capital markets discussion and case...
TRANSCRIPT
Jefferies LLCMember SIPC
Capital Markets Discussion and Case Studies
April 8, 2014
David Moffett3414 Peachtree Road NE, Suite 200Atlanta, GA 30326Office: (404) 264-5058Cell: (404) 242-6475Email: [email protected]
The Market
1
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
5.50%
6.00%
6.50%
Jan 95 Dec 96 Nov 98 Oct 00 Sep 02 Aug 04 Jul 06 Jun 08 May 10 Apr 12 Mar 14
Rates over the last 20 years…
0.0x
5.0x
10.0x
15.0x
20.0x
25.0x
Jan-95 Dec-96 Nov-98 Oct-00 Sep-02 Aug-04 Jul-06 Jun-08 May-10 Apr-12 Mar-14
10-Year Avg. Ratio:9.0x
10-Year Avg:3.92%
Current Ratio: 24.2xCurrent: 3.36%
Flat Yield Curve
SteepYield Curve20
-Yr
MM
D
Despite recent dramatic rise,long-term rates remain below average
Despite recent dramatic rise,long-term rates remain below average
The yield curve remains near its steepest point since 1995:30/1-Yr MMD
The yield curve remains near its steepest point since 1995:30/1-Yr MMD
Flatter Curve
Lower Rates Higher Rates
Jefferies’ Efficient FrontierSteepness of the Yield Curve vs. Absolute Level of Rates (1995 to Present)
Steeper Curve
Current as of March 26, 2014Source: Thomson Reuters Markets Inc.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
2.3% 2.8% 3.3% 3.8% 4.3% 4.8% 5.3% 5.8% 6.3%
High Interest Rates/Steep Yield Curve
Increase Floating RateExposure or Borrow Short
Stee
pnes
s th
e of
Yie
ld C
urve
(30-
Year
MM
D le
ss S
IFM
A)
Absolute Level of Rates(30-Year MMD)
Low Interest Rates/Steep Yield Curve
Maintain Mix of FloatingRate and Fixed Rate
Exposure
Low Interest Rates/Flat Yield Curve
Increase Long-TermFixed Rate Debt
High Interest Rates/Flat Yield CurveIssue Debt with
Short Call Features
I II
III IV
January2013
January2012
January2011
Current
10-Year Average
20-Year Average
2
Source: Thomson Reuters Markets Inc. Source: Thomson Reuters Markets Inc.
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14
(4,800)(4,300)(3,800)(3,300)(2,800)(2,300)(1,800)(1,300)
(800)(300)200700
1,200
Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Steepness March 28th: 348 bps
85%
90%
95%
100%
105%
110%
115%
120%
125%
Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14
More recently…the interest rate environment has remained very volatile
MMD Curve has steepened due to recent volatility,but remains lower than its 10- and 20-year averagesMMD Curve has steepened due to recent volatility,
but remains lower than its 10- and 20-year averages
Tax-exempt ratios have risen dramatically along with MMD,but have recently been trending downwards
Tax-exempt ratios have risen dramatically along with MMD,but have recently been trending downwards Early 2014 Inflows are the First Since the Week Ended 9/13/2013Early 2014 Inflows are the First Since the Week Ended 9/13/2013
30-Y
r M
MD
/UST
Rat
io
($’s
in M
illio
ns)
Current = 102.31%10 Yr. Avg. = 101.46%
Steepness May 1st: 259 bps
Steepness January 31st: 368 bps
Approximately $33.4 billion flewout of the market in 2013
May 1st: 2.79%April 1st: 3.55%
30-Year MMD has risen by 76 bps since May 1st, yet decreased by 96 bpssince September 5th including a decrease of 64 bps since January 1st
Although tax-exempt rates have risen dramatically since May,there has been a significant decrease in rates since SeptemberAlthough tax-exempt rates have risen dramatically since May,
there has been a significant decrease in rates since September
3
Source: Thomson Reuters Markets Inc. Source: Thomson Reuters Markets Inc.
Source: EPFR
Source: Bloomberg; Thomson Reuters Markets Inc.
2011
Extraordinary demand had led to tighter credit spreads and AMT premiums in 2012/2013and into 2014
“A” Rated Credit Spreads
103 bps Average
Notes: 10-year spreads represent average spreads in years 1-10; 20-year spreads represent average spreads in years 11-20. Only uninsured spreads are displayed.
