CORPORATEBANKINGIRELAND 2012

INSIDE:- The ‘go-to’ banking

products and services

identified

- Leading corporate

banking provider

profiles

- Capital markets

opportunities for Irish

companies

- How to create a ‘cash

culture’

SPECIAL REPORT OCTOBER 2012

Even as soon as 2050, 19 of the top 30 economies by GDP are forecast to be countries that we currently describe as ‘emerging’.*

HSBC was established to fi nance and facilitate the growing trade between China and Europe.

That’s why we have Trade and Supply Chain teams on the ground in the major and emerging trading economies all around the globe, helping you make new business connections and navigate local regulations. So when you are thinking of emerging markets we can provide all the support you need.

For more information log on to www.hsbc.ie or call (01) 635 6000.

*Source: HSBC ‘The world in 2050’

In the future, there will be nomarkets left waiting to emerge.

Issued by HSBC Bank plc. AC22830 HSBC Bank plc, trading as HSBC Corporate & HSBC Corporate Banking Ireland, is authorised and regulated by the Financial Services Authority in the UK and is regulated by the Central Bank of Ireland for conduct of business rules. HSBC Bank plc is registered in England No. 14259. Registered Offi ce: 8 Canada Square,London, E14 5HQ, United Kingdom. The Irish branch is registered in Ireland. Registered Offi ce: 1 Grand Canal Square, Grand Canal Harbour, Dublin 2. Registration number 904230.

Contents4 Round Table: Leading corporatebankers on key issuesFinance Dublin's questions provideinsights into current lending conditions,and the thinking and views on corporatefunding and banking possibilities fromthree of the foremost banks in the Irishcorporate banking landscape.

5 How an Irish company beat theworld this year in raising low costfinanceRyanair’s ‘outside the box’ funding at1.74 per cent, almost as low as USA Inc.

6 Bonds will play a bigger part incorporate funding options in thefuture: we asked a leading Irishbond expert to discuss thepossibilities

The return of the sovereign to the bondmarkets, along with the ESB, and itsimplications is discussed by GlasSecurities' co-founder Fergal O'Leary

8 Overview: Bank debt, andsecurities options available to majorIrish corporates

HSBC's Alan Duffy looks at the widevariety of financing structures available,analysing the different forms of loansand paper issuance, including privateplacement market, and the rated andunrated bond markets

9 Public Equity: The Irish Stock Exchange hosted aconference in Dublin’s NationalConvention Centre last month on theadvantages of raising public equity forIrish companies, and other financeoptions. Finance Dublin reports

10 Corporate Advertising Profile:Danske Bank in Ireland:Building on the historic platform ofNational Irish Bank in Ireland, DanskeBank’s corporate banking team set outtheir plans for servicing Irishcompanies

12 Corporate AdvertisingFeature: Bank of Ireland The Bank of Ireland is supplementingits corporate banking strategy with afocused approach on harnessing itsresources to support FDI

14 Internal financing options:Deloitte's Stephen Nolan on internalstrategies such as divestments, revisionof loan facilities, and trade finance

15 ‘Pre-pack’ insolvencytransactions: Secured creditors andinvestors interested in buying the assetsof an insolvent company can now use'pre pack' structures to facilitate aspeedy transaction which preserves thevalue of the company's business, writeWilliam Fry's Fergus Doorly andMaureen Daly

16 Liquidity firstIACT founder member, PwC's JimmyDoyle, sets out an evangelistic treasuryagenda, with liquidity first

18 A Day in the Life John Gilsenan, managing director ofPorsche’s IFSC-based treasury operations

Ideas and strategies for securecompany finance

THE 'new normal' of restricted bank creditmeans that companies everywhere, andparticularly in jurisdictions with distressedsovereigns (such as Ireland), are facingunprecedented funding, or, more starkly put,liquidity challenges.Corporate Banking Ireland 2012 examinesthe options available to Irish companies,covering internal sources of liquidity, the fullgamut of credit, including 'outside the box'sources, such as vendor finance, trade credit,or, indeed, a new cash culture in corporatetreasury that 'evangelises the time value ofmoney' (to quote a contributor to our report).

The main core of the report howeverconcerns the options open under the headingof the various forms of bank credit, featuringthe analysis of leading figures from leadingbusiness banks in Ireland, in HSBC, Bank ofIreland and National Irish Bank- Danske,which outline the main options available,and their realistic practicability for differenttypes of Irish company. Bonds and equityfinance are the natural alternative to internaland organic sources and credit, and, IPOs,private equity, and, (a major area of interestparticularly for larger companies), the ratedand unrated bond markets, which offerinteresting options for those with thecapability to follow that route as part of abalanced strategy. A balanced, individually tailored, no-nonsense funding strategy needs to be in

place in every Irish company, large andsmall, as we go into 2013, and this reportprovides a veritable treasure chest of ideas tohelp inform it.

Corporate BankingIreland 2012Published by: Fintel Publications Limited, FintelHouse, 6 The Mall, Beacon Court, Dublin 18, Ireland.

Telephone: 293 0566 Fax: 293 0560

E-mail: editorial@financedublin.com

Websites: www.financedublin.com; www.finance-magazine.com; www.financejobs.ie

Published as a supplement of:FINANCE DUBLIN (ISSN 0790 8628 ) (c)(All rights reserved) ((Incorporating FINANCE (ISSN0790 8628)) (c) (All rights reserved)

Photographs (this page): two of Ireland’scorporate funding dealmakers: Top left:Michael O’Leary, whose Ryanair has justpulled off a $190 million notes deal at an all-infinancing cost of 1.74 p.c. and (top right),Paddy Power Plc’s CEO Patrick Kennedy,whose company has shown stellar returns onthe Irish Stock Exchange.

Corporate Banking Ireland 2012

This Special Report by Finance Dublin provides a comprehensive assessment of the options for corporatefunding, covering loans, other forms of credit, such as vendor and receivables finance, to securitiesissuance, to public equity, private placement, and bond issuance, both rated and unrated. The report alsocovers internal sources of cash and, importantly in present times, liquidity.

4 FINANCE DUBLIN | OCTOBER 2012

Seeking the best in class bankingsolutions for Irish corporates

Bank finance continues to play an important role whilecapital markets also offer important funding options In this roundtable discussion with three of the leading figures in banking in Ireland we ask leading bankers. Bank ofIreland’s Pat Gaynor, National Irish Bank/Danske’s Mark Caron and HSBC’s Alan Duffy for their thoughts on the corporatebanking services landscape. They identify strategies, products and services that can suggest solutions.

What do you think will be the mostimportant sources of finance for mid-sized firms over the next 2 years?

Pat Gaynor, managing director, Bankof Ireland Corporate Banking Ireland& UK: The answer to this question really

depends on what stage in its life cycle themid-sized firm is. If a company has agood track record and a sustainablecashflow in terms of EBITDA (EarningsBefore Interest Tax, Depreciation andAmortisation), then it can leverage up onthat cashflowthrough bank debt,be it by way ofoverdraft, invoicefinance or termdebt or acombination ofthese. Equity can form

part of the fundingstructure if requiredfor such companies(or can fund on itsown for others) and this is availablethrough the various venture capitalhouses or indeed the IPO route.Innovative businesses may also attractequity from new funds in the market suchas the National Pension Reserve Fundsupported SME Equity Fund or theproposed Development Capital Fundssupported by Bank of Ireland amongothers.Notwithstanding today’s continued

challenging times, good businesses withgood management teams and a goodmarket or sector position can still attractfunding from one or more sources.

Alan Duffy, managing director andIreland head at HSBC CorporateBanking: Those with strong relationship banks

will continue to be able to accesstraditional revolving credit, working capitaland/or term loan facilities. Receivablesfinancing is increasing in popularity andwill remain a viable financing option.There always exists the PP or unrated bondmarkets too.

Marc Caron, head of client advisory,National Irish Bank: Banks will remain highly important for

this sector as a source of funding. Whilelarger firms are likely to issue in theinternational bond markets in everincreasing numbers, this is unlikely to bean option for many of the mid-sizedcompanies. However, the new capital ruleswill mean that it will be more expensive forbanks to lend to these companies so someof the larger companies in this sector willalso look to the capital markets. It’s unclearwhere the equilibrium will be, but the netresult is that these companies will need tobe even more focused on managing theirfunding needs.

Are we seeing a rebirth of interest byoverseas venture capital firms in Irishcompanies?

Gaynor: There has always been a degree of

interest by overseas venture capital firms inIrish companies but this has typically beenat the larger end of the market with limitedappetite for medium sized opportunities.Historically, this space has essentially beenserviced by the domestic players such as

the Bank of Ireland Kernel Funds, NCBVenture Capital, Delta, TVC etc and thisremains the case. With the arrival, however,of initiatives such as The EnterpriseIreland/NPRF Innovation Funds, theattention of international VCs has beenattracted with three players - DJ F Esprit,Sofinnova and Polaris already on board andthree more to come. In addition the arrivalof Silicon Valley Bank (exact offering as yetunknown) is an indication of interest inIreland as a hub for innovative and fastgrowing companies with strong growthpotential particularly on the internationalstage.All of this activity bodes well for the

future.

Duffy: Certainly some sectors such as medical

devices, renewables and some foodingredients Irish companies are attractingoverseas interest.

