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Frank 79 > Investment Banking Procedures > Flashcards

Investment Banking Procedures Flashcards

1
Q

Order of auction process in M+A?

A

Teaser > NDA > CIM > IoI > LoI > Closing

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2
Q

Which types of BD must have Restricted and Watch lists?

A

Firms that engage in IB, Research or Arbitrage. All firms must have written policies on material nonpublic information

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3
Q

Safe harbor in gun jumping provisions?

A

Communication is made 30 days prior to registration and does not mention the issue

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4
Q

Disclosures on a fairness opinion:

A

Conflict of interest, contingent compensation, whether any compensation is being received
(Note amount of compensation does not have to be disclosed)

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5
Q

When must a Schedule TO be filed?

A

When a firm makes a tender offer and acquires more than 5% of a firm (also need to file a 13D)

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6
Q

Requirements of procedures on Information Barriers?

A

In writing
Employees must sign acknowledgement on joining
Must include process for how updates will happen

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7
Q

Filing requirements on target companies?

A

If a tender offer, Schedule 14d-9

In a takeover, a Proxy

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8
Q

Primary reasons investors use futures contracts?

A

Hedging and speculation.
Hedging against price moves in currencies or commodities
Speculation against price movement in the futures contract

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9
Q

Difference between Futures and Forward contracts?

A

Futures: investor may offset at any point before contract is assigned
Forward: may not be assigned without permission of counterparty

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10
Q

Who can write a fairness opinion? Buy side bank or Sell side bank?

A

Either, provided conflict of interest is disclosed

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11
Q

Functions of syndicate desk?

A

Build the book of orders, market (distribute) the issue, assist in the pricing of the offering and, if necessary, place a stabilizing bid

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12
Q

Features of roadshows?

A

Organised by lead underwriter; issuer management (usually CEO and CFO) participate

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13
Q

In a liquidation, who is last of the creditors and who is the last of the equity holders?

A

Creditors: subordinated debenture holders
Equity: warrant holders

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14
Q

What’s a Purchaser Representative?

A

Represents a non-accredited investor in a Reg D private placement (must be knowledgable, can’t have blanket authority)

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15
Q

Typical makeup of underwriting fee?

A

20% management fee, 20% underwriting fee and 60% selling concession

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16
Q

In a private placement of securities exempt from registration, what must be filed with SEC?

A

Form D, no later than 15 days after securities first offered

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17
Q

What’s a notch in SandP ratings?

A

Each grade has +/- and these are a notch – so one notch below AA- is A+

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18
Q

Difference between an indemnification basket and indemnification cap?

A

Basket: no payout unless loss exceeds a certain amount
Cap: total liability is capped

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19
Q

A gain on selling S Corp shares?

A

Capital gain on profit above basis. May be long term. Distributions above basis also a capital gain.

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20
Q

If Chapter 11 is a Reorganisation Bankruptcy, what’s a Liquidation Bankruptcy?

A

Chapter 7

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21
Q

What’s a 338(h)(10) election?

A

Allows stock sale to be treated as an asset sale for tax purposes under certain conditions.
Seller sells assets at higher price (pays more tax, but may be able to offset against carried losses). Purchaser gets assets at a higher basis (so less gain when subsequently sold) without having to write up the stepped up value

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22
Q

Reg A advantages?

A

Registered with SEC, but simpler process than IPO
Financial statements don’t need to be audited
Three formats for offer docs, including simple Q&A
No reporting unless >$10m in assets and 500+ shareholders

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23
Q

First step in calculating adjusted numbers around a transaction…

A

Use Treasury method for any options that are in the money

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24
Q

Price limit on stabilisation?

A

Never higher than offer price
If traded, last independent transaction, so long as current independent bid is equal or higher, OTHERWISE
Last independent bid

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25
Q

What’s a block trade?

A

IB buys a large chunk of shares from a corporation as a principal, and has to liquidate without reducing the stock price. Risky.

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26
Q

What will a shift from debt to equity to do WACC?

A

If the cost is the same, WACC will increase, as adjustment to cost of debt to make it pre-tax will lower it vs equity which is always post-tax

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27
Q

What’s a floating exchange ratio?

A

Dollar amount of transaction is fixed, so number of shares to be exchanged will vary as the share price moves

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28
Q

Difference between an indemnification cap and basket?

A

Cap limits total liability; basket established de minimis threshold which must be passed

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29
Q

What do buyers and sellers look for in EV ratios…

A

Buyers: low ratios (it’s cheap)
Sellers: high ratios (it’s expensive)

30
Q

Where must a BD’s controlling interest be disclosed in relation to a transaction?

A

In writing, on the customer’s confirmation

31
Q

Treatment of written complaints?

A

Filed, with a memo on action taken. No requirement to respond in writing to the complainant

32
Q

What should you look out for when researching comparables?

A

Transactions during dotcom bubble of 1998 to 2001

33
Q

What are threeway conversations?

A

Client, IB rep and Analyst. They are not allowed.

34
Q

Where do unsponsored ADRs trade?

