The Capital Raising Process James T. Ratner EVP Finance and Corporate Strategy American Financial...
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Transcript of The Capital Raising Process James T. Ratner EVP Finance and Corporate Strategy American Financial...
The Capital Raising Process
James T. Ratner
EVP Finance and Corporate Strategy
American Financial Realty Trust
The Capital Raising Process
♦Recognition of a capital need♦Review of capital options
Equity (common/preferred) Debt Convertibles Public vs. Private
♦Selection of managers/agents♦Preparation of offering materials♦Execution of transaction
Recognition of a Capital Need
♦Capital budgeting is critically important
♦Match funding reduces dilution
♦When Company already needs the money, it is often too late
♦“The Street” smells desperation
Secured Debt
Unsecured/Convertible Debt
Preferred Stock
Common Stock
Review of Capital Options
Payment Type
•Interest
•Interest
•Pref. Dividends
• Dividends
Claim on Assets
•Highest
•Next Highest
•Mid-Level
•Residual
Review of Capital Options
Capital Raising Alternatives
Flexibility Complexity Cost
Straight Debt
Low Low Low
Convertible Debt
Medium High Medium
Preferred Stock
Medium MediumMedium High
Common Stock
High Low High
Convertible Alternatives
♦Offers equity linkage at lower near-term cost
♦Permits “sale” of common stock in the future at more attractive price
♦Will produce significant shorting activity from hedge fund buyers
♦Convertible debt is STILL debt
Convertible Debt Case Study
♦Issuer: Company X
♦Security: Convertible Senior Notes
♦Issue Size: $300 million
♦Date: June 2004
Interest Rate: 4.38%vs.
Common Dividend Yield: 7.11%
Common Stock Price: $14.05vs.
Conversion Price: $17.84
Review of Capital Options
Other Considerations:
♦Public / Private
♦Overnight or extended offering period
♦Number of managers / agents
Selection of Managers / Agents
♦Choice was historically driven principally by relationships, but times have changed
♦Most managers will offer a variety of products, including equity and debt
♦Most managers will now put their own capital at risk
♦Fee-based competition is still limited
Preparation of Offering Materials
♦Not a legal function, but a Company function
♦Particularly important for equity
♦Similar disclosure requirements for both public and private deals
♦Timing can be very tight
Execution of Transaction
♦Distribution of “Red Herrings”
♦Roadshow / Marketing
♦SEC effectiveness, if applicable
♦Closing and payment
Role of the IRO
♦Press Releases
♦Initial inquiries from prospective investors
♦Questions from existing stakeholders
♦Roadshow planning
♦SEC Compliance
♦Pricing and initial trading activity
♦Ongoing monitoring
The Capital Raising Process
James T. Ratner
EVP Finance and Corporate Strategy
American Financial Realty Trust