Case Study Chase’s Strategy for Syndicating the Hong Kong Disneyland Loan

2771 Words Oct 10th, 2011 12 Pages
Case Study Chase’s Strategy for Syndicating the Hong Kong Disneyland Loan Analysts: Bian Min, Luo Min, Wang Hongyu, Zhu Haidong

Syndicated loan, with two or more bank lenders and a single set of legal documents, have gained tremendous popularity among corporations to finance their projects. This report aimed at evaluating the process by which Chase Manhattan Bank (“Chase”) syndicated the HK$3.3 billion Hong Kong Disneyland financing. To begin with, a detailed analysis of the first-round bidding concerns will be provided, followed by a discussion on the ‘market flex’ terms in the standard commitment letter. After that, alternative syndication strategies will be examined, supplemented with the risk-return trade-offs of
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Disney, who is paying for a fully underwritten in order to avoid such risk, would certainly find this clause undesirable. Chase’s Compromise From Chase’s perspective, we believe the ‘market flex’ provision is not the only way to address underwrite risk that arises from market volatility. To successfully arrange the loan and maintain good relationship with the borrower Disney when Disney is exceptionally concerned about this clause, compromises can be made to remove this clause, or to alter it in a way that the possible changes would be clipped in a certain range. Many financial instruments such as interest rate swap or interest rate cap can be utilized to hedge Chase’s interest risk, so that when the spread required by the market increases, its hedging activities can still provide spread high enough to attract syndicating lenders. In fact, Disney and Chases did go through a negotiation to guard their own interest, and an agreement was reached between them in the end regarding the ‘market flex’ provision. They both compromised, as Disney was willing to accept this provision to be included in the commitment letter and Chase agreed to alter the specifications such that if the clause applies pricing is allowed to vary within 25bp while amount is not. Comparison with Market Adverse Change Clause However unfavorable the ‘market flex’ provision is to the borrower, it is still quite different from ‘material

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