78 bps Average 76 bps Average
2012 2013
“A” Rated AMT Penalty
2011 2012 2013
68 bps Average 46 bps Average 35 bps Average
Jan 2011
2011
20122013
2011
2012
2013
March 2014
2014
59 bpsAverage
2014
2014
30bps
2014
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
0.9%
SFO SDF ORD(PFC)
ORF MEM IAH(Sub)
SFO SJC ATL SFO DIA DTW SFO IAH(Sub)
ATL FLL ORD(GARB)
ORD(PFC)
DTW FLL DIA MIA SAN DIA MCI ORD FLL MDW ATL(GARB)
10-Year
20-Year
Jan 2011 March 2014
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
DFW DFW SFO DIA MSP(Sub)
PDX(PFC)
DTW DFW SFO IAH(Sub)
ATL DFW FLL LAS(PFC)
ORD(GARB)
ORD(PFC)
DTW FLL DIA DFW MSP(Sub)
MIA SAN RIC DFW STL DIA DFW MCI DFW ORD FLL DFW MDW LAS(Sub)
ATL(GARB)
ATL(PFC)
10-Year
20-Year
4
Source: Transaction Official Statements; Thomson Reuters Markets Inc.
Source: Transaction Official Statements;Thomson Reuters Markets Inc.
2.40%2.60%2.80%3.00%3.20%3.40%3.60%3.80%4.00%4.20%4.40%4.60%4.80%
Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14
63 bps
Where are rates heading? The consensus among Wall Street economists is a continuation of higher rates in the future Since October 2011, the Fed has financed the overwhelming majority of long-term Treasury debt, having purchased 96% of the increase in
30-year Treasury bond issuance; the Fed had been buying $85 billion per month In December, the Fed announced the beginning of “tapering,” reducing its monthly purchases
─ Over the last few months, the Fed has reduced its monthly asset purchases from $75 billion (effective January 2014) to its recentlyannounced $55 billion (effective April 2014)
─ The Fed will buy longer-term Treasuries at a rate of $30 billion per month and mortgage-backed securities at a rate of $25 billion permonth starting in April
Bloomberg economists are forecasting an increase of 86 bps by Q2 2015
30-Year UST (2011-Present)
2014 2015
Current Q2 Q3 Q4 Q1 Q2
Bloomberg Economists
10-YearUST 2.72% 3.05% 3.21% 3.36% 3.48% 3.61%
30-YearUST 3.56% 3.95% 4.08% 4.20% 4.29% 4.42%
RateIncrease N/A +39 bps +52 bps +64 bps +73 bps +86 bps
Interest Rate Forecast
Current as of March 28, 2014
Backload borrowings to lock-in current long-term rates or accelerate borrowing on some portion of newmoney needs
MitigateHigher Rates
Consider use of shorter duration borrowings or variable rate products for some portion of new money needsCapitalize onYield Curve Steepness
What should issuers consider?
Current = 3.56%
10-Year Avg. = 4.19%
The current 10-year MMD is 2.47% – 90.7% of the 10-year Treasury The historical 10-year average of 10-year MMD/Treasury ratio is 91.9% – implying a
10-year MMD of 3.32% in Q2 2015 (an increase of +85 bps)
5
Source: BloombergSource: Bloomberg
Case Studies
6
LAKE CHARLES HARBOR AND TERMINAL DISTRICT$39,615,000
STATE OF LOUISIANA
$6,995,000 $32,620,000REVENUE BONDS REVENUE BONDS
SERIES 2013A (Non-AMT) SERIES 2013B (AMT)
Underlying Ratings: A3 (Moody’s) / A- (S&P)Insured Ratings: A2 (Moody’s) / AA- (S&P)
Case Study: Port of Lake Charles
Transaction Takeaways
In-depth project by project tax analysis –• General / public use facilities: tax-exempt bonds• Qualified use / Dock & Wharf Facility Bonds (AMT)• Private use: taxable bonds
Bond structuring –• Cost of debt for different project components• Interim financing/multiple tranches/take-out• New credit to market – bond covenants including rate
covenant, additional bonds test, debt service reservefund, and use of rollover cash
7
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
$20
2015 2018 2021 2024 2027 2030 2033 2036 2039
Deb
t S
ervi
ce (
$ M
illio
ns)
AMT Debt Service
Non-AMT Debt Service
Revenue Available For Debt Service
Port of Lake Charles Amortization and Debt Service Coverage
Annual Debt Service Coverage = 6.06x
Project List
1. Wharf & Transit Shed2. GSA Project3. New Administration Building at City Docks4. Industrial Canal Railroad5. New Road at BT1 along railroad6. Berth 8 Deck Repairs7. Water Main at BT-18. Road Repairs Along Warehouses9. Farquhar/Reamer Heirs Land Acquisition10. LCCE Offload Improvements11. Loop Tracks at City Docks12. DMMP Dikes and Land Acquisition13. IC Dockside Monopile14. Rehab/Upgrades to Ship Unloader15. Phoenix Development Property16. New Docks at BT-117. Conveyor 6A Rehabilitation
18. Truck wash at BT119. Manlift Purchase20. BT1 Security Access/Guard House21. New wall at stacker/reclaimer at BT122. Paint BT1 water tower (inside & out)23. Dock Rehab at City Docks24. Conveyor 5A repairs25. Berth 8 Dredging26. Ship Loader Rehab27. Sallier Lead Rail Relocation28. Relocation of Alcoa at BT-129. Calcine Dumper Rehab30. Sallier Lead Rail Crossing & Signalization31. 4, 5, & 6 Berth/Transit Shed32. Mx/Operations Shop at City Docks33. Berth 2 & 3 Reconstruction34. BT1 Open Cell Bulk Head
Case Study: MAS Energy / Coca-Cola – Industrials Seeking Micro Energy SolutionsJefferies executed a $25.7 million transaction for the construction of a landfill gas fired plant
