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The following popular Case is now available free of
charge.
Craft Tools Company
Craft Tools Company is undergoing a strategic review in anticipation of an IPO
in the future. The company had been
taken private through a management buy out (MBO) and has enjoyed export-lead
growth. The company is interested in learning more about the nature of financial
exposures its faces, including exposures to foreign exchange rates, interest
rates, commodity prices, equity prices, and credit risks – and how these may
play a role in assessing its value in the IPO.
Corporate exposure management frameworks and polices as well as
competitive industry position are topics for discussion.
Non-derivative and derivative exposure management solutions might be
considered by the company. This
case is designed as a complement to Corporate Exposure Management and
Derivatives Ideas. (This note is sold separately on the Readings web
page.)
Price: FREE
6 pages
Revised December 1999
The following popular Cases are now available for purchase. Additional Cases will be added to this list periodically.
AES Corporation’s TECONS
In March 1997, AES Corporation completed a rather unusual financing
package with the help of J.P. Morgan. The company sold $250 million of 30-year Junior Subordinated
Debentures to a special purpose grantor trust, AES Trust I.
In return, AES Trust I issued 5 million shares of special type of
convertible preferred shares, called Term Convertible Securities (TECONs) as
described in the attached prospectus. While
all of this was going on, the company also issued 3.125 million of new common
shares, generating just under $200 million of additional equity capital for the
company. Many market participants suspected that the rational behind
the Junior Subordinated Debentures/TECONS transaction was to issue a highly
structured element of capital that preserved some of the benefits of both equity
and debt: that is, the capital
would be given a high weighting of equity in the ratings determination and the
“dividend” – like payment on the TECONS would be tax-deductible.
Price: $9.95
17 pages
Revised May 2000
Asia Computers International
Asia Computers International (ACI) has a large amount of floating-rate dollar
debt. Because of certain strategic
and market views, the company would like to purchase
Libor cap protection that would be delayed-start, amortizing principal,
and strike-rate step-up. The case
provides an explanation for the pricing of this type of structured cap.
However, the company is worried about the accounting and tax treatment of
the cap premium. In response, one bank has suggested incorporating similar
interest rate protection into a highly-structured interest rate swap that
involves unusual periodic exchanges of interest rates (including Libor-set-in-arrears).
The company believes that this type of structured swap might have the
desired accounting and tax impact. More
advanced analysis can be performed on this case using the Excel model Libor
Cap and Floor Pricing Model (which is sold separately in the Models
web page).
Price: $9.95 (without Excel model)
4 pages
Revised April 2000
British Equipment Company
British Equipment Company produces equipment for the international aerospace
industry. Its sales are entirely
denominated in dollars and its costs are largely in sterling.
With the appreciation of the pound, the company has found itself
converting its dollar sales into an amount of sterling that is less that its
operating costs. The company is
exploring various solutions, including foreign exchange forwards, options,
options and or forward combinations, and monetisation strategies.
The case suggests that the company should also adopt a formal exposure
management policy going forward and provides hints as to what should be in this
type of policy. This case is
designed as a complement to Introduction to Foreign Exchange.
(This note is sold separately on the Readings web page.)
An Excel model has been designed to accompany this case for advanced
study (see below).
Price: $9.95 (without Excel model)
5 pages
Revised March 2000
British Equipment Company Case with Excel Model
This package includes the British
Equipment Company case, described above, with a special Excel model.
The Excel model is designed to accompany the British Equipment Company
Case and calculates foreign exchange option prices, based upon market conditions
specified in the case, for advanced analysis and solutions.
Price: $19.95
5 pages + Excel model
Revised March 2000
Commodities Marketing, Inc.
Commodities Marketing, Inc. (CM) is preparing a proposal for a new business plan
that involves selling crude oil to small- and medium-size independent refineries
throughout the United States. CM
believed it had found a competitive niche because it would offer fixed price
contracts that spanned periods longer than those provided by the major oil
companies. Although CM did not have any oil production of its own, it would buy
oil at spot prices each year from third-party oil producers in order to make
deliveries to its customers. However,
CM did not want to leave itself exposed to the uncertain spot price of oil at
the time of each delivery and planned to hedge its purchase costs. The case explores and contrasts hedging strategies using
over-the-counter oil swaps and exchange-traded futures.
The futures strategy involves “stack and roll” techniques.
Management must evaluate the relative advantages and disadvantages of the
hedge strategies and select one in order to get approval to execute the new
business plan.
Price: $9.95
5 pages
Revised April 2000
Groupo Industrial S.A.
Groupo Industrial S.A. (GISA), a major international Mexican
conglomerate, needed to raise equity to finance its expansion.
The company was limited in its ability to raise more debt because of bank
loan covenants and market conditions. Unfortunately,
the equity market for emerging markets companies – including top tier firms
like GISA – was not attractive either. One
bank suggested a way for the company to sell equity and – through a total
return equity swap – transform the transaction into one with the economics of
an immediate debt issuance with a delayed equity offering.
