Raising Corporate Capital:

Strategies for issuers and investors

Publication Date	August 2008
Publisher	IFR Market Intelligence
Product Type	Report
Pages	143
ISBN Number	not applicable
Product Code	IFR00029

Buy this product or for assistance call +44 20 7060 7474

PDF £1,034.00$1720 | €1157

PRINT £795.00$1322 | €890

FAX Order above formats by FAX

Summary

In today's uncertain economic and credit conditions, it has never been more challenging for a corporate to go to the capital markets and execute a successful fund raising issue.

Raising Corporate Capital: Strategies for issuers and investors maps out the new funding landscape, exploring the emerging strategies and opportunities facing dealers, issuers and investors. Bringing together some of the foremost experts in the corporate capital markets, it taps their views to provide a detailed outlook for the market in the years ahead, offering practical advice on how to identify and construct optimal corporate funding strategies.

Set against the current economic backdrop, this report gives crucial insight on key areas such as bond supply, corporate default trends, mapping the new yield curve, private placements and structured notes, plus the latest on:

High yield debt
Syndicated loans
Leveraged loans
Securitisation
Hybrid capital
Convertibles

Case studies are also included to give an issuers perspective on how corporates can navigate in an uncertain funding environment to maximise efficiency and control risk.

Over 120 table and charts of key data are integrated within this definitive report.