Do you think that issuing corporatebonds will ever be a realistic option formid-sized Irish companies? Will thismarket develop over the next fiveyears in a similar manner toGermany's?

Gaynor: I have to confess that I don’t believe this

will happen in the short to medium term.

Pat Gaynor

“Those with strongrelationship banks willcontinue to be able to accesstraditional revolving credit,working capital and/or termloan facilities.”

Corporate Banking Ireland 2012 5FINANCE DUBLIN | OCTOBER 2012

The corporate bond market both on an Irishand indeed international scale is typicallyonly open to the larger rated entities and it’shard to see where the investor base for midsized Irish businesses would emerge from.As a pre-requisite to this developing, Ithink that a lot more mid sized businesseswill need to go the IPO route so that thereis a critical mass of companies andinvestors in this mid space and a trackrecord established of such companies livingin the ‘traded world’. However, one bond

type option that may be open to the largerend of the mid-sized world is the USPrivate Debt Placement market which asmall number of non quoted Irishcompanies have successfully tapped overthe years in addition to the many quotedones.

Duffy: It has been touted for a while now.If you look at the US model more funds

are raised in the bond markets thantraditional bank lending. It depends to adegree on the sophistication of the FinanceFunction which the company has. The PPmarket is worthwhile exploring as you canget long tenor and a wide investor base. Itsrelatively low maintenance.

Caron: It is a major

challenge, but thereis no fundamentalreason why it shouldnot develop. We haveseen a buoyantdomestic marketdevelop in some ofthe Nordic countriesas well, partially dueto both issuers andinvestors wishing to avoid currencyexposure but partially due to the resourcesthat the investors have directed towardsunderstanding these types of credits.

Do many of the applications for financeyou see from Irish companies seek alevel of debt that is not prudent?

Gaynor: It’s hard to generalise on this question

but this can happen quite often and

particularly where the company hasn’t an equity raising option open to it to runalongside debt or is reluctant to go thisroute. Bank of Ireland is genuinelylooking for new business and newcustomers but debt levels need to beappropriate for the size and nature of thebusiness. Growing businesses sometimesare aware of the quantum of funding theyneed but often confuse the equity anddebt element and again that is whereBank of Ireland can help with ideas.

Duffy: In a nutshell, no. finance directors and

CFOs for Irish mid to large sizecorporates are prudent and focused onmaintaining a healthy balance sheet.Boards are very much in this mindset too.

Caron: In general we see Irish corporates

maintaining relatively prudent balancesheets. There has also been animprovement in how they manage thecash resources in their companies, interms of working capital and cashmanagement, which has reduced theirfunding requirements somewhat.

What do you look for in a companyseeking finance?

Gaynor:Now that’s a question that we could

write a whole article on! In summary, it’sabout the obvious things - there needs tobe a strong and balanced managementteam with the appropriate mix of skillsand experience, the business needs tohave a good and clear offering with agood defendable market position,diversified in nature (be itproducts/services, customers,geographical markets and preferably allthree) and a good track record. Thecomposition of the board and theshareholder base can also be important. A key element at the outset is that the

company has a comprehensive business

plan incorporatingall of these elementsof their story, theirplans for the futureand the numbersaround theseincluding detailedfinancialprojections and theassumptions andsensitivities aroundthese.

Duffy: Experienced management, a

cohesive/robust business plan withprudent sensitivity analysis built in,steady cashflow, established track recordthrough the cycles.

It can be done: Ryanair’s‘outside the box’ exampleof recent Irish fundingsuccess

LAST month Ryanair closed one of themost attractive bond deals in the globalaviation industry’s history, let alone thatof Irish companies. The sale by Ryanairof over $190 million in “PrefundedNotes” backed by the US Export-Import Bank on September 6th, soldfor 1.741 per cent. These notes, a newdevice developed by Ex-Im are backedby the guarantee of Ex-Im, effectively aUS Government body, enabling theissuer to fund itself at the same rate asthe USA itself. The notes, due in 2024,will fund 7 Boeing 737s and was thelowest spread for a bond guaranteed bythe Export-Import Bank of the UnitedStates ever - a recognition also of theIrish firm’s rating in bond markets. Thetransaction was over three timesoversubscribed. The Ex-Im bank began backing bondsissued by airlines to refinance loanswhen the dislocation in credit marketsin the financial crisis meant manyairlines were unable to refinance. InMay of this year, Ex-Im went a stepfurther, allowing airlines to raisefinance for planes directly from themarket through Ex-Im guaranteedbonds. The bonds are described as 'pre-funded' as airlines can sell them beforethey take delivery of aircraft.

Marc Caron

Alan Duffy

“In general we see Irishcorporates maintainingrelatively prudent balancesheets. There has also been animprovement in how theymanage the cash resources intheir companies.”

“One bond type option that maybe open to the larger end of themid-sized world is the USPrivate Debt Placement marketwhich a small number of nonquoted Irish companies havesuccessfully tapped over theyears in addition to the manyquoted ones.”

Corporate Bonds6 FINANCE DUBLIN | OCTOBER 2012

Prior to July this year, the overallIrish bond market has seen limitednew issuance of any substance since

the country entered the EU/IMF aidprogramme in November 2010.The National Treasury Management

Agency’s (NTMA's) funding on behalf ofthe state in July amounted to €4.2 billionof net inflows to the country at an averagerate below 6 per cent for an average termof 6 years. This was followed in August bythe issuance of €1 billion of longer datedamortising bonds at an average rate of5.91 per cent. Irish Governmentborrowing from bond investors peaked in2009 when the country borrowed circa€33 billion. There has been no materialpublic issuance from Irish financials since2010 and limited public issuance fromIrish corporates also.Historically, Irish financials have

largely dominated corporate non-government issuance in Ireland. Irishbanks and insurance companies haveborrowed via senior unsecured bonds,subordinated bonds and covered bondissuance. Securitisation of residentialmortgages, commercial mortgages andleveraged loans also formed part of thefunding platforms for Irish banks beforethe on-going economic and financialcrisis began. As historical wholesalefunding has reduced or matured, it haslargely been replaced by governmentguaranteed senior unsecured issuance andincreased borrowing from the ECB.Following liability management exercises,future issuance via subordinated bondissuance or securitisation would appear tobe unlikely and the most probable form ofborrowing may take the form of coveredbond issuance, which are all currentlyrated investment grade.Semi-state companies such as ESB,

Bord Gais, Aer Rianta all tappedinternational bond markets prior to thecountry entering the EU IMF Programme.Last month, the ESB returned to thecorporate bond market to successfullyissue €600m 5 year bonds at a rate of6.25% which also carried a one-offcoupon step-up of 125bps in the event thecompany’s ratings fall below investmentgrade over the life of the bond. The bond

attracted stronginvestor demand andwas oversubscribedto the tune of 4times the number ofbonds on offer. Irish corporates

have historicallyused debt financingfrom the bondmarket inconjunction with borrowing via bothdomestic and international bank loans.With banks’ own cost of fundingincreasing substantially over recent years,borrowing from bond investors looksmore attractive economically and couldoffer more attractive longer termfinancing than that currently available tocorporates from direct bank borrowing. Itis worth highlighting that most bankscontinue to deleverage in a bid to reduceloan to deposit ratios to more manageablelevels.

High profile corporates such as CRH,eircom, Smurfit Kappa have been able toaccess bond market financing in the pastdecade. This has not been the case forsmaller, less well-known issuers who havebeen unable to access this source offunding due to a number of factors suchas the relatively low level of retaildomestic investors in Ireland; prohibitivecost of ratings; lack of focus frominternational investment banks to date;lack of transparent pricing platform.Rating agencies have a very important

role to play in international bond marketsas they are mostly perceived as being an

independent verification of any issuer’sability to repay its debts in a timelyfashion. While most investors’ reliance onratings assigned by the main agencies hasreduced in recent years, a corporatewithout a rating would find it virtuallyimpossible to raise financing from thebond market at reasonable levels in thecurrent environment. S&P and Fitch bothassign BBB+ Negative Outlook to theIrish sovereign. Moody’s currently ratesthe Irish sovereign Ba1 and assign aNegative outlook to the rating also. Lastmonth, Moody’s lowered the local andforeign currency bond and deposit ratingceiling for Ireland from Aaa to A3. Thismeans that no domestic issuer or anystructure backed by Irish receivables canachieve a rating above this level. In theshort term, this is unlikely to have asignificant impact but in the next fewyears if Ireland’s ratings start to recover, abreak above that ceiling may be difficultto achieve. In the aftermath of the financial crisis

where sovereign and bank default risk hasincreased considerably, investor appetitefor corporate risk has increased. Inaddition, the current low interest rateenvironment, with negative yields in shortdated maturities of core Europeancountries, is forcing investors to seekalternative investment strategies in aneffort to achieve required returns.Corporate bond markets in some other

European countries such as Germany havethe benefit of a large retail investor basewho have a long history of investing in thecorporate bond market as opposed toequities, property or other cashalternatives.Ireland does not historically have a

similar investor dynamic where the lure ofpotential equity and property investmentreturns has historically overshadowed thepotential returns of corporate bonds.Perhaps with the downside risks beingbetter understood for equities andproperty over the last few years, corporatebonds may become more popular in thefuture.

