Case Study Chase’s Strategy for Syndicating the Hong Kong Disneyland Loan
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 different structures. The report ends with an assessment of the final results of Chase’s general syndicated leading in October 2000. 1.Winning the First-round Bidding In April 2000, Disney, acting on behalf of Hong Kong International Theme Parks Limited (“HKTP”)1, invited 17 major banks to bid on its HK$3.3 billion financing for the construction of the HK$14 billion Hong Kong Disneyland theme park and resort complex. Chase has three options in approaching the first-round bidding: bid to win, bid to lose, and no bid. However, before selecting the bidding strategy to win the mandate, Chase needs to carefully evaluate the risks and returns of the syndicated credit facility. Risk-Return Analysis As for returns, the prospective high-profile deal can help maintain Chase’s relationship with its important client-Disney. Additionally, Chase can enhance its reputation as a top Arranger for the syndicated finance in the Asian market, given its limited performance in the region (Appendix 1). Last but not least, the prospective high-profile deal can improve Chase’s league table status and bring enormous profits in terms of underwritten fees, closing fees and so on. On the risks side, there are primarily two risks: credit risk and
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 different structures. The report ends with an assessment of the final results of Chase’s general syndicated leading in October 2000. 1.Winning the First-round Bidding In April 2000, Disney, acting on behalf of Hong Kong International Theme Parks Limited (“HKTP”)1, invited 17 major banks to bid on its HK$3.3 billion financing for the construction of the HK$14 billion Hong Kong Disneyland theme park and resort complex. Chase has three options in approaching the first-round bidding: bid to win, bid to lose, and no bid. However, before selecting the bidding strategy to win the mandate, Chase needs to carefully evaluate the risks and returns of the syndicated credit facility. Risk-Return Analysis As for returns, the prospective high-profile deal can help maintain Chase’s relationship with its important client-Disney. Additionally, Chase can enhance its reputation as a top Arranger for the syndicated finance in the Asian market, given its limited performance in the region (Appendix 1). Last but not least, the prospective high-profile deal can improve Chase’s league table status and bring enormous profits in terms of underwritten fees, closing fees and so on. On the risks side, there are primarily two risks: credit risk and