Giddy | AIF Building Capital Market Capabilities

The Amsterdam Institute of Finance

aif.nl

Building Capital Market Capabilities
for ABN AMRO Dubai

Prof. Ian Giddy, New York University

Introduction

This corporate finance program is designed to enable relationship bankers in the Middle East to leverage the bank’s capabilities in capital markets and related investment banking areas, and deliver value to clients through cross-selling. Each participant leaves the program with new analytical tools and product ideas for corporate clients.

Goals

To learn to identify the finance needs of a company, by understanding the corporate CFO’s perspective
To identify the appropriate application of capital market products and techniques in the Middle East market.
To unite clients with products and specialists and gain a greater share of client capital markets business.
To find the drivers of value in each business, by knowing what to look for prior to, during and after the client meeting.

Methods

We use an integrated corporate finance framework – centered on the “value drivers” in a company’s financial strategy – to analyze real-world case studies and exercises. Groups tackle these in a practical manner drawing on the bank’s resources as well as the course contents and written materials and spreadsheets. Together we develop checklists to assist with client analysis.

Each half day (morning and afternoon) will be organized around lecture-discussions at a professional level, group work on case studies, and classroom case analysis. Discussions will be tied to investment banking capabilities and client opportunities in the Middle East.

Background Reading

Course Outline

Topics	Resources
Day 1 Morning: Introduction to the Workshop Introduction to the Workshop and the objectives Rationale for focus on opportunities in selected product areas, including risk management, debt and equity, insurance products, and structured finance Introduction of participants and instructor Tools of Analysis: Identifying Client’s Corporate Finance Needs View clients through a Valuation Framework to discover mismatches between business and financial strategy Use pre-meeting checklist and find information sources to diagnose a company’s financial strategy and condition Developing flowcharts to match client needs with product solutions Use diagram of Investment-Financing-Risk Management Strategies Understand how analysis of a company's value can be used in a discussion with clients, and develop a checklist of discussion points. Valuation methods: Asset-based, comparables, discounted cash flow, option-based Mini-case study: AutoLinks. What are the value-drivers? Calculating the cost of capital Calculating free cash flows and growth rates Valuation techniques: asset value, comparables, discounted cash flow Using value drivers to link to ABN AMRO products that add value Case study: Active Generation. Teams use the various techniques of valuation to assess the price the client, the owner of a private business, should ask for his company. Key issues for discussion include how to determine the firm’s weighted-average cost of capital, the future cash flows, and the potential acquisition synergies, both financial and operating. Show client how the WACC and DCF frameworks can get him a better deal. Afternoon: Improving Cash Management and Restructuring Debt and Equity Cash management and liquidity: priorities for the Treasurer Mini-case study: Sempra. Planning investment, financing, working capital and cash management for a power company Corporate financing choices: priorities for the CFO Why companies become underleveraged and overleveraged – and how to fix the imbalance Evaluating financial structure choices by estimating the effective cost of debt financing and equity financing Identify mismatches between operating and financial leverage Application to public companies Application to a private company Case study: Oracle. Hands-on attempt to calculate a company's cost of debt, equity and average cost of capital, to help it make financing choices. Discuss issues of appropriate financial structure in the context of company, industry and management objectives, and estimate value added by improving financial structure. Consider the relative role of relationship people and product specialists in approaching such a client. Evening reading: Read case studies for Day 2	Presentations Session 1 Session 2 Case studies AutoLinks Active Generation Sempra Oracle Spreadsheets corpvaluation.xls active_generation_valuation.xls leverage_effect.xls wacccalc.xls beta_and_leverage.xls oracle.xls
