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Peter Rothschild


MBA Investment Banking Preparation

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									Peter Rothschild—Corporate Finance Two ways to raise capital: 1) Equity Offering—raising capital through equity a) IPO—Initial Public Offering is for the purpose of something specific, pay down debt, make an acquisition i) Usually has to be large to attract institutions--$50-$100 Million ii) Only a certain % goes to the public b) Secondary Offering—company is already public and needs money i) Primary shares—issue new shares into market ii) Secondary shares—owners (management, employees, investors) sell off existing shares (1) Ex. PE group wants to exit their investment—sell off initial shares (2) Sometimes when shares are sold off in a secondary offering it can take the price of shares way down (due to increase of supply & bad public perception). To answer this, there is what is called a Pipe Transaction— where a company will do a road show, meeting with investors, and sell shares on a private level to the public. Rest of public won’t know until almost 90 days later. Mostly done for smaller companies. (3) Float is for small shareholders--< 10% (4) Banks as underwriters are entitled to a percentage of the stock above what is issued to the public. 2) Debt Offering a) High Yield/Junk—company issuing debt isn’t credit worthy, possibly because they have lots of debt i) Under S&P system—below BBB is high yield ii) Percentage is dependent often on where Libor is—if Libor is 1.5% than high yield could be L+5.75% or L+6.00% iii) Bank debt usually is usually treasury based + some %, and high yield is Libor + some % b) Investment Grade—issuing debt. i) Creditors want to make sure you can pay them back—give us incremental cash—50%-75%. Its makes the investment safer. ii) During amortization, when debt is being paid down EBITDA is unofficial cash flow of business iii) FCF Sweep—EBITDA – Fixed Charges=FCF iv) What are fixed charges? (1) Maintenance—facility-each year upgrade (2) Cap Ex-new facility (3) Interest Expense-pay bank (4) Cash Taxes-government has to be paid (5) +- Change in Working Capital-if business is expanding, have more A/R, if EBITDA has doubled you need more cash

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