Fergal O'Leary is co-founder of GlasSecurities.

Could Ireland develop a corporate bond market, likeGermany and some Nordic countries? The sovereign-dominated history of the Irish bond market is charted by FERGAL O'LEARY, co-founder of Glas Securities, abond market specialist adviser, as both the State, and more recently ESB, have returned to the markets. With thedownside risks of investing in equities and property now better understood by Irish retail investors, a corporate bondinvestor base for Irish issuance could conceivably emerge as investors look for alternatives.

“With banks own cost offunding increasingsubstantially over recentyears, borrowing from bondinvestors looks moreattractive economically andcould offer more attractivelonger term financing thanthat currently available tocorporates from direct bankborrowing.”

Fergal O’Leary

Building relationships,exceeding expectations

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Bank of Ireland is regulated by the Central Bank of Ireland.

At Bank of Ireland, we understand the importance of establishing solid, one-to-one business relationships that deliver results across a wide range of sectors.

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Padraig RusheDirector Bank of Ireland Corporate BankingTel: +353 (0)76 624 4607Email: padraig.rushe@boi.com

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The seismic changes which havetaken place in global financialmarkets since 2008 have resulted in

a sea-change in how lenders are engagingwith their clients and originate newtransactions. By the same token, corporateclients are operating in a dramaticallydifferent space and those who havesurvived are thinking 'outside the box'when it comes to servicing debt andmanaging finance.In addition to macro-economic

instability, the eurozone crisis andregulatory pressures among other factors,the demand for credit and finance hasmeant that many corporate borrowers nowplace great stock in relationshipsdeveloped with lenders when doingbusiness. Established and tangible track-records are viewed more than ever aspivotal as the global economy drags itselffrom the gutter and sets about re-inventingitself.Overall, net lending continues to be

negative reflecting ongoing bankdeleveraging and expansionary capitalexpenditure. Boardroom confidence

continues to be relatively low althoughthere is recent evidence of someconfidence emerging on the mergers andacquisitions front, albeit with a focus ongeographical expansion.The US private placement market

continues to be conducive for new issuanceas underlying treasury yields are very lowand credit spreads are attractive. Althoughconditions are volatile, the high yieldmarket is also playing a big part, especiallyin the financing of mergers andacquisitions. From a loan pricing perspective we are

seeing the emergence of a number of keythemes regarding corporate loan pricing(which has widened in recent monthsacross the spectrum as we shall explore.)The unresolved sovereign debt crisis

continues to weigh on the capital markets

as demonstrated bythe stressed iTraxxlevels and theunsustainable yieldson sovereign debt.Whilst the long-termrefinancingoperation (LTRO)cash injections inNovember andFebruary served as atemporary fix for European banks,fundamental weaknesses in SouthernEurope still threaten the financial system,given the material exposure to sovereigndebt by the European banks. This negative economic backdrop, as

well as the heightened regulatoryenvironment, has led to banks’ creditmodels pricing in a higher probability ofdefault which has increased the cost ofcapital for corporate lending.The loan market saw a significant uplift

in margins and fees after the Credit Crunchand the failure of Lehman Brothers but thiswas more than offset by the impact ofexpansionary monetary policy initiatives tohelp revive growth in a strugglingeconomy. Margins throughout 2010 and2011 came under significant pressure asmany companies repaid debt rather thantaking on additional risk in the form ofdebt funded activity such as mergers andacquisitions.In the summer of 2011, we reached a

plateau in the corporate deleveraging cyclewith margins bottoming out. This wasfollowed by a deterioration in the eurozoneeconomy which has since culminated inmargins widening as increased fundingcosts fed through bank models and lossgiven default rates rose.Bank deleveraging and higher funding

costs has reduced euro bank participationsin transactions as the financial crisis anduncertainty around Europe continues toeffect bank liquidity.Since 2008, euro bank participations

have reduced significantly, coinciding witha downgrade in their credit ratings as wellas the sovereign rating. As a consequence,the number of lenders traditionally presentin syndicated and/or club facilities hassharply retrenched. Nonetheless, there isstill a significant level of activity in thisarea.A club or syndicated facility is typically

the preferred structure for lenders and the

borrower when there is more than onelender with an agent being required to actas the sub-contractor for the borrowerhandling the paperwork and administrationfor the lenders.There are obvious advantages to a club

facility including a single point of contactfor all requests through the agent bank.While one common document is in place,there is no dependence on one bank withmost decisions subject to majority bankvoting. Borrowers can raise funds morecheaply than bilateral engagement whileflexibility in structure and pricing oftenallow for multicurrency drawings andprepayment without penalty. It can allowaccess from a diverse group of financialinstitutions but this means it can be morechallenging to amend any terms andconditions.By contrast, a bilateral facility with an

institution means the client can mix theterms and maturities of each commitmentwith the lender responding to the borrowerdirectly. Lenders may be more flexible inbilateral transactions and the borroweravoids agency fees although this can beoffset by higher legal fees due to thenumber of different agreements. However,negotiating numerous documents withmultiple banks can be time consuming andinefficient, more monitoring may berequired if there are uncommon terms.Finally, inter-creditor agreement may alsobe required taking additional time andmoney with the company needing toadminister drawings of each facilityseparately on an ongoing basis.Well capitalised banks with stronger

sovereigns are however maintaining theirconsistent strategy of lending to corerelationships. Going forward, theimplementation of Basel III in 2013 islikely to materially alter how euro banksstructure acquisition financing and long-term structured loans which may reduceliquidity further.Given this backdrop, alternative sources

of debt financing for corporates shouldn’tbe ignored and we can look at someoptions in the table below.Bank debt offers the advantages of high

flexibility and a lower cost of funding thantypically available through non-banksources. However, it is shorter tenor andliquidity can be constrained by ancillaryincome available.Private Placement offers investor

Corporate Funding 8 FINANCE DUBLIN | OCTOBER 2012

Corporates have a wide variety of different sources of debtfinancing availableHSBC's Alan Duffy looks at the current state of the corporate financing market and the wide variety of financingstructures available to corporates looking to service debt and manage their finances.

Syndicate lending facility:“Borrowers can raise fundsmore cheaply than bilateralengagement while flexibility instructure and pricing oftenallow for multicurrencydrawings and prepaymentwithout penalty.”

Alan Duffy

Corporate Funding 9FINANCE DUBLIN | OCTOBER 2012

diversification, longer tenor funding thanbank debt but with equal ranking and norequirement for public ratings. On thedown side, early repayment terms can beonerous and an increased number ofstakeholders exists for borrowernegotiations.Schuldschein (German Private

Placement) offers similar advantages toUS Private Placement and provides leandocumentation under German law.However a local presence in Germany is

required for issuance.The Unrated EUR Bond market has

deep liquidity from a wide pool of newinvestors and one can revisit the market topossibly build out a curve but on the flip-side, it is more public than PP orSchuldschein and a premium is requiredfor unrated issuance which ranges from 50to 75 basis points.Public Bonds are the deepest and most

liquid source of debt finance anddemonstrate the financial strength of the

market to the company. They do however,require a rating which demands cost andmanagement time as well as increaseddisclosure requirements. Overall, in the current climate, it pays to

transact with an experienced bankingpartner with knowledge of these productsas well as the traditional product suite.

Alan Duffy is managing director andIreland head at HSBC CorporateBanking.

Bank Debt Private Placement Schuldschein Unrated EUR Bond Public Bond

Rating Not required Not required Not required Not Required Required

Size Parameters N/A USD75-500m EUR50-150m EUR250m+ EUR300m+

Flexibility High Medium Medium Medium Medium

Maturity 3 - 5 yrs 5 - 15yrs 3-7yrs 5yrs + 5yrs +

Relationship Lenders Yes Yes Yes No No

Pricing Low Medium Medium Medium Medium

Market Capacity Moderate High Moderate High High

Public equity: Irish companies should consider early IPOs The Irish Stock Exchange hosted a conference in Dublin’s National Convention Centre on the advantages of raising publicequity for Irish companies, and other finance options last month. FINANCE DUBLIN was there.

