mergers and acquisitions and capital markets:...
TRANSCRIPT
1
Mergers and Acquisitions and Capital Markets: Take the Plunge or Stay on the Sidelines?
Matt McClure Goldman Sachs & Co.
Jeff StuartU.S. Bancorp
May 3, 2011
Steven KhadaviDorsey & Whitney LLP
Eric Lopez SchnabelDorsey & Whitney LLP
2
0
2000
4000
6000
8000
10000
12000
14000
1/2/
2008
3/2/
2008
5/2/
2008
7/2/
2008
9/2/
2008
11/2
/200
8
1/2/
2009
3/2/
2009
5/2/
2009
7/2/
2009
9/2/
2009
11/2
/200
9
1/2/
2010
3/2/
2010
5/2/
2010
7/2/
2010
9/2/
2010
11/2
/201
0
1/2/
2011
3/2/
2011
DJI
S&P500
NASDAQ
U.S. Stock Market Performance
3
Dow Jones Performance
Where will the Dow Jones close on December 31, 2011?
(A)10,000 or below
(B)12,000
(C)14,000 or higher
(D) If I knew, I wouldn’t be here right now
4
2.00
2.50
3.00
3.50
4.00
4.50
5.00
5.50
6.00
6.50
7.00
7.50
8.00
Bank Prime Loan Rate
Source: Federal Reserve Bank of St. Louis
5
Interest Rates
Where do you see interest rates headed in the next 12 months?
(A) No change
(B) Rising slightly
(C) Rising considerably
(D) Dropping
(E) If I knew, I wouldn’t be here right now
6
118
177
478
39
1
101
201
301
401
501
2008 2009 2010 1Q 2011
Global IPOs
Source: www.renaissancecapital.com
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IPO Activity
What level of IPO activity do you expect in 2011?
(A) At or below 2008 levels
(B) Around 2009 levels
(C) At or above 2010 levels
(D) If I knew, I wouldn’t be here right now
8
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
1/4/
2008
3/4/
2008
5/4/
2008
7/4/
2008
9/4/
2008
11/4
/200
8
1/4/
2009
3/4/
2009
5/4/
2009
7/4/
2009
9/4/
2009
11/4
/200
9
1/4/
2010
3/4/
2010
5/4/
2010
7/4/
2010
9/4/
2010
11/4
/201
0
1/4/
2011
3/4/
2011
World Crude Oil Prices
Source: U.S. Energy Information Administration
9
Oil Prices
Where do you see oil prices at the end of 2011?
(A) Below $60
(B) $60 to $100
(C) Above $100
(D) It doesn’t matter to me. I’ve sold my car.
10
May 3, 2011
Jeff StuartU.S. BancorpHead of Capital Markets
U.S. Capital Markets Overview
11
U.S. Loan Market Volume
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1Q11
Volu
me
($ in
Bns
)
Leveraged Investment Grade Other
Source: Thompson Reuters LPC
12
Source: Thomson Reuters LPC
Loan Pricing TrendsU.S. Average Drawn Investment Grade Pricing
0
50
100
150
200
250
300
1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q1
LIB
OR
Mar
gin
(bps
) BBBL+150
AL+100AAL+75
L+150
L+250
L+350
L+450
L+550
1Q98
(26)
1Q99
(21)
1Q00
(29)
1Q01
(24)
1Q02
(23)
1Q03
(24)
1Q04
(38)
1Q05
(34)
1Q06
(34)
1Q07
(39)
1Q08
(5)
1Q09
(4)
1Q10
(10)
1Q11
(35)
U.S. Average New Issue Institutional Term Loan Spreads
B
L+400
BB
L+315
Investment Grade
Leveraged
13
U.S. Bond Volume
0.0
200.0
400.0
600.0
800.0
1,000.0
1,200.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1Q11
Vol
ume
($in
Bns
)
High Grade High YieldSource: Bloomberg
14
Average Investment Grade Corporate Bond Spread
0
100
200
300
400
500
600
700
Jan-
98
Jul-9
8
Jan-
99
Jul-9
9
Jan-
00
Jul-0
0
Jan-
01
Jul-0
1
Jan-
02
Jul-0
2
Jan-
03
Jul-0
3
Jan-
04
Jul-0
4
Jan-
05
Jul-0
5
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
bps
10 Year
Average = 135
U.S. High Grade Bond Spreads
15
0400800
120016002000240028003200360040004400
Jan-
98
Jan-
99
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10
Jan-
11
bps
CCC B BB Source: M errill Lynch
Average High Yield Spreads
U.S. High Yield Bond Spreads
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Dodd-Frank Act
Basel III
The Dodd-Frank Act was signed by President Obama on July 21, 2010. Dodd-Frank effects a profound increase in regulation of the financial services industry. The Bill includes:
533 new rules and regulations
Risk-based Capital Requirements, and leverage limits for “systemically important” financial institutions
Regulation of derivatives (exchange trading, clearing, capital/margin requirements)
Bank regulators have been charged with interpretation of the Act’s provisions; broader implementation of the Act will occur as that happens
