Case Examples for Sources of LT finance Flashcards
Discuss the debt side to Tett (2018) case
covers both aspects of LT finance on this paper
debt based:
- debt issue in markets is easier to understand
- financial crisis caused by excess borrowing from consumers and financial institutions
- western banks and hedgefunds have less leverage than before which has led to the issue recceding
- because the problem has deceased, this is an indication that core financial systems are healthy
- unlikely to see a repeat of 2008
debt issues in the economy have not dissapeared. gov borrowing is contirbuting to this
central banks increase interest rates to restore balance
Discuss the equity side to Tett (2018) case
volatility in markets is always occuring constantly
this volaitility is a sign of things to come
so much does the market become volatle that JP morgan estimates that only 10% of traders trade the traditional way
computer algorythms and financial engeneering techniques have been created to help maximise the fast pace of the market
without extensive knowledge relating to softwares it makes it difficult for governmental legislators to regulate the ever so contrversial market
discuss the Retail and private equity article by Platt (2017)
toys r us delcares bankruptcy after 70 years
toys r us was bought via a private equity firm
toys r us tried raising finace after failing to meet their seasonal quota, but this end was clear when they failed to do this
this was due to excessive competition in the market from firms like amazon and walmart
olygpology markets are set to be prodimant in 2018
other firms expect to face closure due to the intense compeition and being priced out the market
$66bn in debt based financial in the retail sector set to mature in the next couple of years
what is private equity
establish a fund and use this to purchase businesses within a few years at a profit
check company finacials and aquires the business for a given amount
charge management fee which is additional income
increase market value of business
under the covenant the private equity firm is entitled to a certain percentage of the sale
=earn money from management fee charged at the start as well as percentage of fee when sold
Discuss both of the FT anaylis relating to private equity
- focused on 31 deals
5 private equity firms entered bankruptcy
6 defaulted on obligations
private equity and excessive gearing was the reason as to why firms couldnt fund themselves during increased competition - analysed 31 leveraged buyouts worth $500m+
companies with debt reduced bonds to encourage investments
nieman marcus did this
deals classed as distressed if bonds were 80 cents on the dollar
GNC vitamin company has tried several times to shift its debt which is due in 2018/2019 but failed
analysts warn that if the company that if they dont refinance their debt, theyll default on their payments
what is a leveraged buyout?
firm purchased by both equity and debt
Discuss the Aramco oil case by Livsey (2017)
The biggest IPO
worth $1tn according to FT analysis which = 2/3 worth of london stock exchange and X2 of Apple
IPO suggested because of falling crude prices which affects the oil dependant economy in saudi
initial IPO value of 5% with the potential for more
difficult to arrnage with legal consultnacy required due to the complex structure of the business. which part of the business will be offered as an IPO?
privatising Aramco is the first step into rebalancing the conomy
rulers of the kingdom recognise the need for investment in other industries like technology to create diverse range of revenues
pumping $45m into firm called softbank vision fund
seperation of oil company from saudi state could be painful BUT needed to help investors focus on hydrocarbons
Discuss the Aramco oil case by Livsey (2017)
The biggest IPO
worth $1tn according to FT analysis which = 2/3 worth of london stock exchange and X2 of Apple
IPO suggested because of falling crude prices which affects the oil dependant economy in saudi
initial IPO value of 5% with the potential for more
difficult to arrnage with legal consultnacy required due to the complex structure of the business. which part of the business will be offered as an IPO?
privatising Aramco is the first step into rebalancing the conomy
rulers of the kingdom recognise the need for investment in other industries like technology to create diverse range of revenues
pumping $45m into firm called softbank vision fund
seperation of oil company from saudi state could be painful BUT needed to help investors focus on hydrocarbons
investors may be thrown off by a low growth stock due to regulations in this market
regulated on production
earnings come from gas and oil prices
Where should Aramco float?
options: Hong Kong + ldn + NY
NY = deepest capital market Ldn= more international NY= have lawsuits against Aramco relating to 9/11 attacks Ldn = listings have previously gone wrong
Why should investors look at an unethical company like Aramco positively?
CEO commited to economic reform (anti-curroption)
welcome measures by gov to eradicate currption
saudi prince –> 0 tolerance policy
nobosy excused incl miniters and other signifcant people
discuss the HNA case by Dunkley and Luckett (2018)
HNA business with many subsidaries in china
pledged 1.4bn shares = $396m
Bankers: theyll do anything to secure funding with many debt based insitituions like banks pulling out
aquired 25% in hilton worldwide and detch bank with a stake of 9.9%
cashflow was then low
their debt fuelled strategy backfired when they started deafulting on payments
drove investors away
subseqnetley forced to sell assets and shares to restore confidence to investors
sold 2 plots of lanfd for $15.8bn
shares reduced from 9.9% to 8.8% in detch bank
discuss the ethihad case by Smith (2018)
facing a $1.2bn debt
$1.2bn of structured bonds tied to etihad have been in balance becasuse of the collapse of alitalia and air berlin
no legal obligation for etihad to bail out bond holders
Legal community beleive that ethihad will come in with a last minute resuce
$500m + $700m bonds packed up loans meant that etihad could raise funding for its EU airlines without breaking eu laws
air berlin and alitalia trading for 10 cents on the dollar
bond holder expecting to be bailed out
discuss retailers into sunk by Nicolav (2017)
1/5 retailers rated as junk amist bankruptcys like toys r us
this is double from 2017
18% debt rated in CCC class which is uninvestible
this is due to difficulty adapting to online retailers + changes to consumer taste
S&P GLOBAL: toys r us adds more stress to a distressed retail sector
21% of resutants and retail are on the distressed list
oil and gas was previously on the list due to low commodity prices but these steadied, retail has not
many retail stores are slashing their brick and mortar stores to cope
this includes many luxury retailers
Credit suisse: as many as 8640 stores with 147sqft of retail space could shut down in 2017
Discuss the case of bank of england buying bonds by Jackson (2016)
The Bank of England will start buying corporate bonds
launched latest version of quantitative easing aimed at boosting the private sector.
three ‘reverse auctions’ aimed at buying bonds from paticular sectors
these include utlities ect
those who make a material contribution to the UK economy are elegible
BoE aims to buy £10bn in bonds within the next 18 months
National Grid sold £3bn worth of bonds, the largest ever sterling deal,
Vodafone sold two bonds within the space of a week, just to take advantage of a fall in yields following the programme’s announcement.
Ketish Pothalingham: as well as helping the so-called primary markets, it had also boosted trading of outstanding bonds as there was now “some sense of a buyer of last resort being in the market”.
Discuss the WEWORKS case by Scaggs (2018)
WeWork, the lossmaking provider of shared office space
raised more money than planned in its first foray into the bond market, selling $702m of seven-year senior unsecured notes at a yield of 7.875 per cent.
planned to sell $500m of notes at a yield between 7.75 per cent and 8 per cent
the company has traditionally relied on private equity investments to raise funding
Its last funding round from SoftBank valued the company at $20bn.
Steep losses raised some concern among investors,
The company’s net loss more than doubled to $933m in 2017
Another worry for investors involved the metrics WeWork used to describe its financial performance.
instead of a standard “ebitda” calculation — which stands for earnings before interest, taxes, depreciation and amortisation — it reported “adjusted ebitda”, which excluded marketing and sales costs, too.
This decision was particularly concerning to some investors because “adjusted ebitda” was used to set some leverage requirements under the bond’s covenants
