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The Capital Raising Process

The Capital Raising Process. James T. Ratner EVP Finance and Corporate Strategy American Financial Realty Trust. The Capital Raising Process . Recognition of a capital need Review of capital options Equity (common/preferred) Debt Convertibles Public vs. Private

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The Capital Raising Process

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  1. The Capital Raising Process James T. Ratner EVP Finance and Corporate Strategy American Financial Realty Trust

  2. The Capital Raising Process • Recognition of a capital need • Review of capital options • Equity (common/preferred) • Debt • Convertibles • Public vs. Private • Selection of managers/agents • Preparation of offering materials • Execution of transaction

  3. Recognition of a Capital Need • Capital budgeting is critically important • Match funding reduces dilution • When Company already needs the money, it is often too late • “The Street” smells desperation

  4. Review of Capital Options • Claim on Assets • Highest • Next Highest • Mid-Level • Residual • Payment Type • Interest • Interest • Pref. Dividends • Dividends Secured Debt Unsecured/Convertible Debt Preferred Stock Common Stock

  5. Review of Capital Options

  6. Convertible Alternatives • Offers equity linkage at lower near-term cost • Permits “sale” of common stock in the future at more attractive price • Will produce significant shorting activity from hedge fund buyers • Convertible debt is STILL debt

  7. Convertible Debt Case Study • Issuer: Company X • Security: Convertible Senior Notes • Issue Size: $300 million • Date: June 2004 Interest Rate: 4.38% vs. Common Dividend Yield: 7.11% Common Stock Price: $14.05 vs. Conversion Price: $17.84

  8. Review of Capital Options Other Considerations: • Public / Private • Overnight or extended offering period • Number of managers / agents

  9. Selection of Managers / Agents • Choice was historically driven principally by relationships, but times have changed • Most managers will offer a variety of products, including equity and debt • Most managers will now put their own capital at risk • Fee-based competition is still limited

  10. Preparation of Offering Materials • Not a legal function, but a Company function • Particularly important for equity • Similar disclosure requirements for both public and private deals • Timing can be very tight

  11. Execution of Transaction • Distribution of “Red Herrings” • Roadshow / Marketing • SEC effectiveness, if applicable • Closing and payment

  12. Role of the IRO • Press Releases • Initial inquiries from prospective investors • Questions from existing stakeholders • Roadshow planning • SEC Compliance • Pricing and initial trading activity • Ongoing monitoring

  13. The Capital Raising Process James T. Ratner EVP Finance and Corporate Strategy American Financial Realty Trust

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