On December 19, 2009 the Basel Committee on Banking Supervision (BCBS) issued a press release introducing two consultative documents for review and comment:
Strengthening the resilience of the banking sector
International framework for liquidity risk measurement, standards and monitoring
Basel III has been agreed to by the G-20, though language remains in draft form; final approval and implementation will occur over the next 5-10 years. However, banks will likely be expected to move towards compliance in the next several years
Current draft BaseI III language would require banks to hold 100% liquidity against all standby L/C's and standby bond purchase agreements, and 10% against all other unfunded commitments
These provisions would obviously increase banks’ costs of doing business and will potentially change pricing, tenor, and availability of credit, particularly in the investment grade market
Domestic banks have historically operated with greater capital than European banks, while European banks have typically retained more liquidity due to the American banking system having wider short-term access to liquidity.
Increased Regulation Likely to Impact Market
Two significant regulatory initiatives, Dodd-Frank and Basel III, will have a direct impact on the Syndicated Loan Market as well as the broader financing markets
Implementation of these initiatives will occur over time; banks are currently studying their potential impact; changes in behavior have not yet materialized
Bank Regulatory Environment
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New Issue Volume of Covenant-Lite LoansVolume of Covenant-Lite Loans
1.8 3.10.3 0.3 0.0 0.5 0.1 2.4
23.6
96.6
2.5 3.47.9
24.3
$0B
$10B
$20B
$30B
$40B
$50B
$60B
$70B
$80B
$90B
$100B
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
1Q11
Excludes Existing Tranches of Add-ons and Amendments & Restatements with No New MoneyExcludes DIP, second liens and unsecured transactionsThese numbers comprise loans denominated in all currencies and are subject to revision as Standard & Poor’s LCD collects additional data.
Source: Standard & Poor’s LCD
18
U.S. Investment Grade Bridge Loan Issuance Volume
Source: Thompson Reuters LPC
-
10
20
30
40
50
60
70
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1Q11
Vol
ume
($in
Bns
)
19
U.S. Leveraged M&A Loan Issuance Volume
Source: Standard & Poor’s LCD
0
50
100
150
200
250
300
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD2011
Vol
ume
($in
Bns
)
Institutional Pro Rata
20
A syndicated loan bridge financing to bond issuance supports corporate M&A activity
Source: Thomson Reuters LPC
Notable U.S. Investment Grade Bridges
$0
$5
$10
$15
$20
$25
$30
NBCU( Jan 10)
Ai r P r oduct s( Feb 10)
M et Li f e( Apr i l 10)
P P L( M ay 10)
Cor n P r oduct s( June 10)
Ral cor p( June 10)
Aon( Aug 10)
Cat er pi l l ar( Nov 10)
M cKesson ( Nov 10)
AGL( Dec 10)
M ar at hon Oi l ( Dec 10)
Dupont ( Jan 11)
Cl i f f sResour ces
( Jan 11)
AT &T ( M ar 11)
21
Total Business Filings by Year (1994-2010)
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: American Bankruptcy Institute, http://www.abiworld.org
22
Quarterly Business Filings by Year (1994-2010)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
1st Quarter 2nd Quarter 3rd Quarter 4th QuarterSource: American Bankruptcy Institute, http://www.abiworld.org
23
24
25
Dow Jones Performance
Where will the Dow Jones close on December 31, 2011?
(A)10,000 or below
(B)12,000
(C)14,000 or higher
(D) If I knew, I wouldn’t be here right now
26
Interest Rates
Where do you see interest rates headed in the next 12 months?
(A) No change
(B) Rising slightly
(C) Rising considerably
(D) Dropping
(E) If I knew, I wouldn’t be here right now
27
M&A Activity
What level of M&A activity do you expect for 2011?
(A) At or below 2009 levels
(B) Around 2008 levels
(C) At or above 2010 levels
(D) If I knew, I wouldn’t be here right now