Corporate Finance Flashcards
Three principles of THD’s capital structure management
Financial Leverage
Dividends
Share repurchases
Financial Leverage principle
Maintain strong investment grade rating
Target Adj. Debt/EBITDAR ratio of 2.0x or less
Why is our A1/P1 rating important?
It allows easy, quick, unfettered access to cheap capital
A1/P1 is a $1T market; A2/P2 is 1/3rd the size
A full backstop to the CP program is required for A1/P1
Describe our credit facility
$3B CP program backstopped by $3B revolving credit facility
Never been drawn on; provides “sleep at night” protection
$2B multi-year; $1B 364 day (better for banks’ capital ratios)
Rated A1/P1
Our approach to cash balances
Used to target zero average cash balance
Now will target $1B average cash balance ($2B peak)
What is our cost of CP financing?
~35 bps for overnight
Average liquid cash
The average liquid cash position throughout the year
Long CP
We have an outstanding CP balance
What’s our debt balance?
$22.3B of senior notes outstanding
Target $1B CP balance
Average interest rate and maturity of senior notes
- 75% (declined over last five years)
15. 1 years (increased over last five years)
Revolving credit facility terms
(Current; increasing to $3B) $2B 5 years 7 bps undrawn pricing ($900k per year) No covenants L/C capacity $300m
What are our Global Investment Guidelines?
Capital preservation
Maintain liquidity
Optimize return
Revolver bank group
Tier One: JPM, BofA: $230M commitment each
Tier Two: Morgan Stanley, Goldman Sachs: $166M
Tier Three: Barclays, Deutsche, Credit Suisse: $91M
Many others at $91M
How do the Global Investment Guidelines achieve the objectives?
They set parameters for:
Credit standards of counterparties
Diversification of counterparties
Maturity limits of instruments
Where do we invest our excess cash?
Vast majority is in:
On-demand bank accounts
Treasury and Govt money market funds
Prime money market funds
