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In 1999, Walt Disney Co. and the Hong Kong government agreed to develop Hong Kong Disneyland. The project was an HK$28 (U.S.$3.6) billion theme park and resort complex which was to open in 2005. This "Hong Kong-Disney Syndicated Bank Lending" case study deals with how Chase successfully bid to lead this transaction. Among the questions he was faced with were whether to bid at all, how to bid, and how to structure the syndication to meet the borrower's needs.
Benjamin C. Esty; Michael Kane
Harvard Business Review (201072-PDF-ENG)
March 01, 2001
Case questions answered:
Case study questions answered in the first solution:
- How should Chase have bid for the Hong Kong Disneyland loan mandate? Consider the following options: no bid, bid to win, bid to lose. Evaluate the potential advantages and disadvantages associated with each strategy. What are the risks of the loan to Chase? What are the potential rewards of the loan to Chase? What actually happened with the loan mandate? How and why?
- Would you recommend that Disney sign Chase’s standard commitment letter? Which parts might concern you (as Disney) and why? As Chase, which part might you alter or remove?
- What syndication strategy would you recommend for the Hong Kong Disneyland loan? Think in terms of the number of tiers, commitment amounts and fees for each tier, determination of the invitation list, the nationality of and the number of banks, final hold positions, sub-underwriting vs. general syndication.
Case study questions answered in the second solution:
- How should Chase have bid in the first round competition to lead the HK$3.3 billion Disneyland financing?
- As Disney would you sign the standard commitment letter? Which parts might concern you and why? As Chase, which parts are you willing to alter or remove?
- What syndication strategy would you recommend for the loan? Think in terms of the number of tiers, commitments, and fees for each tier, nationality and number of banks, final hold positions, sub-underwriting vs. general syndication, etc.
- How do the different structures affect the risks and returns Chase might face as the lead arranger?
- How should Chase resolve the over-subscription? Was the syndication successful?
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Chase's Strategy for Syndicating the Hong Kong Disneyland Loan (A) Case Answers
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Introduction – Chase’s Strategy for Syndicating the Hong Kong Disneyland Loan
The main issue of this “Chase’s Strategy for Syndicating the Hong Kong Disneyland Loan (A)” case is how Chase will go about handling the HK$3.3 billion bank financing for the construction of the HK$14 billion Hong Kong Disneyland theme park and resort complex. Much of how the handling would take place at the bidding table when Chase along with 16 other major banks was invited to bid on the deal. In the initial rounds of the proposal, Chase went over the key loan terms and emphasized its flexibility on those terms, and most importantly, its knowledge of and relationship with the local market.
After making the shortlist, in the final proposal, Chase offered up two options, one as Chase being the sole mandated lead arranger and a second proposal with Chase sharing the load with two other banks as a joint mandate. After winning the bid, Chase looks at how to arrange the loan in terms of who it wants to allow as sub-underwriters and the pros and cons of its decisions.
The structure of the loan mandate was far from ordinary. The whole Hong Kong Disneyland project as it stood was valued at HK$14.06 billion, however, Chase was only being solicited to syndicate HK$3.3 billion or approximately 16.2% of the overall project by Disney. The uniqueness of the situation was created by the fact that the project called for the reclaiming of land that, at the time, was still part of the adjacent ocean, and not to mention that the deal would be done through the Asian market in Hong Kong. In addition, Disney was one of Chase’s top customers and Disney was looking for support from Chase on this project.
Chase’s options and their approach could be categorized as a bid to win, a bid to lose, and the option of not bidding on the project at all (See Exhibit 1). The terminology of the different approaches is mostly self-explanatory. Chase was plagued by two main factors. It did not want to sour the relationship between Disney and wanted to build a reputation in the Asian market.
Bidding to win would have ultimately benefited Disney and to a much lesser degree Chase. Therefore, a bid to win scenario was not optimal, because Chase saw it as problematic and inconvenient in bidding the Hong Kong Disneyland project to win under Disney’s requirements.
Bidding to lose seemed like the next logical choice because it allowed Chase to stray from the direct requirements of Disney, sweeten the deal by trying to generate more fees, and finally carry very little of the debt. The last possible approach, no-bid, would have certainly been complicated for Chase. The obvious choice for Chase to win the mandate was to create a hybrid of a bid to win and bid to lose. Creating a win-win scenario, or at least, as close as possible to one for both parties, which ultimately helps them win the mandate.
Chase most certainly wanted to be involved in the negotiation of the Hong Kong Disneyland, a multibillion-dollar theme park and resort complex in Hong Kong. The question was how to meet the demands requested by Disney, be competitive against others, and still be profitable in a volatile market. There were a lot of uncertainties and risks associated with the decision of how to bid, the structure of syndication to meet the required needs, while still meeting its own…
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