Finance Cae study

1. CHASE STRATEGY FOR SYNDICATING
THE HONG KONG DISNEYLAND LOAN
(A) & (B) – Case Analysis
Made By : Group – 7
160101011 – Aman Kejriwal
160101086 – Samarth Agarwal
160101087 – Samridhi Mehra
160102065 – Rishita Agarwal
160102071 – Sahil Mehta
160102106 – Raghav Gupta

2. Introduction
• In 1997, Hong Kong became Hong Kong Special Administrative Region (HKSAR) after 150 yrs. of British
colonial rule under People’s Republic of China
• Hong Kong economy was based on Services, Tourism and International Trade
• However, Hong Kong fell into recession following the Thai Currency Crisis of 1997 resulting into doubling of
unemployment rate (from 2.2% to 4.7%), declining of the GDP of the country (from US $ 161.8 million to US
$ 153.4 million) and crashing of stock market
• On the other hand, Disney became a multimedia entertainment giant during 1995 – 1999 with revenues of
more than US $ 20 billion, annual operating cash flow of above US $ 5 billion and ‘A’ debt rating
• Disney operated in 5 business segments : Theme Parks and Resorts (26%), Media Networks (32%), Studio
Entertainment (28%), Consumer Products (13%) and Internet/Direct Marketing(1%)
• Walt Disney operated Disneyland in California and World Resort Complex in Florida. On the other hand, it
earned fees and royalties on Tokyo Disneyland and Disneyland Paris
• Disneyland Paris faced several financial problems due to European recession, large initial capital expenditure
and overly aggressive capital structure (75% of debt)

3. Hong Kong Disneyland
• Disney and Hong Kong Government signed an agreement for a new theme park and resort complex on the
north-eastern end of Lantau Island in December 1999
• Project was expected to operate in three phases with Phase I including Disneyland – style park offering Disney
rides and attractions, hotels, retail, dining and entertainment complex
• Phase II and III included options to develop adjoining sites in near future
• In August 2000, Hong Kong International Theme Parks Limited (HKTP), an entity was formed by HK
Government and Walt Disney for the construction and operation of the resort
• Total cost for the project was HK $ 28 billion. Half of the total cost for the project comprised land reclamation
and infrastructure development funded by Hong Kong Government
• Remaining half cost of the project will be raised via sources like equity (HK government – HK $ 3.25 billion
and Disney – HK $ 2.45 billion) and HK $ 6.1 billion in the form of subordinated debt by HK Government
• Rest of HK$ 2.3 billion was expected to be financed via commercial bank loans. Owners of the project agreed
to raise HK$ 2.3 billion 15-year nonrecourse term loan and HK$ 1 billion nonrecourse revolving credit
facilities for working capital requirements post construction

4. The Mandate Approach
• Earlier HKTP felt no requirement of construction funds till land reclamation stage. Therefore, they
thought of waiting until 2002 for raising bank debt
• However, later HKTP decided to start by early 2000 to get aware of structuring and syndication
process (expected to cover 6 to 9 months) and fear of the volatility in Asian Banking Market to get
an attractive pricing
• Team headed by Jeff Speed was assigned the responsibility of raising the funds
• Disney team developed a term sheet for bank financing and contacted relationship banks having
expertise in syndicated loan market explaining the specifications of the loan required
• Team hoped of raising loan on a fully underwritten basis and was expected to select three lead
arrangers for raising funds

5. Chase Manhattan’s Strategy
• Chase was the 3rd largest bank in United States and a leader in the field of syndicated finance
• Chase was the lead arranger for 34% of the total world’s syndicated loans
• After receiving an initial conference call from Disney, Chase deal team studied their term sheet and
raised several questions on its desire to win the mandate
3 Approaches
to the Deal
No Bid Bid to Win Bid to Loose

6. Approaches to Bidding
• No Bid Approach
Initially, Chase was not interested in the Hong Kong Disneyland deal due to the following reasons:
a) Division of mandate among the three lead arrangers made the deal less attractive for chase
b) Presence of competitor banks like Bank of China and HSBC who wanted to bid aggressively to win the deal
made Chase realise poor potential returns
c) Financial difficulties after opening of Disneyland Paris, the last theme park also reflected the credit risk and
underwriting risk in syndicating the loan
d) Fully underwritten deal was posed to greater credit and syndication risk for a volatile market like Hong
Kong
• Bid to Lose Approach
Reason for choosing this approach was:
a) Chase can save its face as a relationship bank and also get prevented from the credit and underwriting risk in
the deal

7. Approaches to Bidding (Cont.)
• Bid to Win Approach
Bid to win approach required aggressive bidding with competitive pricing. There were quite a few reasons for
Chase to choose this approach which are as follows:
a) Disney was one of the most important client of Chase
b) The H.K. Disneyland project is going to be a marquee deal for the region and failure to win the mandate
could tarnish Chase’s reputation as one of the region’s leading banks
c) Pressure to bolster the position in Asia, being a global leader in syndicate loan arrangement provided Chase
an opportunity to win the deal following the decline in lending and construction after Asian Crisis
d) Project credit risk was lower than perceived due to Hong Kong Government’s backing to the project
e) Improvement of liquidity post recovery from Asian Crisis made the deal more attractive
Thus, at the end, Chase decided to choose bid for win approach seeming increasing potential for successful
syndication