The case explores how this transaction might help the company as well as
the risks involved to all parties.
Price: $9.95
4 pages
Revised April 2000
Holiday Cruise Line
This case explores structured and advanced interest rate derivatives to help a
company manage its exposure to floating rate bank debt in a steep-upward sloping
yield curve environment. Products
covered include: interest rate
swaps, disaster caps, costless collars, step-up caps, knock-out caps, contingent
premium caps, notch caps, corridor caps, and Q-caps (or cumulative caps). Hedge alternatives must be discussed within the context of
the company’s business strategy, debt covenants, market views, and industry
position.
Price: $9.95
3 pages
Revised April 2000
International Company Japan
International Company Japan, the Japanese subsidiary of a major international
company, needs to raise medium- to long-term fixed-rate yen debt.
The company has previously relied on Japanese bank loans but, with
changes and special situations in the international capital markets, the company
might achieve better results through bond offerings.
The company is comparing Euro yen bonds, Eurodollar Sushi bonds (hedged
with foreign exchange forwards and cross-currency swaps into yen), and dual
currency bonds. This case is designed as a complement to the Note on
Cross-Currency Swaps. (This
note is sold separately on the Readings web page.)
Price: $9.95
3 pages
Revised September 1999
International Plastics Company (A)
International Plastics Company has just made a major acquisition that was
temporarily financed by a short-term bank bridge loan.
The company is considering various ways of sourcing permanent capital to
financing the acquisition. Strategies
considered include new equity, an equity carve-out of a non-strategic
subsidiary, divestitures of non-strategic subsidiaries, equity-linked hybrid
instruments, and various types of debt. The
rational for financing choice(s) is (are) linked to the company’s business
strategy and its competitive position within the industry. This case is designed
as a complement to Introduction to Capital Markets. (This note is sold separately on the Readings web
page.)
Price: $9.95
6 pages
Revised May 1999
International Plastics Company (B)
International Plastics Company has just made a major acquisition in the (A) case
that was temporarily financed by a short-term bank bridge loan.
In the (B) case, the bridge loan has been repaid with commercial paper,
issued under a 4(2) program. The
company has decided to issue long-term debt as permanent capital to financing
the acquisition. Strategies
considered include public underwritten bonds, shelf-registered public
medium-term notes, traditional private placements, 144A quasi-public bonds, and
international bonds. As part of the
financing decision, the company must compare all-in costs, time to issuance,
registration/disclosure requirements, covenants, the investor base for different
strategies, as well as decide what fixed-floating and currency mix it should
have. Interest rate and currency
swap opportunities are presented. The
rational for financing choice(s) is (are) linked to the company’s business
strategy and its competitive position within the industry.
This case is designed as the sequel to the International
Plastics Company (A)
case (described above) and as a complement to The
Investment-Grade Corporate Bond Market.
(This note is sold separately on the Readings web page.)
Price: $9.95
6 pages
Revised May 1999
Toasting Morgan’s BISTRO
J.P. Morgan’s landmark BISTRO transaction helped earn the “1998
Credit Derivatives House” by the International Financing Review.
This case explores the regulatory and market environment that led to this
transaction, including credit risk BIS capital requirements. In this transaction, Morgan kept the loans on its balance
sheet and protected them against default through a credit derivative with
BISTRO. The BISTRO transaction is
contrasted with more traditional collateralized loan obligations (CLOs), such as
the Swiss Bank Glacier transaction.
This case is designed as a complement to the Note
on Collateralized Loan Obligations and the Mathematics of Credit Risk. (This note is sold separately on the Readings web
page.) An Excel model has been designed to accompany this case for advanced
study (see below).
Price: $9.95 (without Excel model)
6 pages
Revised March 1999
Toasting Morgan’s BISTRO Case with Excel Model
This package includes the case Toasting
Morgan’s BISTRO, described above, with a special Excel model.
The Excel model is designed to illustrate the mathematics of the credit
risk in the BISTRO transaction. The
model calculates probabilities of default, default combinations, and expected
losses to various BISTRO note holders and J.P. Morgan from loan defaults.
Price: $19.95
6 pages + Excel model
Revised March 1999
U.S. LEC: An IPO
in the Rapidly Growing Telecommunications Industry
Available soon.
Vancouver Pipe Company: Subsidised
Export Finance Opportunities
Vancouver Pipe Company is considering various ways of financing L100 billion
purchase of new milling equipment, which is manufactured in Italy.
The company has learned that the Italian government offers some
interesting export finance subsidy opportunities.
The company must analyze various financing alternatives in combination
with the export finance subsidies in order to achieve the lowest all-in
fixed-rate dollar financing. The
case suggests the use of derivatives technology, including interest rate and
cross-currency swaps, to value the export finance subsidies and to structure
financing solutions.
Price: $9.95
3 pages
Revised April 2000
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