The advantages of initial publicofferings (IPOs) to Irish companieswere highlighted at an Irish Stock

Exchange's conferenc on growth fundingon the 26th of September. Chair Pádraig ÓRíordáin, a partner at Arthur Cox, as wellas panelists Pat Gaynor, managingdirector of corporate banking Ireland &UK at Bank of Ireland, Frank Kenny,founder of Delta Partners and SimonHowley, a director at Goodbody CorporateFinance, agreed that companies should beencouraged to go to the market at anearlier stage of their development, at asearly a stage when they need to raise aslittle as €5 or €10 million.Comparing the IPO environment in

Ireland to the success of AIM in the UK,Howley pointed out that IPOs ‘simplydon't crop up on small and medium Irishcompanies' funding agenda and thatgreater awareness needs to be builtconcerning the available options’. ‘InIreland there's been approximately oneIPO a year for the last 10/12 years and outof the 50 listed companies in this country,only 10 - 12 have a market capitalisationbelow €50 million. Yet over half of thecompanies listed on AIM, a total of 626companies, have a market capital below£25 million’, he said.According to Howley institutional

investors are always interested in goodquality medium sized companies becausethe growth prospects for such companiesare often more achievable - it is easier for

a company with a €10 million turnover todouble its revenues than for a companywith €100 million in revenues. Howeversome degree of scale is necessary; he saidthat a company should have at least €15 to20 million in revenues to attract investors.Predictability of earnings and a solid

track record is also important to adiscerning market, so preferably acompany should be profitable and earlystage companies will be less suitable. Acompany that can afford a growingdividend yield will also stand out. When amember of the audience asked what stepsa company should take when preparing foran IPO, all of the panelists emphasisedputting in place the right team with aproper board structure and managementthat has the capacity to deal with publicmarkets. It was noted that the time windows for

IPOs are very small. A company needs toensure it is prepared for when the time isright to float, which can last less thanthree months; 50 per cent of all IPOcapital raised in the US in 2011 was donein a period of seven weeks. The best timefor an IPO has traditionally been pre-summer and September/October. In avolatile market investors will wait untilthey are confident and conditions areright, and this can often be a very briefperiod. Once this happens a large numberof companies will often list at the sametime, striking while the iron is hot.Howley says that if Facebook's IPO had

been more successful, numerous moretech companies would have followed suit.Panelists also said that equity financing

has been impacted by a flight to safetyand currency concerns. According toKenny, overseas venture capitalists whoinvested heavily in the 2000s and left in2008 are now returning. Gaynor says thatbanks must redevelop their expertise in inrelation to financing SMEs because theylost that experience after a decade ofproperty lending.Many companies also have a property

overhang. Gaynor referred to theIndependent SME Business Bankingsurvey carried out by Millward BrownLansdowne for Bank of Ireland inSeptember 2011, in which 62 per cent ofrespondents said they felt 'banks are notopen for business,' even though 42 percent of these people were approved in fullfor facilities on their last finance request.Whether venture capital firms active in

Ireland have been overly focused ontechnology companies was identified.Untapped opportunities in a wide range ofsectors were mentioned - food,pharmaceuticals, services, gaming,medical devices, aircraft leasing, paymentsystems and horse breeding. Howeversome potholes were identified in relationto these industries; food was noted to be acapital intensive business, where a returncan't be made on equity alone, as well asan industry where there is hugeinternational competition.

Corporate Advertising Profile: National Irish Bank10 FINANCE DUBLIN | OCTOBER 2012

National Irish Bank ticks all the boxes as a bankingpartner for Irish corporates

What does Corporate Bankingmean to you? As strange aquestion as that may seem,

especially in a Corporate Bankingfeature in probably the most corporateof publications, perhaps you shouldtake a look at the five questions belowand ask yourself whether you and yourcorporate banking activities could fittogether better.

1. What should your bank give you?

All the things you’d expect - soundadvice, peace of mind, assurance,confidence to concentrate on your ownbusiness, value-for-money, etc... You’llfind these terms in the brochure of anybank with a corporate focus. And, ofcourse, they are all true. But in reality,your bank should be your partner. Itshould be the place you go to first foradvice. It should have your bestinterests to heartand it should listento what you wantand then deliversolutions. Itshould do this inthe most efficientand cost-effectiveway possible,allowing you, thecustomer, tomaximise yourresources and returns.National Irish Bank (NIB) has been a

key provider of corporate bankingservices for many years. From nextmonth, it will be known as DanskeBank as it takes on the name of itsparent in a Group-wide move where allits banking operations across Europewill be harmonised under one brand.NIB’s strong corporate presence is

evidenced by the large number ofIreland’s top companies who choose itas their banking partner. Its CorporateBanking team, led by Terry Browne(pictured), offers market-leadingfinancial advice and specialised

corporate and investment bankingservices to Irish and internationalcorporate clients. From its base in theIFSC, the team is committed tobuilding long-term relationships withcustomers nationwide and deliveringsuperior financial solutions.The Corporate Banking team offers a

variety of services ranging from cashmanagement to advising on complexcorporate transactions. Dedicatedteams provide bespoke strategies tohelp customers achieve their objectivesby working closely with Danske Bank

Group colleagues, ‘As we have a ‘one banking platform’

ethos, not only do we get the benefitsof this constantly improvingtechnology, but we also have a fullyintegrated Groupplatform, ideallysuited to cross-border transactionsand trading,’Browne says.‘The advice we

provide is entirelyfocused on, andtailored to, ourclients,considering whatare the best financial solutions for thecoming years, not just the next three orsix months. For example, there arevarious regulatory and accountingchanges that will impact on companies’financial position over the next fewyears, but that companies should beconsidering now,’ adds Marc Caron,head of Client Advisory.

2. Is having an international bankinggroup as your banking partner an advantage?

Yes. An international group such asDanske Bank will give a company accessto the funding potential and internationalexpertise that isn’t always domesticallyavailable. Having international banks in Ireland

is central to the future of the banking

sector here, says Browne. ‘They’re key tomaintaining competition in the marketand to giving customers an internationalexposure. This is especially evident witha bank like Danske who entered the Irishmarket in 2005. Having an internationalpresence in Ireland is especially relevantwhen you consider the importance to the

“We’re already seeing thebusiness potential in advisingour clients on their fundingneeds and then helping themto secure that funding outsideof the traditional model.”

The future of fundingThe market for corporate lending hasbeen quietly changing in recent years.Many corporates are developing theirtreasury functions and going to thecapital markets themselves, usingtheir banking partners for adviceinstead, a trend that’s likely tocontinue, says Caron. ‘Theintroduction of Basel III from nextyear will accelerate this process asbanks will be required to hold morecapital against their loans. We’realready seeing the business potentialin advising our clients on theirfunding needs and then helping themto secure that funding outside of thetraditional model,’ he says.‘Larger companies are now going ingreater numbers to the market to raisefunds. We’ve recently seen Ryanairand ESB raising funds through bondsales, giving them greater control oftheir funding operations and often atkeener prices and longer tenors. Wecan leverage our position as aprimary dealer in Ireland, and acrossEurope, to facilitate our customers tofund themselves on the open market.’

Terry Browne

Marc Caron

National Irish Bank 11FINANCE DUBLIN | OCTOBER 2012

Irish economy of having so many multi-national corporations here. Aninternational bank can cater for thesecorporations’ domestic and internationalbanking needs and thereby help to attractcontinued Foreign Direct Investment(FDI) into Ireland’.

3. How can an international bankhelp an Irish company?The answer to this can be given in four

words - relationships, research, risk andreputation.Relationships - Stephen Mullin,

National Irish Bank’s Head ofInternational Corporate Bankingcommented - ‘Danske Bank prides itselfon building strong relationships withmultinational clients across the whole ofNorthern Europe and in the US’, he says.With its network of banks, itsrelationship focus and its eBankingplatform, Danske is ideally placed to

support import and export companies, forexample, in reducing the complexitiessometimes associated with internationaltrade.Research –

Mullin continues,‘The markets areinternational, sohaving up-to-dateinternationalinformation is vitalif our customers areto competeeffectively.’ DanskeResearch regularlypublishes reports onmarket and economic developmentsacross Europe and global markets. ‘NIBcustomers benefit greatly from thesereports and from the regular customerpresentations we offer,” he says.

Risk - Companies are increasinglyopting for more secure methods ofpayment for the export of goods andservices. ‘The use of financialinstruments to reduce the associateduncertainties is finding greater use withbusinesses all over the world, and that isequally true for businesses with an

international focus operating in Ireland,’Mullin says.Reputation – NIB’s International

Corporate Banking team has a growingreputation for dealing with multi-nationalcorporations in Ireland. It has a particularinterest in supporting the development ofFDI into Ireland. ‘FDI is a key area insupporting economic recovery anddevelopment in Ireland,’ says Mullin. ‘It’s

an area where we want to be positionedas the bank of choice for multi-nationalcorporations operating, or seeking tolocate here.’

4. Does Corporate strength reallymatter?Again, yes. The relative strength of

your bank is something that can’t beunderestimated, as it can directly affectthe cost of, and access to, key funding.Danske Bank is one of the largest, best-capitalised banking groups in northernEurope, with total tier 1 capital ratio of16.0 per cent at the end of 2011. TheGroup also had assets of €460bn and amarket capitalisation of €11.8 billion.As a full branch of the group, National

Irish Bank also benefits from Danske’scredit ratings, making it one of thehighest rated banks operating in Ireland.

5. What makes National Irish Bankyour ideal corporate bankingpartner?Apart from the counter-party strengths

listed above, NIB has the expertise, theexperience and the appetite to become

the bank of choice for corporatecustomers across Ireland andinternationally. Danske Bank is a leader in electronic

banking services and is continuallydeveloping its online product suite. ‘Thisallows us to look at innovative andsecure ways of enhancing our customers’banking experience, by improving cashflow, maximising returns on surplusliquidity, effectively saving time, moneyand administrative costs. Forinternational corporate clients this is ameans of increasing efficiency,increasing profitability, releasing moneytied up in working capital, and,ultimately, increasing shareholder value,’concludes Browne.

“As we have a ‘one bankingplatform’ ethos, not only do weget the benefits of thisconstantly improvingtechnology, but we also have afully integrated Group platform,ideally suited to cross-bordertransactions and trading.”

