it done as soon as possible.

·        Simultaneously engage the professionals necessary to do the audits, the financial forecasts, and financial projections.

·        The audit and the ratings take the most time.

·        Hire the legal firm to put the debt offering documents together.

·        Simultaneously an audit or some sort of verification of the current business model, the feasibility of the proposed business model/project, financial projections, and financial due diligence report has to be prepared. If you already have one we will review.

·        This part takes about one to two months to complete, however many of these tasks run concurrently.

Stage 3: Rating, Issuance, Insurance wrap if needed, listing, reporting company registration

The following steps are usually done based on recommendations, consultation, and cooperation with the PA/BD.

·        The next is the most suitable rating companies (Rating Companies, such as Moody’s and others) review the offering prospectus and analyses based on the seasoning of the management, governance, operations, and financial results together with the Credit History before issuing the Ratings on the MTN. (Efficient use of the MTN market increasingly requires that Borrowers have an international long-term investment-grade credit rating BBB-/Baa3 upwards).

·        Getting the Rating Report takes the most time, but it cannot be done unless they have all the information they need to give the rating.

·        The next step is the insurance wrap (usually needed in new projects or deals). Getting an insurance wrap negates the use need for a rating many times. It is also sometimes cheaper to get, further, does not require payment before the closing. Insurance wrap fees are paid from the closing.

·        After that step, what exchange to list the MTN on (one of the better Exchange’s for listing is Bourse de  Luxembourg Exchange as it has access to Euroclear and other Clearing Systems for Banks and Buyers)

·        Then selecting the reporting companies like Bloomberg.

·        This process could be a month-long however many of these steps run concurrently.

Stage 4: Fund Raising

Even though the MTN is soft sold all along, after all the paperwork and filings are done, now comes the money raise from Institutional Investors by the PA/BD with the help of Originator and Borrowers team. We go to the same PA/BD that gave us the soft yes and the guidance listed above, to get the MTN offering sold.

Stage 5: Liquidity Event for the Issuer

All the money raised is escrowed with Placement Agent and depending on the structure or the funding, it is released to the Borrower upon issuance of the MTN (closing). Usually, it is done when settlements are finalized by the Placement Agent after the MTN’s are issued and paid.

Exhibit A-Choice No. 1:

(requires escrow deposit of refundable breakup fee of Y%

of the face amount first tranche plus $250,000 to $350,000 expense deposit)

 No upfront retainer fee due.

X% cash commission on Total Placement of the MTN Program.

One percent cash commission on Placement of the MTN Program.

Negotiated Equity of the “value add” we bring or cashless warrants.

Originator will:

·        Review transaction, project, and due diligence.

·        Hands-on supervision of the whole process.

·        Hiring of legal advisors, syndicators, issuing agent, transfer agent, registrar, broker/dealers, placement agent, rating agent, and wrap insurance company.

·        Determining the required documents, the story, and other information necessary for the offering.

·        Determine and hire an appropriate law firm for the offering documents.

·        Setting up the proper corporate structure in a friendly jurisdiction for the special purpose vehicle.

·        Hiring of law firm for that jurisdiction.

·        Identify and Engage the PA/BD and work with them to coordinate the placement.         

·        Engage the bond dealers and working with them to start pre-selling the offering.

·        Identify and hire rating agency, get their requirements to issue rating and co-ordination.

·        Determine insurance wrap, identify, and get requirements for quotes.

·        Hire Insurance Company for wrap insurance.

·        Engage the professionals necessary to do the audits, the financial forecasts, and financial projections.

·        Hire the legal firm to review the debt offering documents for listing jurisdiction.

·        Verification and tweaking of the business model.

·        Review the feasibility of the business model/project.

·        Review of financial projections.

·        Get financial due diligence report prepared.

·        Determine what exchange to list the MTN on.

·        Selecting the reporting companies and getting the document listed.

·        Fund Raising co-ordination with PA/BD for the Institutional bond buyers with the help of the Borrowers.

·        Presentations and roadshow as necessary.

All expenses to be paid by the neutral escrow agent/paymaster from expense deposit is invoiced or incurred, (All figures are estimates and are given just for information purposes only. Some of these may not be needed) for the following expenses:

·        Processing fees-Estimated to be between $5,000 and $7,500.

·        Legal, Accounting, Professional and Consulting fees for review of financial statements, use of funds, forecasts, feasibility studies tax returns, projections, project review, feasibility review, appraisal, contracts, environmental impact, governmental permits, background and credit checks of key players and on-going professional fees-estimated-$50,000 to $100,000.

·        Feasibility/Valuation Study-(if necessary) estimated to be between $15,000 to $25,000 (if you already have one, it may be usable and/or could be updated for a lesser fee)

·        Site visit fees of the project (if necessary)-Estimated to be between $5,000 and $15,000.

·        Borrowers Auditing/Accounting Fees- Estimated to be between $5,000 to $25,000 (if you supply, Originator, may have to get it reviewed).

·        Legal Fees for the preparation of Offering Documents for the country of listing estimated to be between $10,000 and $15,000.

·        Rating Fee-Estimated to be between $50,000 to $100,000. Some companies are now charging a percentage of the face amount.

·        Placement Fee of PA/BD-Estimated to be between $25,000 to $100,000.