Day 2 Morning: Structured Finance Opportunities: Leveraged and Mezzanine Finance Corporate uses (and abuses) of leverage Analyzing leverage capacity Application to a private company: Spacemakers of Kuwait. What effect would additional borrowing have on the company? Structuring and pricing leveraged lending Senior and subordinated, second lien, secured and unsecured debt financing Role of mezzanine finance and Equity Capital Markets specialists The instruments of mezzanine: PIKs, warrants, preferred and more Use of seller notes and equity-linked structured financing Role in venture capital, private equity and leveraged management buyouts; estimating the effective cost of equity-linked financing Valuation in leveraged buyouts – the “VC method” Case study: ISS Cleaning Services. Teams learn how to identify acquisition financing opportunities using structured financing, to meet specific client or investor needs. What kind of financing package would enable the bank to beat other commercial and investment banks in the ISS deal? What structures would make the most sense for the client, to get the deal done and manage the post-acquisition debt service? Afternoon: Asset-Based Finance -- Securitization, Leasing and Project Finance The state of the market Getting an ABS deal to market Case study: FCB Auto Finance. We review the process, structure and cash flows of this deal Credit enhancement Tiering the funding structure Cash flow analysis and pricing Key legal prerequisites of ABS today Pool analysis, structure analysis, and determinants of credit risk The technique of credit enhancement Getting a rating: sequence and requirements Case study: Ford Motor Credit. What is the legal status of this securitization? Is it a true sale? Is the SPV independent? Project finance: Non-recourse, output-pay supported financing Sources of funds: Development banks, ECAs, suppliers and buyers, commercial banks and sponsors Example: Ras Laffan take-or-pay contract Identification and management of risks Case Study: Azito Power. Participants learn how 80% debt financing can be obtained with the support of transferable assets or a power purchase agreement supported by development agencies and partial guarantees. The assignment: identify the sources of financing for the project, and the incentives and protections associated with each funding source. Evening: read case studies for Day 3.	Presentations Session 3 Session 4 Session 5 Case studies Spacemakers of Kuwait The LBO of ISS iss_financials FCB Auto Finance Ford Motor Credit 2006 Azito Power Articles Second Lien Loans Mezzanine Finance 1 Mezzanine Finance 2 Spreadsheets spacemakers.xls lbocapacity2.xls lbo_exit.xls iss_solution.xls
Day 3 Morning: Mergers, Acquisitions & Divestitures; Acquisition Finance Types, process and sequence of M&A and divestitures Checklist for identifying M&A opportunities Factors determining post-merger performance Role of advisors in M&A Before-and-after valuation Mini case study: MTC-Celtel. Valuing merger synergies in a competitive acquisition situation. Using acquisition finance to leverage the bank’s capital markets and advisory capabilities How commercial banks have adopted investment banking techniques Employing the bank’s balance sheet and distribution strengths Asset-based financing and securitization possibilities Bridge financing: the catalyst for acquisitions Term loans and revolvers in M&A Case study: Madras Appliances. Teams explore how the lending relationship can be enhanced by leveraging the bank’s specialist capability in the asset-based lending area in the context of a cross-border acquisition by a Singapore retailer. The case deals with the basic question: “How should ABN AMRO Bank approach an opportunity like this and in the end book profitable business?” Afternoon: Restructuring Ownership and Opportunities for Equity Financing Identifying ownership transition and other equity financing opportunities Public, private and corporate equity investors Valuation of private equity IPOs and other exit strategies Case study: Flexics. Teams work to identify the equity value of this Middle Eastern company, and to compare the merits and costs of alternative sources of equity financing, including private equity, a trade buyer, and a public offering. Afternoon: Restructuring at ABN AMRO Review of ABN AMRO in 2007: capabilities, performance, the merger and restructuring Summary and conclusions on relationship management and the possibility of leveraging the bank’s capital markets capability	Presentations Session 6 Session 7 Case studies MTC-Celtel Connexion S.A. Flexics ABN AMRO 2007 Spreadsheets celtel.xls celtelsolution.xls flexicsdata.xls

Additional Resources
Articles and Books
Notes on cost of capital and capital structure

Useful Links
fitchratings.com (bond ratings)
bondsonline.com (corporate bond spreads)
damodaran.com (industry ratios)
advfn.com (corporate financial ratios)
Corporate Finance and Debt Capacity Tables

About the Instructor
Dr. Ian Giddy, born in South Africa, has taught finance at NYU, Columbia, Wharton, Chicago and in over 40 countries worldwide for the past three decades. He was Director of International Fixed Income Research at Drexel Burnham Lambert from 1986 to 1989. The author of more than fifty articles on international finance, he has served at the International Monetary Fund and the U.S. Treasury and has been a consultant with numerous corporations and financial institutions in North and South America, Europe, Asia, the Middle East and Africa. As a banker and consultant he has been involved in the growth of the structured finance market in the USA, Europe and Asia. He is the author or co-author of The International Money Market, The Handbook of International Finance, Cases in International Finance, Global Financial Markets, Asset Securitization in Asia and The Hudson River Watertrail Guide. He and his wife are the founders of Cloudbridge, a nature reserve in Costa Rica.