SEPA will change the European payments processSEPA is the most important development in international payments for manyyears. It will create a harmonised payments system across Europe, allowingpayments to be made from Ireland to anywhere in the eurozone at the touch of abutton.An acronym for Single Euro Payments Area, a home market area is beingestablished for payments traffic in the European Economic Area (EEA) includingall 27 EU member states, as well as Norway, Iceland, Lichtenstein, Switzerlandand Monaco. By using SEPA, a company can carry out all payments in the SEPAarea from one country, through one bank, using one standard payment type in oneinstalment and using the same terms.Barry Manning, Head of Corporate Cash Management is a fan. ‘SEPA will openthe market up in a truly European way for the first time, allowing all businesses tobenefit from a single payments system, offering convenience, time and money-savings. It will lead to new initiatives such as e-invoicing and the greater use ofinternet payment solutions. All in all, it will make payments simpler for thecustomer.’SEPA will mean significant technological change in European payment systemsbecause it involves more than 300 million consumers, 15 million companies, aswell as 8,000 banks, public corporations, clearing corporations and softwaresuppliers.Manning says that SEPA basically means ‘creating a payments infrastructurewhere there’ll be no difference between sending a payment to a supplier in Francecompared to one in Dublin, Cork or Galway.’For the customer it makes sense. ‘If you’re a corporate customer headquartered inIreland, and you have sales operations across Europe, from your account in Dublinyou’ll now be able to pay salaries, creditors, direct debits and receive payments foryour German or Italian sales offices. When SEPA is fully operational, everythingwill be payable from one euro account.’It is critical that Ireland can rely on its banks to be ready for SEPA. Everycompany in Ireland that deals with businesses elsewhere in Europe will need tohave a SEPA-ready bank. With its cross-border capability and its award-winningtechnology platform, Danske Bank is SEPA-ready. In fact, NIB already has anumber of customers using its SEPA-direct debit solution.

Stephen Mullin

Corporate Advertising Feature: Bank of Ireland Corporate Banking12

Ireland’s economic recovery issupported by our continued ability toattract foreign direct investment and

the ongoing growth of key sectors such asICT, biopharma, and internationalfinancial services. Indeed, according to recent research

carried out on behalf of law firmMatheson Ormsby Prentice multinationalcompanies plan to create up to 20,000new jobs in Ireland over the next threeyears. The survey of 315 executives withglobal firms by the EconomistIntelligence Unit asked about attitudes toinvesting in Ireland.The report found that 45 per cent of

them either planned to invest in Irelandfor the first time or to expand theircurrent operations in Ireland between nowand 2016. Tellingly, half of those planningto create new jobs were in financialservices while a further quarter were inthe technology sector.

'Bank of Ireland has been front andcentre in supporting inward investmentinto Ireland for many decades going backto the 1960s', says Padraig Rushe, Bankof Ireland Corporate Banking. 'We havebeen proud to support the efforts of theGovernment and the IDA in attractinginvestment during that period. When newcompanies come to set up in Ireland theycreate new jobs and that is good for thecountry and the economy. Of course, thatin turn is good for the bank.'This supporting role has seen Bank of

Ireland grow and develop relationshipsboth with the locally based multinationals

and their parent companies in the US,Europe and throughout the world. 'Wehave a full branch in Stamford in the US,for example', Rushe adds. 'This allows usto grow and develop relationships withUS based parents of companies locatedhere. It allows us to complete the circle interms of the services we offer thosecompanies.'The bank’s relationship with the

multinational sector has changed quitesignificantly over the years, Rusheexplains. 'If you go back to the 1970s themultinational firms who came here wouldtypically build very significantmanufacturing plants. A lot of the timethese plants were funded by Irish banks.This meant that the Irish banking industryhad a critical role to play in bringinginvestment to Ireland. We don’t tend tosee such large bricks and mortarinvestments these days so the nature ofour relationship and the services weprovide has changed.'These services are underpinned by the

bank’s dedicated inward investment team.The team, led by Derek Collins, Bank ofIreland Corporate Banking, has

unparalleled experience of working withmultinational companies and has a clearunderstanding of their needs. 'We are afull service bank with more than 250branches in every corner of the countryand we can provide a seamless, end-to-end banking service from treasury rightthrough to personal banking. It’s a moretraditional suite of banking services ratherthan a credit based relationship now. Ourcustomers tell us that the primary reasonfor banking with us is this full serviceoffering and significant branch network.They also acknowledge the strongrelationship we have with internationalbanks that we partner with. When amultinational company comes here theycan be confident that we already have astrong relationship with their maininternational bank', comments Collins.He believes the global and domestic

financial crises have made littledifference to Ireland’s attractiveness toinward investors. 'In broad terms, fromthe perspective of a multinational firmIreland is a politically and financiallystable location. Companies havecontinued to establish a presence in

FINANCE DUBLIN | OCTOBER 2012

Following a tradition dating back to the 1960s, Bankof Ireland continues to support inward investment

Bank of Ireland has been helping foreign investors finance their projects in Ireland since the 1960s and today the bank,through its Inward Investment Team continue to support the efforts of the Government and IDA Ireland in winning newinvestments across key sectors such as ICT, life sciences, social media and financial services, creating jobs and aidingeconomic recovery writes BARRY MCCALL. It benefits from the relationship banking model they created to supportinternational financial services companies setting up in the IFSC since the 1980s

Padraig Rushe, director at Bank of Ireland Corporate Banking: ‘Bank of Ireland has beenfront and centre in supporting inward investment into Ireland for many decades going backto the 1960s’

“We have been proud tosupport the efforts of theGovernment and the IDA inattracting investment duringthat period. When newcompanies come to set up inIreland they create new jobsand that is good for thecountry and the economy.”- Padraig Rushe

Bank of Ireland Corporate Banking 13FINANCE DUBLIN | OCTOBER 2012

Ireland since the recession started. Theycome here for the people, the reducingcost base and other factors. They don’tsee Ireland and the economy as problemsfor them in the overall scheme of things.They are looking for a European presenceto grow their business and they just geton with it.'Collins attributes much of this

continued success to the work of IDAIreland over the years. 'The IDA’s role inthe strong flow of inward investment hasto be acknowledged. Their excellent workover the years and focus on deliveringnew investments in the key sectors ofICT, life sciences, financial services,social media and consumer content hasbeen of enormous importance.'

Bank of Ireland has also supported IDAIreland’s efforts in the growth anddevelopment of the IFSC over the years.'We set up a relationship banking modelat the very start of the IFSC to offercompanies establishing there the bankingsupport they needed', Rushe points out.'They may be financial servicescompanies but they need traditionalbanking services just as much ascompanies in any other sector. We alsoactively support the industry associationsand government agencies as part of theongoing development of the industry inIreland.'This support for the growth of the

international financial services sector hasseen Bank of Ireland play a lead role inthe creation of what has become knownas the Green IFSC. 'We have always beenenthusiastic supporters of the IFSC andthe Green IFSC is the latest initiative interms of growing the sector', he says.'When we were looking for potentialgrowth areas back in 2009 we foundstrong anecdotal evidence of a largeincrease in investment in the broadenvironmental and sustainable industrysectors. Our view was that this couldprovide a significant opportunity for theIFSC.'As chairman of the IFSC Banking &

Treasury Group, Rushe established a sub-group from within the IFSC to investigate

this potential. 'Our analysis revealed hugelevels of spending projected in the sector.While we had been thinking aboutmillions and billions in terms of the levelof investment it turned out to be billionsand trillions', he recalls. 'The research wecommissioned forecast investment of€2.9 trillion in the EU25 from 2011 to2020 with €600 billion of this beingdevelopment capital and the balancebeing on the exploitation of thetechnologies once developed.'The question is how all of this

investment will be financed. 'The capitalwill come from a mix of private equity,venture capital, leasing, investment funds,bonds, project finance bank credit and soon', Rushe notes. This creates anopportunity to develop a new segment ofactivity across the IFSC via the GreenIFSC. The challenge for us will be toconvince people that they should come toIreland rather than anywhere else to carryout this activity. A key enabler will beeducation and there are nowundergraduate and postgraduate courseson green finance being offered by bothDCU and UCD.'He draws a parallel with the aircraft

leasing industry in this regard. 'We needto have an additional capability in thearea of green finance that other countriesdon’t have', he explains. 'Look at theaircraft leasing sector. Ireland is a worldleader in this area because we have thepeople with the expertise in it. GPA isresponsible for that. The late Dr TonyRyan helped develop a whole generationof people with the required skillsets and awhole industry sector has more or lessbeen founded on that basis. Nobody canclaim green expertise yet and there is avery real opportunity to get ahead in thatarea.'

The Green IFSC is on target in terms ofgrowth and Rushe believes it has a directrole to play in the domestic energy sectoras well.'Ireland’s renewable energy resources

are among the best in the world and allthat is needed is to bridge the gapbetween those assets and the capitalrequired for their development. That’sultimately what the Green IFSC has thepotential to do and Bank of Ireland willbe right there at the centre of that.'

He reiterates his view of the IDA’s rolein Ireland’s continued success as a globalinvestment location. 'The IDA is doing agreat job but everyone else has a part toplay as well. If the IDA has a companylooking at Ireland everyone should helpto achieve the goal of getting them tolocate here. And once they come it’s up toall kinds of businesses including thebanks to avail of the businessopportunities they will bring; but we’vegot to get them in first. Bank of Ireland’srole in the first instance is to support theGovernment and the IDA in terms ofgenerating investment and economicgrowth. After that it’s up to us to avail ofthe banking opportunities presented bythis investment.'

“Its a more traditional suite ofbanking services rather than acredit based relationship now.Our customers tell us that theprimary reason for bankingwith us is this full serviceoffering and significant branchnetwork.”- Derek Collins

Derek Collins and the Bank of Ireland Inward Investment team

“Look at the aircraft leasingsector. Ireland is a worldleader in this area because wehave the people with theexpertise in it. GPA isresponsible for that...Nobodycan claim green expertise yetand there is a very realopportunity to get ahead inthat area.” - Padraig Rushe

Corporate Finance14

Few companies are immune from theeffects of the downturn. Those whoprosper have three common strands

- best practice in managing finances,efficient working capital and debtarrangements and a tight, cost effectiveoperation. Central to this is ensuring thatthe appropriate forms of financing are inplace to meet the organisation’s currentrequirements and plans for the future. Tohelp achieve this, the following four stepsare essential.

Be proactive and do your homeworkMany businesses fall at the first hurdle

by failing to adopt a proactive approach tofinancing. A proactive approach includesreviewing and managing the organisation’sfinancial controls, setting aside time tomanage relationships with externalfunding providers and assessing the shortterm and long term financial needs of thebusiness. Organisations that take areactive approach generally realise theyhave a funding requirement at the lastminute and fail to consider the long termeffects of a financing decision, thusinhibiting potential future growth plans. When seeking financing, irrespective of

whether you are raising debt or equity, aninformative, clear and concise businessplan should be prepared. All externalfinance providers will want to see a clearplan that shows a well thought strategyand, importantly, one that shows a returnon investment.

Assess which options suit best Organisations can source financing both

internally within the business andexternally in the financial markets. Internally, assessing options such as

realising an existing asset on the balancesheet (for example a sale of a subsidiaryor surplus property) may be an option toconsider. If this is progressed,organisations should assess the associatedimplications of such a move, such as lossof knowledge capital if a subsidiary is soldor foregoing on-going rental yield in thecase of a property. Furthermore, there isthe option to raise equity through existingshareholders, who may be willing to investfurther once a return on investment can bedemonstrated.Externally, with financial institutions

remaining focusedon recapitalisingtheir balance sheets,the availability ofdebt financingthrough traditionalbanking sources hasbeen limited. Manyorganisations havefound it extremelydifficult to raise therequired quantum ofbank financing and have been forced toutilise other funding sources. Where bankfunding is available, the terms are strictand leverage is low. An increased focus onthe due diligence and approvals processhas resulted in applications either takinglonger to approve or, in many cases, notbeing approved at all. For larger organisations, the bond

markets are likely to be the main source ofdebt financing. Bond investors haveshown an appetite to provide liquidityshould the duration and coupon on offerbe attractive. CRH and Smurfit Kappahave taken advantage of this option inrecent times. The relative vacuum of debt financing

has led to equity financiers playing anincreasing role in the marketplace.International private equity firms havedemonstrated their interest in Ireland withthe recent acquisitions of Clerys byBoston-based Gordon Brothers andFintrax by the UK firm Exponent. Forsmaller organisations, the increasingcommunity of angel investors may be anoption to consider. Generally, not onlydoes this investor class provide financing,but they also frequently lend their timeand expertise to ensure their investmentflourishes.

Optimise, optimise, optimiseMaintaining a sustainable capital

structure is essential to a successfulbusiness model and the suitability of eachform of finance is different for eachorganisation. The duration and terms of financing

differ across options and picking the rightform is critical. For example, long termdebt funding will likely be required whenacquiring land or buildings and isnormally repaid over a five to twenty year

period; medium term debt financing ismore appropriate for plant and machineryand is usually financed over three to fiveyears and short term debt financinggenerally relates to working capital needsover six months to three years. Furthermore, sometimes doing nothing

is not the best option. Organisations needto continually invest to maintain andenhance their competitive position. Forexample, debt facilities and bankingcovenants can be renegotiated orrefinanced. To truly optimise an organisation’s

position and bargaining power in theexternal market, organisations shouldassess the availability of financing fromdifferent sources. All terms and pricingshould be benchmarked and the ability toservice interest or dividend paymentsshould be stress tested to ensure theoptimal option is selected.A diverse approach, whereby an

organisation is not wedded to oneparticular financing option is advisable. Afinancing mix that contains both debt andequity, is spread across differentmaturities, and perhaps geographies,limits risk and maintains flexibility.

Don’t lose focus on the day jobFinancial pressures and the requirement

to raise finance can divert attention awayfrom the core business. The mainobjective of any management team is toensure that their underlying business issuccessful on a day to day basis.Undertaking the sale of a subsidiary, orcourting financing providers to accessfunding, has the ability to distract frommanaging the core business and can endup doing more harm than good. Bystaying on top of financing requirements,management time is optimised. Whilst views differ on the forecast

length and severity of this period ofsubdued economic growth, the reality isthat this environment is now the new‘normal’. Organisations that proactivelyadapt and stay on top of their financingrequirements are those who will be in thestrongest position to take advantage ofgrowth once it returns.

Stephen Nolan is a senior manager inDeloitte’s Corporate Finance team.

FINANCE DUBLIN | OCTOBER 2012

Internal financing options are playing a bigger role for Irishcompanies Companies should try to acquire a financing mix that limits risk and manitains flexibility writes STEPHEN NOLAN. With theavailability of bank financing limited, Irish corporates are looking to other forms of financing both internally and externally.

Stephen Nolan

Corporate Recovery 15FINANCE DUBLIN | OCTOBER 2012

Pre-pack' insolvency transactionshave been a feature of insolvencytransactions in countries such as

England and Wales for some years butuntil relatively recently, had not featuredin Irish insolvencies.Investors interestedin buying the assetsof an insolventcompany andsecured creditorsshould considerusing a “pre-pack”structure to facilitatea speedy transactionwhich preserves thevalue of acompany’s business, goodwill and otherassets.This process can allow a change in

ownership of a business, a continuance oftrade and the preservation of employmentwithout the loss in value that can arisewhere a business is operated during aninsolvency process while a purchaser ofassets is sought. It is particularly attractivein the retail sector.In Ireland there have been a number of

sales structured through pre-packreceiverships in the last twelve months inthe retail sector.The term 'pre-pack' refers to a sale of all

or part of a company’s business or assetswhere a purchaser or investor has beenidentified and the terms of the sale havebeen negotiated before an insolvencyappointment is made. Once the insolvencypractitioner is appointed he then effectsthe sale immediately on or shortly afterhis appointment. In Ireland a corporateinsolvency process includes areceivership, liquidation or anexaminership and whilst there iseffectively no reason why a liquidation orexaminership process cannot be used toimplement a 'pre-pack', such sales areusually implemented throughreceiverships. There are circumstanceswhere a restructuring without a sale ofassets could be achieved through theexaminership process.Receivership pre-packs typically

involve a bank or other secured lenderappointing a receiver over the assets of a

company experiencing financial difficulty.Prior to the formal appointment of thereceiver, a purchaser is identified andterms of sale are agreed for the sale of theassets in question. The receiver thenimplements the pre-agreed termsimmediately on orsubsequent to hisappointment.The advantage to

the 'pre-pack'structure is that thesale can becompleted withoutmaterialinterruption to thetrading activity of the target company orasset, thereby preserving value andsafeguarding jobs. The devaluation ofgoodwill and the deterioration of keyrelationships with employees, suppliersand customers that would ordinarily resultfrom a protracted corporate insolvencyprocess can be avoided and creditors canachieve a higher return than mightotherwise be the case.There are some cases where a 'pre-pack'

is not appropriate and there are risksassociated with implementing a 'pre-pack'.Creditors could be prejudiced as there willnot have been much time for the assets tobe marketed.This concern is more acute where the

sale is to a party that is connected to theinsolvent business such as themanagement, directors or shareholders.Insolvency practitioners must be able todemonstrate compliance with theirstatutory duty to obtain the best pricereasonably obtainable at the time of thesale of the asset. For this reason great carehas to be taken to ensure that appropriatevaluations have been obtained for theassets and that he is aware of and takesaccount of any previous marketingactivities carried out in relation to theassets whether by the company or thelender.In England and Wales (where, unlike in

Ireland, insolvency practitioners must holda licence), detailed guidelines for theconduct of pre-packs have been adoptedby the professional bodies responsible for

the licensing of insolvency practitioners.Those guidelines were implemented toincrease transparency for creditors andconfidence in the marketplace regardingthe use of pre-pack administrations. Theguidelines provide that unless exceptionalcircumstances exist certain prescribedinformation must be disclosed to creditorsafter the pre-pack sale has been effected.The English courts have also approved theuse of pre-pack sales in the appropriatecircumstances.In the absence of any such guidelines in

Ireland, the critical standard for theinsolvency practitioner is to ensure that heobtains the best price reasonablyobtainable for the assets at the time ofsale, a duty imposed on him by the IrishCompanies Acts.Provided the insolvency practitioner

complies with his statutory obligationsand adheres to the highest professionalstandards, there is no barrier to effecting apre-pack sale in a manner which willstand up to scrutiny.Pre-packs are not suitable in all cases

and it will not always be possible for theinsolvency practitioner to carry out anymarketing of the assets, the subject of thesale, or to obtain comprehensivevaluations for the assets in advance of thesale. There are also some company lawprovisions which, in some circumstances,could delay a sale. In those cases alengthier period of time will be requiredto market and sell the assets.The absence of formal reporting

requirements for pre-packs means thereare no statistics available on the use of theprocess in Ireland, however, it is clear thatinvestors looking to purchase assets fromentities in financial difficulties with aview to preserving the value of acompany’s goodwill and business areincreasingly considering pre-packarrangements as a suitable opportunity forinvestment. It is also the case that securedlenders can avail of the process in theappropriate circumstances to realise thevalue of a trading business.

Fergus Doorly is a partner andMaureen Daly is an associate atWilliam Fry.

Fergus Doorly Maureen Daly

Pre-pack insolvency transactions can help to preserve thevalue of a company's businessPre-pack' insolvency transactions have been a feature of insolvency transactions in countries such as England and Walesfor some years but until relatively recently, had not featured in Irish insolvencies write FERGUS DOORLY and MAUREENDALY. Investors interested in buying the assets of an insolvent company and secured creditors should consider using a'pre-pack' structure to facilitate a speedy transaction which preserves the value of a company’s business, goodwill andother assets, they write.

Cash Management16

Never waste a good crisis. This oft-cited quote - recent users includeHillary Clinton - has become a

mantra for those in search ofopportunities to deliver value in thesedifficult times, and seems a good mottofor reflection at the start of a newbudgeting season. The past few years havebeen a rollercoaster ride for manycorporate treasury professionals. The2008 credit crisis and its aftermath stresstested common practice and, occasionally,demonstrated how tangible ‘opportunitylosses’ can be. Given the recent past, whatshould corporate treasury consider astheir strategic focus for the next fewyears?

What kept you awake?By the end of 2007, daily treasury

operations had become routine for mosttreasurers. There might still have beensome room for improvements, but ingeneral corporate treasuries were contentwith their basic processes. Tactical andstrategic treasury agendas often containedmostly ‘nice-to-haves’ and evendevelopments on the technology vendorfront seemed stagnant.The collapse of Lehman Brothers in

September 2008, however, changedeverything. Overnight, corporatetreasuries had to go into overdrive,collecting the necessary cash and cashflow information for executivemanagement. Even when the companywas not itself at risk from the turmoil,management had to contend with tradingpartners not being so lucky. Thecontracting economy also meant for manycompanies that substantial amounts ofcash were released from working capitalwith very few investment opportunities.

Taming your nightmaresFor most treasurers the additional

workload during the immediate aftermathof the credit crisis provided valuable inputfor their longer-term strategic agenda. Ifthe 2008 crisis demonstrated anything itshowed the following hard truths:- External credit will no longer be

easily accessible and will remainexpensive for many years to come.- Securing access to liquidity is a

prerequisite for business continuity.- Labelling risk does not

compartmentalise orring fence it.The events of

2008 gave textbookconcepts likecounterparty, tradecredit, liquidity andsystemic risk a veryreal and mostlyhostile face. Cashvisibility and cashplanning have become a daily obsessionfor most corporate treasurers. Monitoringliquidity and credit risk has become amatter of survival. Thus, treasury has tobecome an enterprise-wide process ratherthan a corporate department.

Corporate cash cultureA cash culture builds around ‘cash

efficiency’, which is about more than justmanaging the cash within the treasurychest. It is best characterised as 'just-in-time' cash management, securing thecompany’s ability to pay its bills in time.A successful cash culture will typicallyacknowledge that:- Cash is a corporate resource. Cash is

more than a bank balance and the affiliatethat legally owns a bank account has noultimate title to that cash.- A sale is completed only after the cash

is collected from the customer.A cash culture puts collection from

customers at par with revenue recognitionand evangelises the time value of money.It galvanises the organisation around factssuch as:- Every 3.5 days’ sales outstanding

(DSO) represents a funding requirementof 1 million per 100 million sales.- At a weighted average cost of capital

of 8 per cent each 45.6 DSO equals 1 percent gross margin.Introducing a cash culture brings

treasury closer to core businessoperations. It makes treasury a partner forstrategising on trade terms and conditions,working capital management and paymentexecution. A cash culture will mostcertainly make a payment factory and in-house banking readily acceptable and nolonger a corporate intrusion. A focus on corporate cash expands

treasury’s role and responsibilities inrelation to working capital management(WCM). With credit lines under pressure

for some companies and with mountingcash for others, flexible trade credit termsand vendor financing can provide analternative source of funding and tools forsupplier relationship management. Alsoimplementing a cash culture and havingtreasury involved in day-to-day WCM ofthe enterprise can lead to managingbalance sheet and other financial ratiosmore effectively. A cash culture naturally extends

treasury departmental roles enterprise-wide. For instance, the themes discussedin Figure 1 of ‘full cash visibility’ and‘grip on cash’ expand treasury’sresponsibility for bank relationshipmanagement to including that of day-to-day bank connectivity, irrespective ofwhether the account is controlled bytreasury, is stand-alone or is onlyindirectly linked to corporate cash pools.This is because full visibility impliesaccurate and real-time consolidatedreporting on all balances, including thoseof stand-alone accounts. Consequently, aproject aiming for full cash visibility mustconsider:- Creating a bank statement hub and

central repository linked to treasurymanagement systems (TMS) and (local)enterprise resource planning (ERP).- Automating bank statement upload

and auto-matching.- Integrating bank balance reporting and

cash forecasting.The themes ‘understanding cash’ and

‘controlling cash’ bring treasury closer tothe businesses. They insert treasury intodaily processes of local units and entail atransfer of decision-making power and/orcontrol over the timing of payments andbusiness terms and conditions, includingtrade credit terms, credit limits andbusiness partner approval.

Corporate risk cultureA risk culture builds on the principle

that:- Risk is inherent to doing business.- Risk drives the quality of the cash

flow and the company’s businesscontinuity in the best interest of allstakeholders.- Managing the volatility of projected

cash flows adds value for all stakeholders.There are two key dimensions to

treasury’s contribution to a risk culture,

FINANCE DUBLIN | OCTOBER 2012

An evangelist’s agenda for creating a successful corporatecash, and liquidity, cultureJIMMY DOYLE considers how corporates can create a successful ‘cash culture’. He shows the steps needed to improvethe monitoring of liquidity and credit risk.

Jimmy Doyle

Cash Management 17FINANCE DUBLIN | OCTOBER 2012

being the management of risks arisingfrom:1. Business operations.2. Financial market exposures.The business operations dimension of

a risk culture concerns trading partneracceptance, enforcing trading limits andcredit management in general. It alsoconcerns the risk adjusted provisionsbooked for overdue outstanding tradebalances. A risk culture makes sales andprocurement sensitive to the financialviability of customers and vendors, andgives incentives for negotiating risk-adjusted terms with partners. Ultimatelythis means that price lists and trade termsand conditions differentiate by the creditrating of business partners similar topricing strategies in the financial sector.The financial markets dimension of a

corporate risk culture centres on balancesheet management, optimising keyfinancial ratios and reducing cash flowvariability due to market price risks. Thefocus on financial ratios and weightedaverage cost of capital (WACC) isimportant for the company’s ability toaccess external funding fromshareholders, banks and other investors.Under Basel III, financial markets willdifferentiate more and be highly sensitiveto risk and credit ratings. Consequently,companies have an interest in managingkey input variables for (implied) ratingmodels as these define access to and costof funding.

Corporate compliance cultureOperational efficiency and

transparency, along with process tooling,define a compliance culture. The keyobjectives are to protect corporatereputation and minimise operational risk.A compliance culture will focus on:-Process standardisation and

automation- Global applications with strong

workflow management functionality.The scope of potential treasury

projects related to compliance dovetailswith those associated with implementingcash and risk cultures. The complianceagenda drives the deployment ofcentralised and integrated systems whichsupport business processes. It is nowonder that those responsible for acompany’s internal control systemwelcome payment factory/in-housebanking (IHB) and bank connectivity hubprojects, as they make they canstandardise and make transparentsensitive payment process and thereforemore compatible with the key controlframework.

Responsibilities, KPIs/incentives andreportingThe elements of the strategic agenda are

called ‘cultures’ for a good reason. Cash,risk and compliance must be part of thecorporate mindset, just as sales, growth andprofitability are already. Successfulimplementation of a (new) culture requirescross-functional collaboration, enduranceand executive sponsorship.Executive sponsorship is necessary

because the key to success is the roll out ofa new, consistent set of SMART keyperformance indicators (KPIs) and relatedincentive schemes for most businessdepartments. New KPIs do not necessarilyoverwrite existing metrics. Tracking and reporting the underlying

KPIs is pivotal when redesigning incentiveschemes. If local managers are to becomeresponsible for swiftly approving supplierinvoices such that they can be discountedunder a vendor financing scheme, adashboard has to report on the elapsed timebetween invoice and approval date at anindividual invoice level.

