Case Study: Chase’s Strategy for Syndicating the Hong Kong Disneyland Loan (A)
Case Study: Chase’s Strategy for Syndicating the Hong Kong Disneyland Loan (A)
Q1. How should Chase have bid in the first round competition to lead the HK$3.3 billion Disneyland financing?
1.Three ways to approach this deal
1) bid to win, 2) bid to lose and3) no bid. Chase chose to bid to lose on the first round, but just enough to make it to the short list. Also, since Chase is one of Disney's relationship banks, Chase would not want to ruin this relationship by not bidding on their project.
If Chase wanted to lead the competition from the first round, they should have made a bid that was more aggressive and aimed to win. This bid would have been closer to the desires of Disney, making them more appealing and increasing their probabilities of leading the financing. However, they chose to bid to lose, with just enough terms to get into the second round to "protect their reputation", but not to lead. The deal started to become more attractive with the possibility of Disney awarding a sole lead arranger mandate and with the increased potential for a successful syndication. At this point, after Chase made it through the first round, they decided on a more aggressive final proposal where they would be very close to meeting most of Disney’s demands in order to win the deal.
2. Standard Commitment Letter
The standard commitment letter established by Chase for the Disneyland project would have the following terms:
1. HK$300 million loan.
2. 15-year maturity.
3. A provision that allowed repayments to start as late as three years after opening.
4. Chase would underwrite the full amount.
5. Underwriting fee between 100 bp and 150 bp
6. Pricing: Initial spread of 100 bp over HIBOR, stepping up to 125 bp in year six and to 137.5 bp in years 11 to 15.
7. Allow Disney to use operating cash flow for expansion (capital expenditures).
8. Includes covenants requiring minimum debt service coverage ratios.
9. Standard "Market flex provision" clause:
Q1. How should Chase have bid in the first round competition to lead the HK$3.3 billion Disneyland financing?
1.Three ways to approach this deal
1) bid to win, 2) bid to lose and3) no bid. Chase chose to bid to lose on the first round, but just enough to make it to the short list. Also, since Chase is one of Disney's relationship banks, Chase would not want to ruin this relationship by not bidding on their project.
If Chase wanted to lead the competition from the first round, they should have made a bid that was more aggressive and aimed to win. This bid would have been closer to the desires of Disney, making them more appealing and increasing their probabilities of leading the financing. However, they chose to bid to lose, with just enough terms to get into the second round to "protect their reputation", but not to lead. The deal started to become more attractive with the possibility of Disney awarding a sole lead arranger mandate and with the increased potential for a successful syndication. At this point, after Chase made it through the first round, they decided on a more aggressive final proposal where they would be very close to meeting most of Disney’s demands in order to win the deal.
2. Standard Commitment Letter
The standard commitment letter established by Chase for the Disneyland project would have the following terms:
1. HK$300 million loan.
2. 15-year maturity.
3. A provision that allowed repayments to start as late as three years after opening.
4. Chase would underwrite the full amount.
5. Underwriting fee between 100 bp and 150 bp
6. Pricing: Initial spread of 100 bp over HIBOR, stepping up to 125 bp in year six and to 137.5 bp in years 11 to 15.
7. Allow Disney to use operating cash flow for expansion (capital expenditures).
8. Includes covenants requiring minimum debt service coverage ratios.
9. Standard "Market flex provision" clause: