《金融工程》案例RJR

CasesinFinancialEngineeringInstructor:ChenMiaoxin1返回目錄TheCaseofRJRNabiscoHoldingCapitalCorporation2返回目錄Reference:

RobertM.Dammon,KennethB.Dunn.AndChesterS.Pratt.1993.TheRelativePricingofHigh-YieldDebt:TheCaseofRJRNabiscoHoldingsCapitalCorporation.theAmericanEconomicReview,83(Dec.)

3返回目錄PartOne:Background4返回目錄Background1Thefirmknownin1991asRJRNabiscowasadescendantofthetobaccofirmR.J.Reynolds,foundedin1875.Throughacquisitionsinthe1960s,thetobaccofirmenteredavarietyoffoodbusinesses.Afterits1985merger,thefirmwasrenamedRJRNabisco.5返回目錄Background2Inthelate1980sthefoodproductsindustryexperiencedmassiveconsolidationthroughmergers.In1988twomainbiddersproposedtotaketheRJRNabiscoprivateinaleveragedbuyoutcontest:TheManagementGroupKohlberg,Kravis,Roberts&Co.(KKR),afirmspecializinginleveragedbuyouts6返回目錄Background3Attheendofabiddingwar,KKRprevailedbyofferingshareholders$81pershareincashplusapackageofbondsvaluedat$28.ThedaybeforethefirstannouncementofapossibletakeoverforRJRNabisco,itsstockhadtradedat$77.25.Thus,KKRofferedcommonshareholdersa41%premiumoverthefirm’spre-takeovervalue.Tofinancethebuyout,KKRincreasedRJR’sdebtfrom$5billionto$29billion.7返回目錄Background4Thenewfirmwasstructuredasaseriesofholdingcompanies.Eachoftheserelatedentitieshadseparateobligations,issuedeitherinconjunctionwiththeacquisitionor,inthecaseofRJRNabisco,Inc,theoperatingcompany,carriedoverfromthetaken-overfirm.8返回目錄PartTwo:

DescriptionofSecurities9返回目錄IssuanceInMay1989,RJRholdingsCapitalCorporationissuedthreenearlyidenticaldebtsecuritiesinconnectionwiththeleveragedbuyoutofRJRNabiscobyKKR$1.0billionof15-percentpayment-in-kindsubordinateddebenturesdue2001(pay-in-kindbond)$4.1billionofsubordinateddiscountdebenturesdue2001(deferred-couponbond)$525millionof13.5-percentsubordinateddebenturesdue2001(cash-payingbond)10返回目錄11返回回目目錄錄12返回回目目錄錄DifferenceThemajordifferenceamongthethreesecuritiesistheforminwhichinterestispaid.13返回回目目錄錄Thedifference1The13.5-percentcash-payingbondpaysinterestincash.Thebankruptcyclaimofthecash-payingbondisparplusaccruedinterest.14返回回目目錄錄Thedifference2AfterMay15,1994,thedeferred-couponandpay-in-kindbondsbecomeidentical15-percentcash-payingbonds.PriortoMay16,1994,interestonthe15-percentpay-in-kindbondmay,attheoptionofRJR,bepaideitherincashorthroughtheissuanceofadditionalpay-in-kindbondsvaluedat100percentofpar.Thebankruptcyclaimofthepay-in-kindbondisparplusaccruedinterest.15返回目錄錄Thedifference3Thedeferred-couponbondwasissuedonMay15,1989,atapriceof$48.656per$100offacevalue.ThroughMay15,1994,thedeferred-couponbondpaysnocouponbutaccretestofacevalueonMay15,1994,atarateof15percentperyear,compoundedsemiannually.PriortoMay15,1994,thebankruptcyclaimofthedeferred-couponbondisitsaccretedvalue.16返回目錄錄17返回目錄錄Thedifference4Thedeferred-couponbondandpay-in-kindbondstradeflat(i.e.,withoutaccruedinterestdueuponsettlement)priortoMay15,1994,whilethesettlementpriceofthesetwobondsisthequotedpriceplusaccruedinterestafterMay15,1994.Thesettlementpriceofthe13.5-percentcash-payingbondisalwaysitsquotedpriceplusaccruedinterest.18返回目目錄PartThree:TheoreticalPricingRestrictions19返回目目錄NotationAssumption:therearenomarketimperfections.Wedenotethequotedprice(per$100offacevalue)attimetofthecash-payingbondbythedeferred-couponbondbythepay-in-kindbondbyWeletvtdenotethesettlementprice(i.e.,thequotedpriceplusaccruedinterest)attimetofabondwhosequotedpriceispt.20返回目目錄PriortoMay15,1994Sincethedeferred-couponandpay-in-kindbondstradeflatpriortoMay15,1994,fort≤T*,whereT*isMay15,1994.21返回目目錄AfterMay15,1994AfterMay15,1994,boththedeferred-couponandpay-in-kindbondsbecomeidentical15-percentcash-payingbonds.Inadditiontopayingalowercoupon,the13.5-percentcash-payingbondalsohasalowercall-priceschedule(seetable2)thaneitherthedeferred-couponorpay-in-kindbonds.Asaresult,thefollowingarbitragerestrictionmustholdafterMay15,1994:wheretheinequalityassumedtheabsenceofrefinancingcosts.22返回目目錄1.Deferred-couponandcash-payingbondsConsideraportfolioconsistingofonedeferred-couponbondandU.S.Treasurystripswithfacevaluesof$6.75thatmatureateachofthecouponpaymentdatesthroughMay15,1994.23返回目目錄Cont.BeyondMay15,1994,thedeferred-couponbondismorevaluablethanthecash-payingbondduetoitshighercouponandcall-priceschedule[seeequation(1)].PriortoMay15,1994,theportfolioofonedeferred-couponbondplustreasurystripshasthesamepromisedpaymentsasthecash-payingbond,butlessdefaultriskbecausethepaymentsontheTreasurystripsareriskless,whereastheinterestpaymentsonthecash-payingbondarerisky.24返回目目錄Cont.Therefore,whereqitistheTreasury-strippriceattimetforadollarofpaymentattheithcouponpaymentdate,andmisthenumberofcouponpaymentsremainingonthecash-payingbondthroughMay15,1994.25返回目目錄Cont.Undertheassum