·        Underwriting Fees- Estimated to be $25,000 to $75,000.

·        Exchange Registration Fees-Depends on the Exchange- Estimated to be $25,000 to $50,000.

·        Reporting Company’s Registration Fees TBD (like Bloomberg-Depends on the company) up to $25,000 to $50,000.

·        Road Show expenses (as necessary)-Estimated to be up to $25,000.

·        Other related professionals and parties to be paid as needed and deemed necessary

Exhibit A-Choice No. 2

(No Escrow Fee Required)

Total Engagement Consulting  Fee $x00,000

X% cash commission on Total Placement of the MTN Program 

Negotiated Equity of the “value add” we bring or cashless warrants.

Total engagement fee is paid as follows:

$100,000 consulting retainer due on signing and $100,000 for the next xxxx months for a total of XX months which all covers:

·        Legal expenses

·        Audit revisions

·        Prospectus document preparation

·        Syndicate related expenses:

                                                     i.     Underwriting fees (if any)

                                                    ii.     Placement and Other Document Fees

                                                  iii.     PA/BD Fees

·        Professional and Consulting fees for due diligence, review of financial statements, use of funds, forecasts, feasibility studies, tax return, projections, project review, appraisal, contracts, environmental impact, governmental permits, background, and credit checks of key players.

·        Professional Fees of legal advisors, syndicators, issuing agent, transfer agent, registrar, PA/BD

Originator will:

·        Review transaction, project, and due diligence.

·        Hands-on supervision of the whole process.

·        Hiring of legal advisors, syndicators, issuing agent, transfer agent, registrar, PA/BD, rating agent, and wrap insurance company.

·        Determining the required documents, the story, and other information necessary for the offering.

·        Determine and hire an appropriate law firm for the offering documents.

·        Setting up the proper corporate structure in a friendly jurisdiction for the special purpose vehicle.

·        Hiring of law firm for that jurisdiction.

·        Identify and Engage the PA/BD and work with them to coordinate the placement.         

·        Engage the bond dealers and working with them to start pre-selling the offering.

·        Identify and hire rating agency, get their requirements to issue rating and co-ordination.

·        Determine insurance wrap, identify, and get requirements for quotes.

·        Hire Insurance Company for wrap insurance.

·        Engage the professionals necessary to do the audits, the financial forecasts and financial projections.

·        Hire the legal firm to review the debt offering documents for listing jurisdiction.

·        Verification and tweaking of the business model.

·        Review the feasibility of the business model/project.

·        Review of financial projections.

·        Get financial due diligence report prepared.

·        Determine what exchange to list the MTN on.

·        Selecting the reporting companies and getting the document listed.

·        Fund Raising co-ordination with PA/BD for the Institutional bond buyers with the help of the Borrowers.

·        Presentations and roadshow (as necessary).

Direct Pass through of all bills for disbursement, to be paid by Issuer as invoiced or incurred, for the following expenses:

·        Exchange Registration Fee                       

·        Rating Fee

·        Feasibility Study (if necessary).

·        Travel and roadshow (if necessary) expenses

Disclaimers and Other Terms and Conditions

1.   This White Paper Informational Article (“Article”) does not constitute an offer of securities in any jurisdiction and is provided solely for informational purposes and is not to be construed as a solicitation, recommendation or an offer to buy or sell any MTN’s, transferable deposits or other securities or related financial instruments and should not be treated as giving investment advice.

2.   This Article is not intended for and must not be distributed to private individual investors in the US.

3.   The MTN’s mentioned in this Article will not be registered under the US Securities Act of 1933 and may not be offered, sold, or resold in the US or to a US person.

4.   This Article has no regard to the specific investment objectives, financial situation, or particular needs of any specific recipient.

5.   Prior to entering into this type of transaction, recipients should consult with their own legal, regulatory, tax, business, investment, financial, and accounting advisers to the extent that they deem necessary.

6.   The Borrower needs to make their own decision regarding the suitability of this MTN based upon their own judgment and upon advice from such advisers as they deem necessary and not rely upon any view expressed by the Author, related companies, and their respective directors and employees.

7.   The Originator and related companies and their respective directors and employees are not acting as advisers to Borrowers and do not assume any duty of care in this respect.

8.   The Originator and its related bodies corporate and/or their directors, officers, and employees or clients may, from time to time, have or will invest in related financial instruments.

9.   This Article is confidential and for your private information only. It is subject to the copyright of the provider or any of its affiliates or group companies and no part of it may be reproduced or distributed without providers' consent.

10.  The Author does not represent or warrant that this Article is accurate or complete and, to the extent permitted by applicable law, does not accept any liability whatsoever for any loss arising from any action taken in reliance on the content of this Article.

11.  The provider of this Article is not your designated investment adviser. If you are in doubt as to any aspect of this information, you should consider obtaining independent professional advice.

12.  The Author of this Article is not a registered US Broker-Dealer, nor licensed to buy and/or sell securities.

13.  The costs listed here are estimates only. The actual costs may be higher or lower.

14.  All amounts quoted are in United States dollars.

15.  All matters referred to in this Article are handled on a best-efforts basis by Originator.

16.  All-time aspects in this Article are estimates only and cannot be relied upon.