Jefferies priced the $25.7 million taxable municipal bonds for theDevelopment Authority of Fulton County – on behalf of MAS ASBCogen, LLC Project
Proceeds of the bonds were used to finance the acquisition,construction, and equipping of a portion of a landfill gas firedcombined heat and power generating facility for the benefit of CocaCola (“Company”)
This project alone will reduce the Company’s international carbonfootprint by nearly 5%
The capacity payment paid by the Company is designed to coverdebt service and fixed operating expenses and the underlyingcontract is structured with a built-in pass-through mechanism thatshifts most variable rate costs to the Company
The Cogen Facility consists of three GE Jenbacher 2.125 MWreciprocating engines (total of 6.375 MW), three heat recoverysteam generators, post combustion exhaust clean-up systems andone 1050 ton JCI steam turbine chiller
In order to take advantage of the QECB allocation, Jefferies workedwith MAS Energy and the Investor to initiate a bond exchange
Issuer: Development Authority of Fulton County
Issue: Taxable Municipal Offering
Ratings: BBB-
Principal Amount: $25,677,000
Equity Contribution: $6,419,250
Pricing Date: March 3, 2011
Settlement Date: March 11, 2011
Final Maturity: April 1, 2032
Structure: $25.677 million maturing 4/1/2032 (6.79% Coupon)
Yields: 15.2Y T + 305 bps (6.79%)
Offering Type: Private Placement
Placement Agent: Jefferies, LLC
8
Could be applicable for solar, wind, biomass, landfill gas and/or natural gas projects.
City Public Service of San Antonio (“CPS Energy” or the“Company”) is the nation's largest municipally owned naturalgas and electric company, providing service to approximately741,000 electric and 331,000 natural gas customers in theGreater San Antonio area
The Company provides electricity from coal, nuclear energy,wind, solar, landfill-generated methane gas, and natural gas
CPS Energy owned 71 communications towers throughoutthe San Antonio, Texas area, with an average tower height of174 feet
Founded in 1942 and is based in San Antonio, Texas
Case Study: CPS Energy (San Antonio) – Muni Selling Non-core AssetJefferies acted as Sole Financial Advisor to CPS Energy on the Sale of its Communications Tower Portfolio to Crown Castle
Key Points
Jefferies was selected toserve as sole sell sideadvisor based on our long-standing Municipalrelationship with CPS Energyand expertise in the wirelessinfrastructure sector
Transaction represents ajoint effort of the JefferiesMunicipal Finance and Media& Telecom groups and thefirst marketed sale ofmunicipal towers in the US
Success of the transactionprovides validation andsupport for othermunicipalities to considermonetizing non-core telecomassets
Crown Castle International Corp. (“Crown Castle”) is thelargest independent owner and operator of shared wirelesscommunications infrastructure in the U.S.
Crown Castle owns, operates and manages over 40,000 andapproximately 1,700 wireless communication sites in theU.S. and Australia, respectively
LTM 9/30/2013 Revenue and EBITDA of $2.9 billion and$1.7 billion, respectively
Market Capitalization of $24.8 billion
Founded in 1994 and headquartered in Houston, Texas
Transaction Rationale
CPS Energy monetized a non-core asset, while retaining use of a portion of the tower space for internal needs at no cost
Crown Castle will now own and manage the communications towers and take over third party leases
CPS Energy has used the proceeds from the sale to pay down existing debt
Transaction Highlights
On January 15, 2014, Crown Castle acquired CPS Energy’s communications tower portfolio for $41 million
─ Acquisition represents a cash value per tower of $578k and an implied purchase price per tower of $789k (1)
Jefferies organized an accelerated process, fast-tracking Tier 1 bidders through on-site visits and data room access privileges
─ Process successfully produced indications of interest from nearly all of the Tier 1 bidders, and Jefferies was able to extractadditional upfront value from the winning bidder during the final round of negotiations
Establishes a framework that Jefferies is leveraging to assist other municipal clients divest towers as well as other non-core assetssuch as fiber and data centers
Sole Financial Advisor
$41,000,000
January 2014
Sale of Communications TowerPortfolio to
(1) Implied purchase price per tower adjusted for the present value of utility payments from tenants/licenses and the present value of foregone lease payments, net.
9
Jefferies LLCMember SIPC
Capital Markets Discussion and Case Studies
April 8, 2014
David Moffett3414 Peachtree Road NE, Suite 200Atlanta, GA 30326Office: (404) 264-5058Cell: (404) 242-6475Email: [email protected]
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