How Should Chase Have Bid in the First Round Competition to Lead the Hk$3.3 Billion Disneyland Financing?

How should Chase have bid in the first round competition to lead the HK$3.3 billion Disneyland financing?

Originally Chase had the intention to bid-to-lose because it had a long term which banks generally did not like, there were problems with Disneyland Paris that were still a fresh wound and caused concern about potential default risk, and there was potential to have three lead arrangers which hurt their economics because it means a bigger portion of the overall fee would have to be shared.  They later decided to change their approach to bid-to-win because liquidity in the local markets improved and as a result the spreads on syndicated loans tightened, making them more attractive.  Another reason for the change in mentality because a senior H.K. official underscored the government’s commitment to the project at the Asia Pacific Loan Market Association Conference, which can be used to ease the worries about default risk.  With the intention of winning the bid, Chase could have made a few changes.  They could have used a shorter syndication term, an underwriting fee around 100 – 150 bps, and a market interest rate spread need that is 135 – 150 bps over HIBOR.  To make the offer even more attractive, they could underwrite the full amount upfront, accept two lead arrangers, and a smaller underwriting fee and interest rate spread.

As “Disney” would you sign the standard commitment letter?  Which parts might concern you? Why?  As “Chase” which parts are you willing to alter or remove? Why?

I would not sign the standard commitment letter if I was Disney, and the main reason is the market flex clause.  Through this clause, Chase would be allowed, after consultation, to change the structure, terms, and amount or pricing of the facility.  This means that Chase would have the right to change nearly anything they wanted after consultation, regardless of any feedback they received.  From Chase’s mindset, one thing I would be willing to alter is the wording in the market flex cause from “after consultation” to something more in favor of Disney.  This would still allow Chase to make some changes as they saw fit, but it should have to come with the approval of Disney so everyone is aware of the additional risks being taken.  

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