8. The Final Winning Proposal
• After getting shortlisted among the six banks for the mandate, Chase was asked to submit their final
proposal by 19 July
• Several decisions had to be taken by Chase for the creation of final proposal like assessment of
credit risk, amount to get underwritten, underwriting fee & interest rate spread and preliminary
syndication strategy
• The Chase deal team adopted a strategy to come up with creative features not mentioned by Disney
like splitting the HK$ 1 billion revolving credit facility into two parts of HK$ 250 million and HK$
750 million
• Chase team proposed a feature of step – up pricing in which spreads increase in later years of the
project. This feature appealed to the borrowers because of the reduced expenses in the earlier years.

9. Syndication Strategies
• Resolving the credit and pricing issues, Chase management came with three syndication strategies presented as
follows:
a) Strategy 1: Chase with Sole Mandate and Sub – Underwriting
Interpretations:
1. Administratively Simple
2. Reduced Underwriting Risk for Chase Manhattan Bank
3. Easier Syndication with the help of sub-underwriter support
Titles No. of Banks Initial Underwriting amount
Sub-Underwriting General Syndication
Individual Sub
Underwriting
amount
Total Commitment
Individual
Allocation
Total
Amount
Percent of
Total
Coordinating Arranger 1 3300 660 660 300 300 9.1
Lead Arranger 4 660 2640 300 1200 36.4
Arranger 4 250 1000 30.3
Co-Arranger 4 150 600 18.2
Lead Manager 2 100 200 6.1
Total 15 3300 3300 3300 100

10. Syndication Strategies ( Cont.)
b) Strategy 2: Chase with Joint Mandate and no Sub – Underwriting
Interpretations:
1. Required only two additional underwriting commitments instead of four commitments
2. League table status being shared and underwriting fee getting reduced by two – third amount
Titles No. of Banks Initial Underwriting amount
Sub-Underwriting General Syndication
Individual Sub
Underwriting amount
Total Commitment
Individual
Allocation
Total Amount
Percent of
Total
Coordinating Arranger 3 3300 300 900 27.3
Lead Arranger 0
Arranger 4 250 1000 30.3
Co-Arranger 6 150 900 27.3
Lead Manager 5 100 500 15.2
Total 18 3300 3300 100

11. Syndication Strategies ( Cont.)
c) Strategy 3: Chase with Sole Mandate and no Sub – Underwriting
Interpretation:
1. Chase compensation and league table status improved
2. Credit and Syndication risk increased
Titles No. of Banks Initial Underwriting amount
Sub-Underwriting General Syndication
Individual Sub
Underwriting
amount
Total Commitment
Individual
Allocation
Total Amount
Percent of
Total
Coordinating Arranger 1 3300 300 300 9.1
Lead Arranger 0
Arranger 4 250 1000 30.3
Co-Arranger 8 150 1200 36.4
Lead Manager 8 100 800 24.2
Total 21 3300 3300 100

12. Commitment Letter Negotiation
• On 10th August, Disney awarded the sole mandate to Chase because of its competitive pricing,
underwriting the full amount, high degree of flexibility on structuring and willingness
• Further, next step required execution of commitment latter with final terms
• Chase included features like Market Flex provision which provided underwriter to change terms
based on the market scenario
• Disney negotiated with Chase on features in the commitment letter and after agreement over various
issues Chase signed the commitment letter
• Further, Chase had to select a syndication strategy based on the fully underwritten deal

13. Concerns in Final Syndication Strategy
• There were major issues identified by Chase before selection of the final syndication strategy which
are as follows:
1. Selection of One Stage or Two Stage syndication strategy and accommodation of Disney’s
priorities
2. Setting appropriate fees, titles and commitments for each level
3. Determination of target final hold positions
4. Determination of an invitation list based on bank’s previous track record, bank size and no. of
banks required

14. Final Syndication Strategy
• After consultation with Disney, Chase opted for sub-underwriting strategy
• 7 banks participated in the sub-underwriting process making the total commitments of HK$ 4.2
billion
• Further, based on the general syndication process final positions of sub-underwriters were reduced to
HK$ 300 million
• In the general syndication process, 67 banks were invited to participate, out of which, 25 banks
submitted commitments of HK$ 5.3 billion oversubscribing the credit commitments by 3 times

15. Conclusions
• Oversubscription of commitments reflected confidence over the project undertaken by Hong Kong
Government and Disney. However, the magnitude of oversubscription reflected that sub-
underwriting went in vain and Chase could have kept a large share of fee with itself if there was no
sub-underwriting
• Participation from large no. of banks and closing of deal at time reflected syndication as successful
• Chase proved its credibility by financing the project in Asia where they were required to prove
themselves
• Exchange rate risk got reduced since 20 out of the 32 banks were based on Hong Kong and China
Thus, Syndication process was success in real terms and Chase could maintain its reputation as a
Global leader in Syndication process

16. Thank You