Content

Executive summary
Identifying new opportunities
About the report
C01 Interest rates and the global economy
- Introduction
- Outlook for growth
  - Effect on wages
- Risk and financial stability
  - Generous liquidity and accommodation but for how long?
  - Solvency, not liquidity, is the longer-term risk
- Outlook for central banks
- Outlook for currencies
- Corporate funding
- Conclusion
C02 The yield curve
- David Keeble, Executive Director/Global Head of Interest Rates Strategy, Calyon
- Market volatility
- The slope of the yield curve
  - Liquidity constraints
- Pricing issues
- Prospects for issuance
C03 Funding in a crunch
- Hans Peter Lorenzen, Director, European Credit Products Strategy Team, Citibank
- Anatomy of a crisis
  - A systemic unwind of leverage Central banks to the rescue?
- Assessing bank funding and lending
  - The securitisation problem
  - Unfunded commitments
  - Will regulators reassess capital ratios?
  - Less lending, still lots of funding
- Will non-financials feel the pinch?
  - The return of disintermediation
- Conclusion funding in a crunch
C04 Investment grade bonds: syndication outlook
- Jean-Francios Mazaud, Head of Debt Capital Markets & Thomas Minoletti, Associate, Socit Gnrale Corporate & Investment Banking
- Introduction
- Primary market activity throughout the crisis
- Secondary market activity throughout the crisis
- Executing benchmark transactions in volatile markets
- Investor dynamics in volatile markets
- Pricing benchmark transactions in a volatile market
- Potential opportunities in a volatile market
- The outlook for the investment grade bond market
- Conclusion
C05 European high-yield market a pause before another surge
- Oleksiy Soroka, Senior Credit Analyst, High Yield Consumer, Industrials, BNP Paribas
- Introduction
  - Europe catches on
  - Damaging effects of the burst telecom bubble
  - The Belle Epoque
- Market changes
- CASE STUDY: Alliance Boots a classic top-of-the-market transaction
  - The sub-prime crisis
- Market stasis
- Default rates
- Recovery prospects
  - Economy: the swing factor
  - Long pause before another surge
C06 Corporate default rates and ratings implications
- Kenneth Emery, Senior Vice President and Director of Corporate Default Research in the Credit Policy Research Group, Moodys Investor Service
- Introduction
- Prospects for default rates
  - Mitigating factors
  - Corporate health
  - Near-term corporate refunding risks
- Risk factors in high-yield default
  - Weakening issuer liquidity
- Speculative grade liquidity ratings explained
  - Refunding risk
  - Market turbulence
- Rating actions, reviews and outlooks reflect worsening credit quality
C07 Syndicated loans
- Rebecca Manuel, Managing Director, Head of European Corporate and Structured Loan Syndicate, The Royal Bank of Scotland
- Introduction
- Loan market overview
  - EMEA region
- Syndicated loan issuer classes
  - General corporate
  - Acquisition finance
  - Project finance
  - Other structured finance
- The credit crunch
- 2008 review and outlook
C08 Leveraged loans
- Ruth McGavin, Associate, Leveraged Commentary and Data, Standard & Poors
- Market background
- European market growth
  - Out of balance
  - Boom-time madness
- Current state of the market
- Prospects and challenges
C09 Opportunities and challenges for corporates in the post- credit crunch securitisation markets
- Conor Downey, Partner, London Capital Markets Group, Cadwalader, Wickersham and Taft
- Past routes to finance
- The current situation
- Future development drivers
  - Back to basics
  - New investors
- What deals will be available to corporates?
- Conclusion
C10 Structured notes in the private placement market
- Sylvia Ewald, Head, European Medium Term Notes, Morgan Stanley
- Introduction
- Specifications of private placements
  - Issuance under standalone documentation
  - Issuance under debt issuance programmes
- Developments and trends in the private placement market
- Anatomy of private placements
- Structured notes
- Rationale for structured notes issuance
  - The dealers role
  - Benefits for issuers
- Dealing with the credit crunch
- Types of structured notes
  - Interest rate linked
  - Equity linked
  - Currency linked
  - Credit linked
  - Inflation linked
  - Commodity linked
- Focus: The range accrual note
- Secondary market
- Conclusion
C11 Hybrid securities: low cost equity to support your strategic objectives
- Steve Sahara, Managing Director and Global Head of Hybrid Capital Structuring & Annabel Daws-Chew, Associate, Calyon
- Introduction
- Hybrid capital market overview
  - The preferred stock paradigm
- Drivers for issuing hybrid capital securities
  - Corporate hybrid issuers
    - Michelin
    - Linde
    - Sdzucker, Vattenfall and DONG
