Treasury Leads Efforts Behind Debt Offerings, Roadshows

Although it hadn’t approached the bond market in more than a decade, Akamai’s offering priced with a zero-percent coupon and a high conversion premium of 50%. It matched the terms of a recent convertible deal by Yahoo! and topped the pricing of deals by similarly sized companies going back at least 10 years.

Macro factors certainly helped. Convertible bonds are traditional corporate fixed-income securities that convert into equity at the investors’ discretion, and the conversion premium is the percentage by which the bond’s price exceeds the stock value at conversion. Institutional investors have viewed the hybrid nature of convertibles favorably since the financial crisis, since the fixed-income component limits downside risk but there’s the potential for equity upside.

It also helped that Akamai’s stock has been relatively volatile, a plus for hedge funds who scooped up a little less than half of the offering by the Cambridge, MA-based provider of cloud services. The deal ended up five times oversubscribed and increased to $600 million from the anticipated $500 million. The convertible market has remained strong, slowing only temporarily after Labor Day due to oversupply.

David Neshat, treasurer at Akamai, chose to station himself at the convertible desk of the company’s book runner, Morgan Stanley, on the day of the offering. That enabled him to get a better read on demand for the bonds throughout the offering period and make key decisions impacting pricing the securities, rather than relying on bankers relaying information over the phone. Being able to make those split decisions is particularly relevant for convertible offerings, since they are typically sold telephonically over the course of a day. There were also several checkpoints throughout the day with the chief financial officer, chief executive and the board’s pricing committee.

Quarterbacking the Roadshow

Akamai utilised a roadshow to convey its business prospects and underlying financials to investors. The length of roadshows varies depending on the type of offering, ranging from convertibles’ short one-day presentations to three or four days for private placements into other capital markets. However, the content remains much the same. Treasury typically spearheads the efforts leading up to those presentations.

“When you do any debt issuance, the treasurer is the quarterback,” Neshat said. “He’s working with investor relations, the legal and accounting teams, and in some cases the marketing team to put together the roadshow.”

That means scrutinising reams of documents, helping determine what information is appropriate to use from a compliance perspective, and making sure other departments are delivering their input on schedule. It also means ensuring the company’s debt carries the best credit rating possible and aligning the messages to investors and credit rating agencies, and making sure the message is tailored for fixed-income investors.

Marc Fratepietro, co-head of capital markets and treasury solutions for North America at Deutsche Bank, said roadshow presentations geared toward a specific transaction from an infrequent borrower typically focus on explaining the company’s strategy and core businesses, the performance of those businesses, and the company’s capital structure and funding profile. C-suite executives may deliver those presentations when they are related to strategic events, but much of the supporting data and information will have been gathered by treasury, who may also meet with investors, in some cases on an opportunistic, non-deal basis. A conference they’re attending in New York or San Francisco, for example, may be accompanied by meetings to update existing investors on the company’s financial status.

“For an established borrower doing periodic update meetings, the presentation probably will focus on hot-button issues specific to the company that are of concern to fixed-income investors,” Fratepietro said.

Those issues often fall into the treasurer’s realm, such as the recently hot issue of pension liabilities, or how the company plans to reduce its leverage.

“Treasury usually manages the company’s approach to the capital markets, so it serves a critical role bringing banks into the process and working with the legal and investor-relations (IR) teams to develop a presentation that is suitable for the purposes they’re roadshowing for,” Fratepietro said.

IR executives tend to view the business from an equity perspective, focused on growth, and their materials will carry that slant. So it falls to treasury to provide the fixed-income balance, Fratepietro said, and “bring the message to the fixed-income community that’s broadly in line with the message to the credit rating agencies.”

Roadshows for convertible bonds strike a balance between traditional debt metrics such as EBITDA and those indicating growth potential. A banker at another one of the top New York-headquartered book runners said that investors in public as well as private bonds also look for upside in a company’s performance, as reflected in the credit spread, and that should be conveyed in roadshows and other communications with investors.

“Straight debt investors will care about growth, but they’ll be focused on the downside protection as well,” the banker said.

Creating a Complete Roadshow

Ultimately, a good roadshow starts with the best rating a company can achieve, said Melissa Cameron, global leader of Deloitte’s treasury advisory services unit, so sharing adequate information with rating-agency analysts – typically more than would be shared with equity analysts, given the agencies’ confidentiality requirements – is critical to optimise their view about the company’s debt-servicing capacity.

In addition, CEOs and CFOs may be less accustomed to talking in credit terms. “So treasurers helping the company think like a credit-rating agency for the roadshow presentation is very important,” Cameron said, adding treasury must work closely with investor relations to make sure their messages are consistent and avoid confusing investors.

She added that it’s also critical for treasurers to make sure there is careful consideration of investors’ needs, such as the part of the yield curve they want to invest in. If the company wants a maturity of five years, it can satisfy investors seeking a seven-year maturity and its own needs by using derivatives and other methods.

“You tend to tighten pricing on bonds when you listen to the market,” Cameron said.

Neshat noted that book-runner banks do much of the heavy lifting in terms of making sure roadshow presentations are complete. They can provide examples of other clients’ presentations and a framework that treasury, along with IR, accounting, and marketing executives can tweak to meet specific needs. In fact, Akamai’s roadshow presentation was largely derived the materials it presented to equity investors and analysts, with some adjustments.

“We made sure we had a balance sheet review that we may otherwise not have provided,” he said, noting technology equity analysts tend to focus more on top-line business items, “More P&L than balance sheet.”

Convertible bonds are unrated, and Akamai hadn’t done a bond issue in 10 years. So its treasury team applied the rating agencies’ credit-rating frameworks to internally determine its credit status.

“What the credit quality really does is set the stage when it comes to price negotiation, and from there the volatility can help push up the price of the convertible,” Neshat said.

In preparation for roadshows directly tied to a bond issuance, treasury executives’ leadership role puts them in the thick of it. Before Akamai’s roadshow, IR was tapped to produce the appropriate roadshow materials, with treasury input, accounting review, and legal’s blessing. The bankers then guided the team through a representative Q&A session, which resembled a recent earnings call. While Akamai relied on external council who are security experts, treasury still read through hundreds of pages of documents, to make sure they reflected the purpose and terms of the offering.

Neshat also worked closely with the accounting and tax teams to address issues, such as settlement type, GAAP vs. non-GAAP dilution, and tax implications of a hedge overlay.

“Treasury is driving through many functions … you’re the quarterback and passing through to everybody else what they need to do and by when, making sure they run with the ball when they’re supposed to,” he said.

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