Vantage Debt Capital Markets (“Vantage DCM”) is the debt advisory business of the group. It has as its main focus the raising of long term debt for corporates from institutional investors such as asset managers, insurance companies, pension funds, strategic investors and family offices. This includes both private placements as well as publicly placed instruments of both investment and sub-investment grade.
Vantage DCM offers debt advisory and tailored debt solutions to optimise a company’s capital structure as well as target a reduced overall cost of funding. Vantage DCM acts as agent and allocates the debt to investors on a “best-efforts” basis.
Vantage DCM covers all the South African institutional investors and has a strong international reach covering the major international investors in Europe.
Southern Africa is the company’s core geographic focus and the business strives to bring Southern African issuers to the various domestic and international capital markets.
Vantage DCM will focus on senior debt opportunities or high yield opportunities that do not meet the requirements of the Vantage Mezzanine Fund. The business will complement the Vantage Mezzanine Fund where the Fund is providing the mezzanine debt tranche and requires a senior debt tranche to be raised. Our core products include:
- Corporate bonds
- Hybrid bonds
- Credit linked notes (CLN's)
- Convertible notes
For corporates seeking to raise funding for acquisitions, expansions, leveraged buy-outs, dividend recapitalisations, or refinancing of existing debt obligations, Vantage DCM would recommend the type and structure of debt to be used as well as the terms such as interest rate, maturity, profile, and covenants, that it could be secured in the market. Vantage DCM would then act as the placement agent and book runner to issue the debt and sell it to investors on the best possible terms.
With the current reserving requirements imposed on commercial banks, debt can typically be raised in the debt capital markets at lower rates than those offered by commercial banks. Debt raised in the debt capital markets generally also has less stringent covenant requirements and generally does not require amortisation. The interest-only requirement of bonds allows corporates to raise larger volumes of debt in the debt capital markets. Debt raised in the debt capital markets also has the attribute of increasing the corporate’s profile in the market and establishing its track record with investors for future debt issuances.
What value can Vantage DCM provide to an Issuer?
Vantage DCM can assist the Issuer with the following:
- Providing all the necessary analysis around credit risk as well as how much debt can be raised and at what costs and terms.
- Providing all the necessary analysis.
- Recommending an optimal debt structure which targets the lowest cost of funding.
- Assisting the company in the preparation of its public or private placement term sheet.
- Assisting the company in structuring the placement and its terms and conditions.
- Listing the securities on a recognised stock exchange where applicable.
- Establishing a term note program which can be utilised to tap further issuances if required.
- Arranging for the securities to be credit rated where required.
- Identifying potential investors, selling them the company’s story and furnishing them, on behalf of the company with the placement term sheet.
- Arranging road-shows.
- Assisting the company in negotiating the financial aspects of the placement.
- Building the book and then pricing the debt based on the demand.
- Ensuring the company’s proposed pricing is reasonable by constantly monitoring levels at which a variety of bonds with different maturities and ratings are being quoted.
Typical clients will include both publically listed and privately owned corporations as well as private equity and leveraged buy-out funds. These companies will typically have the following attributes:
- After-tax profits in excess of R75 million ($10 million);
- Sound historical financial performance and stable, predictable earnings and cash flows;
- A strong shareholder of reference;
- An ability to service the interest and capital repayments with a significant part of its earnings converting into free cash on a normalised long term basis; and,
- Reasonable security in the assets of the company.
What transactions will Vantage Debt Capital Markets avoid?
Vantage DCM will avoid the following types of businesses:
- Junior mining businesses;
- Loss-making businesses unless the debt is guaranteed by a substantial corporate or government;
- Businesses that are not compliant with any applicable laws; and,
- Underwritten deals where Vantage DCM is required to act as principal and buy the debt before reselling to investors.
What types of transactions will Vantage DCM target?
Vantage DCM will target the following types of issuances where large levels of debt are required:
- Acquisition and Expansion capital - Vantage DCM can assist companies in raising debt to acquire other businesses or expand existing ones.
- Leveraged and Management buy-outs - Vantage DCM can assist private equity funds or management teams in raising high levels of debt relative to EBITDA with lighter covenant requirements than would be required from a commercial bank for leveraged and management buy-outs and buy-ins. The targeted lower cost of funding helps to enhance the economics of the transaction for the shareholders and Private Equity investors.
- Refinancing - Vantage DCM can raise debt to refinance existing debt that is maturing or refinance existing more costly debt (that over time has now reduced in risk) with cheaper debt.
- Leveraged recapitalisations - Vantage DCM can assist companies in issuing bonds and utilising the proceeds to buy the company’s equity or pay dividends. This reduction in equity can also be done to make a company less vulnerable to a hostile takeover.