    - Henkel
    - Porsche
    - Glencore
    - CEMEX
    - Rexam
    - Voestalpine
    - Deutsche Boerse
- Structural considerations for corporate sector hybrids
  - Legal/tax considerations
  - Accounting considerations
  - Rating agency considerations
- Future of the corporate hybrid market
  - Tax, accounting and rating agency
  - Expansion of the issuer pool
- Conclusion
  - Appendix
C12 Convertible bonds: a financing solution for all?
- Simon Roue, Head of Equity-linked Origination for EMEA and Asia, Strategic Equity Transactions Group, Deutsche Bank
- Issuance capacity
- Issuance flexibility
  - The equity financing niche play
  - A potential alternative to debt
  - If it works for corporates, it can work for governments
- Convertible bonds the key components
  - Convertibility into shares
    - Future dilution or dilution today?
    - Shareholder approval
    - Equity volatility
    - Investor behaviour and share price impact
  - Convertibles compared with the debt markets
    - Development of spreads during the bull run
    - Current debt market conditions
  - The unique investor base
    - Hedge funds
    - Outright investors
  - Remaining technicalities
    - Accounting
    - Tax
- Conclusion the current market outlook
C13 Issuer 1: KPN
- Marielle Vogt, Senior Advisor, Matthew House, Associate & Joost Freijzer, Associate, Corporate Finance, KPN
- About KPN
- Financing framework
- Funding before the credit crunch
- Funding during the credit crunch
- Funding in 2008
- Funding going forward
C14 Issuer 2: Eksportfinans
- Oliver Siem, Executive Vice President and Director of the Treasury Department, Martine Mills Hagen, Senior Vice President and Head of Funding & Kristine Bastoe Sund, MTN Analyst, Funding Department Eksportfinans
- Introduction
- Background
- Funding
- Coping with the sub-prime fallout
LIST OF TABLES AND FIGURES
- T3.1: High-grade issuance forecast fixed and FRN (local currency, bn)
- T3.2: European banks return vs.leverage 1996 & 2007
- T3.3: Financial issuance forecasts (local currency, bn)
- T3.4: Financial issuance forecasts (local currency, bn)
- T6.1: Rating actions, reviews and outlooks as of 31 March 2008 (as a percentage of rated issuers in each sector)
- T6.2: Rating actions, reviews and outlooks as of 31 March 2008 (as a percentage of rated issuers in each region)
- T6.3: Rating actions, reviews and outlooks as of 31 March 2008 (as a percentage of rated issuers in rating category)
- T7.1: Top bookrunners of global syndicated loans, 2007 (US$bn, %)
- T7.2: Top bookrunners of EMEA syndicated loans, 2007 (US$bn, %)
- T11.1: The preferred stock paradigm
- T11.2: Issuance rationale for select corporate hybrid securities
- T11.3: Summary corporate hybrid instrument terms
- F1.1: US confidence vs. 5-year inflation forecasts, 19902006
- F1.2: Eurozone PMI composite vs. real GDP, 1999H1 2008
- F1.3: Local steel scrap prices, Jan 2006Feb 2008 (US$/t)
- F1.4: US petrol prices vs. TIPS 2032, Mar 2007Jun 2008
- F1.5: US and eurozone inflation, 200309F (%)
- F1.6: Belgian inflation, 1984H1 2008 (%)
- F1.7: US bank assets / nominal GDP, 1973Q1 2008-07-08
- F1.8: US bank stocks, Jan 2007Jul 2008
- F1.9: Fed Funds target and measures of neutral fed funds, 1960H1 2008
- F1.10: Per person contribution to quarterly US GDP growth, 19772007 (4-qtr mov ave)
- F1.11: US retail sales, less motors and petrol, 1993H1 2008 (adjusted 3m/3m, annualised %)
- F1.12: US$/ comparison, 19952009F
- F1.13: Interest rate differential and US$/, 2003H1 2008
- F1.14: Corporate liquidity, 2005Q1 2008, (%)
- F1.15: Corporate margins, 2005Q1 2008 (%)
- F1.16: Impacts on payments, 2005Q1 2008 (%)
- F1.17: Inflation comparisons, 19622007 (%)
- F1.18: Growth volatility, 19622007 (%)
- F2.1: 10Y US Treasury yield (%)
- F2.2: Structural slopes of the yield curve (bp)
- F2.3: 3-month T-bill, May 2007May 2008 (%)
- F2.4: 10Y10Y5Y5Y US and Europe (bp)
- F3.1: Total bank assets, 19992007 (2003=100)
- F3.2: Global syndicated loan issuance by type, 19802008 (US$bn)
- F3.3: Net bond issuance, 19992007 (bn)
- F3.4: Loan share of total corporate financing Europe, 200007 (%)
- F3.5: Borrowing of selected large European banks, 19992007 (trn)
- F3.6: Undrawn facilities signed by size, 19802008 (US$)
- F3.7: The off-balance sheet conduit model
- F3.8: US commercial paper outstanding, 200108 (US$trn)
- F3.9: European securitised products issuance, 200508 (bn)
- F3.10: Total assets of selected US and EU banks, 200508 (2003=100)
- F3.11: 3-mth Libor 3-mth OIS by currency, Dec 2006Apr 2008 (%)
- F3.12: Financial issuance total gross by month (bn)
- F3.13: Loans to large enterprises, 19902007 (YoY growth, %)
- F3.14: Global outstanding undrawn loans, 19952007 (US$bn)