A

OTC

35
Q

When would an unsecured creditor file a claim in a bankruptcy?

A

Only if not listed in the firm’s Schedule of Liabilities

36
Q

Is the release of factual information and forward-looking statements a violation of Gun Jumping provisions?

A

No

37
Q

What’s a Poison Pill?

A

Defense against a hostile takeover by offering rights to existing shareholders to dilute holding of the stalker and drive up price of the acquisition

38
Q

What is perfecting a lien?

A

Secured creditors file notice of their lien, to serve notice to purchasers of the bankrupt firm, and establish priority over all subsequent liens

39
Q

Can syndicate members effect stabilising bids?

A

Yes. Normally it’s the syndicate manager, but if a member does, it must notify manager within 3 business days, and manager must retain records

40
Q

Can an issuer have two shelf registrations simultaneously?

A

No. If it files a new registration, it can still sell under the old one (if not expired) until new one becomes effective. If a WKSI, it would become effective immediately.

41
Q

What are rules on solicitation prior to a Reg A offering?

A

Test waters with factual info only
Must explicitly say don’t send money
Soliciting money for the issue
Breaching 20 day period between solicitation and first sale

42
Q

What would Fairness Opinion look at / not look at?

A

NOT: Federal tax consequences
WOULD: financial info and projections, stock price both companies, comparable, agreement

43
Q

Calculating cost of calling a bond?

A

Interest to call point, call cost, last semi-annual interest payment

44
Q

Cost of capital for a debt issue?

A

Interest expense / proceeds of the issue

45
Q

What affects operating cash flows?

A

Revenues, operating expenses, and assets / liabilities.
Assets tie up cash so reducing them increases flows.
Decreasing liabilities uses flows.

46
Q

What’s an alternative to exercising Green Shoe Clause?

A

Buy shares in the open market to fill orders, particularly if the price is lower than the offering price

47
Q

When can you tender stock?

A

Own it, own a convertible security that can be immediately converted, or own another options which have been exercised

48
Q

What are restrictions on underwriters, issuers and selling stockholders under Regulation M in period leading up to and during an issue?

A

Cannot buy stock in run up to an issue (sale) of stock

49
Q

In a contingency underwriting, what must go into escrow?

A

Entire value of issue. No payments to underwriters until after the closing date (so an investors receive all their funds back if it doesn’t go ahead)

50
Q

Rules on composition of Fairness Committee?

A

Must have some members from outside the deal team

51
Q

How are termination costs around a transaction treated?

A

BEFORE: deductible expense for target, creates a liability which buyer assumes
AFTER: not part of the buyer’s acquisition cost

52
Q

Tail fee?

A

If an underwriter is engaged, issue doesn’t take place, but subsequently happens with another underwriter, a tail fee is due. Period can be a maximum of 2 years from end of engagement.

53
Q

Requirements of notification of underwriting?

A

Finra, and also intention must be noted in registration documents listed with SEC. Stabilising bid must be identified as such.

54
Q

Jump Ball basis?

A

Shares put into a pot for institutional clients. Whoever makes the sale gets the fee.

55
Q

What registrations use an S8?

A

Employee benefit plans

56
Q

Actively traded T-Bill prices?

A

Points: /32

+ indicates actively traded so add 1/64 to price

57
Q

Difference between outstanding shares and public float?

A

Outstanding shares includes restricted stock held by insiders

58
Q

Highest priority in a bankruptcy?

A

Providers of DIP financing

59
Q

When must a Regulation M notice be filed with FINRA?

A

No later than COB on next business day after pricing

60
Q

How can Canadian companies trade on a US exchange?

A

No need for an ADR. Register with SEC and trade common stock on an exchange

61
Q

Restrictions on research reports if not involved in a distribution?

A

None – it’s not considered an offer to sell

62
Q

What’s positive convexity?

A

Relationship between price and yield is non linear – as yields decline, price of long term bonds rises faster than short term

63
Q

If an offering has been announced, can an analyst respond to inquiries?

A

Yes, with a fair and balanced view

64
Q

BD will perform DD in which type of securities offering?

A

ALL types

65
Q

Factors determining extend of dilution in a financing?

A

Sophistication of investors gives them pricing power, so VC most dilutive, private placement next most dilutive and IPO typically least dilutive

66
Q

Bond yield calculation?

A

Selling at premium, callable at par: to the call date

Selling at discount, callable at par: YTM

67
Q

If calculating EPS for a company with convertible bonds, how treated?

A

If converting the bonds is antidilutive (higher EPS) report the lower figure as though not converted

68
Q

Exception to the prospectus delivery requirement?

A

If already reporting (e.g. on a major exchange) no aftermarket prospectus requirement

69
Q

Flow of agreements in underwriting?

A

Underwriting agreement between managing underwriter and issuer;
Syndicate agreement between managing underwriter and syndicate members

70
Q

When would Price to Book Value be a good measure?

A

Companies with high amount of liquid assets, e.g. insurance and banking companies

Frank 79 (4 decks)

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