A rewarding experience that deliversreal valueEmbarking on implementing a strategic

agenda along these lines will requirevision, commitment and investment ineffort and resources. However, the overallbenefits of a functioning cash and riskculture can far outweigh the effort.Making cash and risk part of thecorporate DNA improves the quality ofcash flow and of financial ratios byaligning interests across the business. Italso improves information on dailyliquidity. Such an approach contributespositively to treasury’s interaction withstakeholders and enhances the cost offunding/return on assets. There is a hugereward and satisfaction for any treasuryprofessionals willing to meet thischallenge, including potential newresponsibilities and a closer alignment tothe business.

Jimmy Doyle is a senior treasuryconsultant with PwC.

FIGURE 1: SUMMARY OF THE POTENTIAL CONTRIBUTION OF TREASURYTO A CASH CULTURE

FIGURE 2: ACTION PLAN FOR CORPORATE RISK CULTURE

FIGURE 3: ACTION PLAN FOR CORPORATE COMPLIANCE CULTURE

Source: PwC

A Day in the Life18 FINANCE DUBLIN | OCTOBER 2012

The daily role four IFSC companies playin the global treasury of Porsche

7.15 a.m. Up out of bed. I am not amorning person so this is not as easy as itsounds! Every morning is different at leastregarding the ‘lifts to schools’ stakes. Wehave 5 children, 2 of whom, Conor andJane are in UCD, while the others,Matthew, Mark and Robert, are still inschool, so early morning rugby training orswimming will dictate the time ofdeparture, the route taken and the numberof occupants in the car and indeed drop-offpoints. After all that logistical effort, workitself is a doddle!

9.00 a.m.Arrive in office - I could say thatI start at 8 am or earlier for the purposes ofthis article but friends and colleaguesknow the truth. I have noticed that traffictravelling from the southside to the IFSChas increased as more companies relocateto the South Docklands, so that’s myexcuse. On arrival, do the usual - checkemails and post, although I get companyemails on my mobile phone and so have afair idea in advance if anythingtroublesome is heading our way.

9.15 a.m. Our loyal and hard workingglobal cash manager Siobhan White hasour daily cash position sorted as usual andhas calculated our investment fundsubscriptions and/or redemptions for theday. Our treasury mandate here in Dublinis to balance daily the global multi-currency cash pool comprising our ownaccounts and all the Porsche AG Groupsubsidiaries’ bank accounts. In otherwords, we try to bring all the positive andnegative bank balances to as close to zeroas possible in order to optimise the group’sliquidity. Within this framework, weprovide loans to and take deposits from ourfellow subsidiaries. We have DeutscheBank accounts in Euro, USD, GBP, JPY,CAD, AUD, CHF, SGD and HKD and wehave cash sweeps in euro, USD, GBP andJPY to automatically sweep oursubsidiaries’ balances in these currenciesinto our own bank accounts. After ourposition is calculated and checked, webasically settle our net euro position,including that arising from FX forwardswaps, with the parent company. Easy!Other services we carry out include thecollection of invoices less credit notes dueto the parent from the main Porsche salessubsidiaries worldwide, net them into the

John Gilsenan, managing director of the Porsche Group ofcompanies in the IFSC, has been part of Porsche’s IFSCpresence since the company first arrived in the IFSC in 1991.The four IFSC companies play a key role in the treasuryfunctions of Porsche worldwide. Gilsenan discusses the rolethese companies play for the group’s international business.

A Day in the Life 19FINANCE DUBLIN | OCTOBER 2012

various currencies and remit them to theparent three times per month. We alsocollect Euro invoices due to the parentfrom many Porsche importers in Europe. We have four companies here in the IFSC:-a management services company PorscheFinancial Management Services Ltd; ourtreasury vehicle Porsche InternationalFinancing plc (PIF) as explained above;Porsche car warranty reinsurer PorscheInternational Reinsurance Ltd (PIRL); anda Bond issue company Porsche HoldingFinance plc. We are 21 years in existencein Ireland and are proud of the business wehave built up here over the years and arefully intent on maintaining and indeedexpanding it into the future.

10.00 a.m. Meeting with our auditors,Ernst & Young to plan this year’s audit.31st December 2012 will be our first finalaccounts reporting date following thePorsche - Volkswagen merger last August.As PIRL is a subsidiary of PIF, we haveconsolidated accounts to prepare, as wellas the four individual companies’ financialstatements. PIF is the issuer of Eur 1 billcorporate bond issue (in addition to itscash management business) and so underthe EU Transparency Directive, we mustpublish these consolidated accounts nolater than 4 months after the year end. Thisappears a reasonable time frame butdespite all sorts of new year’s resolutionswe are always up against it. Our parent company Porsche AG is wellknown as a premium car brand andcurrently enjoys being the most profitablecar manufacturer in the world. 128,000cars were produced in 2011 and the groupearned net profit of Eur 2.1 billion from aturnover of Eur 11 billion, a return of avery healthy 19 per cent. Extra reporting requirements are of coursea given due to the merger, at least for theshort term, and we are adjusting ourmonthly routines to meet these. Year endreporting deadlines are so tight now that alot of the audit work is done before theyear end. In general we seem to move fromone deadline to the next - no sooner is onemet than another one looms menacingly!Our Financial Controller Avril Farrelly hasto and does perform wonders in the shorttime from month-end to reporting deadlineto get all in order and placate our masters. We try to be professional and consistent atall times and this earns us a very goodreputation (we hope) with our parentcompany and fellow subsidiaries in thePorsche Group. In the office, we have all concluded (frombitter experience!) that there is usually onlyone way to do something right but lots ofways to do it wrong, so we try to get it

right first time. Here in Dublin, we are butfour staff - we all work hard, we get the jobdone and then we go home!

11.30 a.m. Meeting of the Stand AloneCorporate Treasury Group of FinancialServices Ireland in the IBEC offices in Lr.Baggot Street. This group comprises ‘standalone’ treasury management companiesoperating in Ireland such as Pfizer, Xerox,Securitas and Porsche. We discuss theissues of the day that pertain to theinternational financial services andtreasury sectors. In the present climate thisnaturally involves regulatory issues such asthe possible future reporting of derivativesbusiness. The overall scene is surveyedincluding taxation, training and newpossibilities for activity in the areas ofGreen finance, Islamic Finance andventure capital/ private equity. It is great tobe involved in this Group to find out what’sgoing on in the sector and indirectly helpmaintain Ireland‘s attractiveness andcontinued growth as a location forinternational financial services.

1 p.m. Catch up with a friend of long andgood standing, now retired from thebanking world and successfully working asan independent non-executive director forseveral international financial servicescompanies. Have noticed that the ‘pension’word is cropping up more often as my peergroup advances in age!

2.30 p.m. Back in the office preparing forour next board meetings in November. Aswith most businesses operating in amultinational environment, board meetingsin the Porsche Group are a very formalisedprocess with agenda papers to bedistributed and requests for approvalcirculated to directors at least four weeksbefore the meetings. A full presentationpack must be prepared for each companyincluding full reviews on compliance,reporting and regulatory matters. Time waswhen there was an entrepreneurial spirit toour endeavours as our presence here grew.But with more regulation and compliance,both from external regulators andlegislators and from within as the PorscheGroup has grown in size and complexity,this is the current real growth area ratherthan increasing the size of the business.Nonetheless, I think this will settle downand allow us move to our next phase ofgrowth.

3.30 p.m. Respond to emails regardingnet premium payments due from ourfronting insurer Allianz. Our reinsurancesubsidiary Porsche InternationalReinsurance Ltd is involved in reinsuringwarranty contracts on pre-owned Porschecars sold by Porsche dealers throughoutEurope. It started as an add-on activity toour treasury business but has now growneach year and now we reinsure 40,000contracts each year through our frontinginsurer Allianz Versicherungs AG. Thecompany is regulated by the Central Bankof Ireland and we work closely with ourauditors Ernst & Young, our actuarialadvisers Allied Risk Management andKPMG and legal advisers William Fry toensure the smooth running of thecompany in all respects.

4 p.m.We have just refurbished part ofour offices here on the 3rd floor ofExchange Place in the heart of the IFSC.Our contractor arrives to complete thesnag list and hopefully from his point ofview to convince us to release the balancedue to him. He’s done a great job but it istrue that it is almost impossible to carryout such works without upsettingsomeone - which reminds me to send acouple of model Porsche cars to thetenants on the first floor as a peaceoffering!

5.00 p.m. Phone my wife Micheline andcatch up on the day’s news and ask herwhere my dress suit is - she reminds methat it is indeed my dress suit andtherefore (not unreasonably) that I shouldknow where it is and indeed the conditionof it after its last outing!The reason for all this witty banter is thattonight is the black tie Annual Dinner ofthe Irish Association of CorporateTreasurers.The Association is 25 years old this yearand the past presidents (of which I amproud to be one) are receiving acommemorative medal from our presidentBarry Dempsey. I am looking forward tomeeting my friends and colleagues andhearing my favourite comedian BarryMurphy do his after dinner German/ Irishpixies routine.

Indeterminate hour: Home! Theweekend stretches ahead and has arrivedjust in time.

John Gilsenan is managing director of the Porsche group of companies located in the IFSCDublin. Educated at St Mary's College Rathmines, he is a commerce graduate of UCD and afellow of the Chartered Association of Certified Accountants and the Institute of Taxation inIreland. He joined Porsche from its inception in 1991 and was made general manager and adirector in 1996, having previously worked in banking and in Ernst & Young.

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