- F3.15: European banks tangible equity to reported assets, 19952007E (%)
- F3.16: Financial issuance and redemptions, 200008F (bn)
- F3.17: Financial issuance and redemptions, 200008F (bn)
- F3.18: EBITDA to net debt, US and Europe, 19962007 (%)
- F3.19: Short-term debt, percentage of total debt, 19962007
- F3.20: Cash and near-cash items, percent of short-term debt, 19962007
- F3.21: US non-financial funds in and out, 19802007 (percentage of GDP)
- F3.22: European corporate cash flow expenditures, 19962007 (percentage of operating cash flow)
- F3.23: Global monthly M&A volumes w. 3-mth MA, Nov 2003Nov 2007 (US$bn)
- F3.24: Corporate bond yield vs. inverted P/E ratio, 19982007 (%)
- F3.25: Global M&A, 19902007 (country as acquirer or target, US$trn)
- F3.26: Net percentage of banks tightening standards, 19902007
- F3.27: Lending standards vs. net increase in corporate liabilities, loans, 19902007 (US$bn)
- F3.28: Monthly drawn loan issuance, 19952008 (US$bn)
- F3.29: Lending standards vs. net increase in corporate liabilities, loans, 19902007 (US$bn)
- F3.30: Non-financial issuance and redemptions in Euros 200008F (bn)
- F3.31: Non-financial issuance and redemptions in Dollars 200008F (US$bn)
- F4.1: Corporate investment grade bond issuance (US$bn, (%)
- F4.2: Evolution of 10y benchmark yields, Jun 2007May 2008 (%)
- F4.3: Euro AA 7y fixed rate borrowing costs, Jun 2007May 2008 (%)
- F4.4: Euro A 7y fixed rate borrowing costs, Jun 2007May 2008 (%)
- F4.5: Euro BBB 7y fixed rate borrowing costs, Jun 2007May 2008 (%)
- F4.6: Investment grade spreads, Jun 2007May 2008 (bp)
- F4.7: Investment grade redemptions, 200508 (US$bn equiv)
- F4.8: Global M&A volumes, 2005Q1 2008 (US$bn equiv)
- F5.1: European high-yield bond market returns, 1998H1 2008 (%)
- F5.2: European currency monthly bond issuance, 2006, 2007 (US$bn)
- F5.3: Global speculative grade default rates, 19702007 (%)
- F6.1: Global speculative-grade default rate, 19982008F (%)
- F6.2: Speculative-grade default rates and high yield bond spreads, Mar 1989Mar 2008 (%, bp)
- F6.3: Non-financial corporate balance sheets, 19802006
- F6.4: CDS vs. EDFs for current speculative-grade issuers, 19992008
- F6.5: Maturing speculative-grade debt, 200409 (US$bn)
- F6.6: SGL portfolio composition, Q3 2002Q1 2008
- F6.7: Maturing speculative-grade debt, 200810 (US$bn)
- F6.8: Covenant cushion, by rating category (%)
- F6.9: Probability of a covenant breach, by rating category (%)
- F7.1: Global capital markets volumes, 2007 (US$bn)
- F7.2: Global loan volumes by region, 19952007 (US$bn)
- F7.3: EMEA loan volumes by region, 19952007 (US$bn)
- F7.4: Issuance by geography 2000, 2007 (US$bn)
- F7.5: Global quarterly volumes Q1 2007Q1 2008 (US$bn)
- F7.6: EMEA loan market volume, Q1 2006Q1 2008 (US$bn)
- F7.7: Loan multi-year drawn pricing, Jan 2002Jan 2008 (L+bp)
- F7.8: EMEA use of proceeds Q1 2007Q1 2008 (US$bn)
- F7.9: EMEA acquisition related vs. LBOs Q1 2007Q1 2008 (US$bn)
- F8.1: Annual senior loan volume, 1998Q1 2008 (bn)
- F8.2: Primary market by broad investor type, 1999Q1 2008 (%)
- F8.3: Weighted average new issue spreads pro rata vs. institutional, 1997Q1 2008
- F8.4: Spread per unit of leverage Europe vs. US, Q4 1998 Q1 2008 (bp)
- F10.1: Corporate private placement issuance, Jun 2007Jun 2008 (US$m, %)
- F10.2: Private MTN issuance by currency, Q1 2008 (%)
- F10.3: Issuance volume, 2000Q1 2008 (bn)
- F10.4: Private EMTN volume evolution by S&P rating, Q1 2005Q1 2008 (bn)
- F10.5: Cash flows of a structured bond and swap transaction
- F10.6: Structured notes by asset class, Jun 2007Jun 2008 (US$m, %)
- F11.1: Growth of next generation hybrid issuance, 2003Jun 2008 (m)
- F11.2: Corporate issuers (sectors/ratings) benefiting from hybrid instruments
- F11.3: WACC calculation common equity vs. hybrid debt (%)
- F11.4: Primary technical foundations for structuring a hybrid security
- F12.1: EMEA convertible bond issuance, JanMay 2008 (US$bn)
- F12.2: Supply/demand dynamic for EMEA convertible paper, 2004May 2008 (US$bn)
- F12.3: Historic EMEA convertible issuance, 2002May 2008 (US$bn)
- F12.4: Convertible mechanics
- F12.5: European volatility (VStoxx), Jan 2007Jun 2008 (%)
- F12.6: Evolution of convertible delta
- F12.7: Credit spread development over the cycle, Jan 2005May 2008 (bp)
- F13.1: KPN debt, Q1 2007Q1 2008 (bn)
- F13.2: KPN financing policy, Q1 2007Q1 2008
- F13.3: KPN 5Y CDS vs. iTraxx Xover 5Y, May 2007May 2008 (bp)
- F13.4: KPN debt redemption profile, end-2007 (bn)
- F14.1: Eksportfinans total lending, 20032007
- F14.2: US MTN vs. non-US MTN, 200311 Jun 2008 (US$m equiv)
- F14.3: Eksportfinans total funding and no. of currencies, 200311 Jun 2008 (US$m equiv)
- F14.4: Eksportfinans investor geography distribution, 200311 Jun 2008 (US$m equiv)