FairfieldWestchester Chapter

1
Know Your Bondholders
NIRI
Fairfield/Westchester Chapter
October 2001
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Fixed Income Strategic Intelligence

• Introduction
• Historical Role of Fixed Income Investor
  Relations
• Fixed Income Market Trends
• Why Issuers Should Care
• Fixed Income Investor Relations
• Conclusions

Why fixed income investor relations is important
Knowing your fixed income investor base can lower
your borrowing costs
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Who is responsible for fixed income?
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Historical Role of Fixed Income IR

• Responsible for fixed income
• CFO
• Treasurer
• IRO
• Reason for lack of fixed income coverage by IRO
• Perception that investor relations cannot
  influence bond investors
• Not comfortable with bond market fundamentals
• Focus on equities
• Time constraints
• Belief that bonds best handled by bankers
• Seemingly boring

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Fixed Income Market Trends
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Debt vs. Equity
17.7 Trillion
9.4 Trillion
Source The Bond Market Association Q2 2001,
SP as of 9/28/01
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US Debt vs. Equity Issuance
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Level of US Corporate Debt
Source The Bond Market Association estimates.
Includes public and private placements,MTNs,
Yankee bonds, global bonds, and convertible bonds.
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Underwriting Industry

• Intense competition among investment banks
• Declining gross underwriting spreads
• Proliferation of market and credit data
• Emerging electronic trading platforms
• Diminishing amount of dealer research and
  market-making

• Alex Brown Smith Barney
• Salomon Brothers Schroeders
• Piper Jaffrey Dresdner
• Wasserstein Kleinwort Benson
• Bank of America Montgomery
• Morgan Stanley Dean Witter
• UBS Dillon Reed
• Chase Robertson Stephens
• PaineWebber DLJ
• First Boston J.P. Morgan
• Hambecht Quist

Goldman Sachs Merrill Lynch Lehman
Brothers Bank of America UBS Warburg Deutche
Bank

• Morgan Stanley
• Credit Suisse First Boston
• Goldman Sachs
• Citigroup/SSB

2001
1991
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Credit Ratings

• Trends
• Fierce competition for rating mandates
• Rising number of split-ratings add confusion in
  the marketplace
• Downgrades currently outnumber upgrades 41

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US Corporate Debt Ratings Distribution
Source Standard Poors Global Fixed Income
Research 9/30/01. Includes 1,581 issuers in
Industrial, Utility and Telecommunications
sectors.
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Standard Poor's US Corporate Rating Actions
Source Standard Poor's Global Fixed Income
Research. US Corporate Bonds includes industrial,
utility and telecommunications.
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Why Issuers Should Care
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Fixed Income Investor Relations

• Fundamental Benefits
• Proactive fixed income investor relations
• Lowers borrowing costs
• Maintains trading levels
• Establishes key relationships with potential
  investors
• Provides greater financing flexibility
• Effective and direct communication of credit
  story is essential when competing for new
  investment capital
• Access to timely investor information keeps
  corporations primed to enter capital markets
  whenever optimal conditions present themselves

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Fixed Income Investor Relations

• Bondholder Identification and Surveillance
• Identify current bondholders on an issue-by-issue
  basis
• Publicly available sources including mutual fund
  and insurance company filings
• Proprietary information including DTC reports and
  custodial bank breakouts
• Track trading activity based upon settlement and
  contact with buy-side
• Identify decision maker (portfolio manager,
  credit analyst, etc.) at each buy-side firm
  down to mutual fund level

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Fixed Income Investor Relations

• Investor Targeting
• Select relevant peer set
• Industry
• Fundamentals
• Credit quality
• Analyze current and historical investor base
• Highlight potential fixed income investors for
  new or existing issues

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Fixed Income IR -- Conclusions
Value Add to Corporation
IR Activities

• Guide communications with bondholders
• Perform analysis with real-time trading
  information
• Manage spin (rating downgrades, negative
  announcements)
• Facilitate transactions - MA, stock buy-backs,
  tenders, equity and debt swaps
• Solicit bondholder consent
• Improve distribution capabilities

• Bondholder Identification
• Targeting Analysis
• Roadshow Support
• Market Commentary

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Know Your Bondholders
NIRI
Fairfield/Westchester Chapter
October 2001