Series 79 Knopman Marks

contacting credit rating analysts for comparable debt issuances chaperone?

An investment banker could contact a credit ratings analyst from a nationally recognized ratings agency to obtain information on comparable debt issuances. These conversations would not require a chaperone from legal or compliance.

shelf reg

A shelf registration allows an issuer to sell shares on a delayed or continuous basis at various times and prices. Put differently, it allows an issuer to "pre-register" its securities and access the public capital markets in an efficient and timely manner. A shelf registration generally includes a plan of distribution a bond shelf registration would include the interest rate in the prospectus supplement.

post tender market response

A tender offer by an issuer will typically cause the stock price to rise.

white knights

A white knight is a buyer who acquires a distressed company BEFORE!!!!! they declare bankruptcy 363 stalking horse does it once theyre already in bankruptcy

aggressive growth strategy

An investor with a portfolio of 100% equities who reinvests all dividends in additional shares is pursuing an aggressive growth strategy.

joint 13d

Active investors who agree to vote their shares together ("act in concert") and own more than 5% in aggregate are also required to file a 13D.

Stock buyback:

An issuer may repurchase its shares with a tender offer or through open market purchases. When purchasing its own shares through open market transactions, an issuer may face heightened scrutiny over whether it is engaging in market manipulation --> 10-18 safe harbor put in place for this

Notification to FINRA of syndicate covering transactions

An underwriter must notify FINRA in writing prior to conducting its first syndicate covering transaction and within one business day of completion of a syndicate transaction.

fixed economics

An underwriting with fixed economics provides an underwriting firm a pre-set amount of deal revenue based on their allocation, regardless of the number of securities actually sold by that underwriter.

dutch auction

All accepted shares receive the clearing price.

equity vs debt research disclosures?

All equity research must include specific disclosures and potential conflicts of interest; debt research provided to institutions does *not* have these requirements as these recipients are sufficiently sophisticated.

fair and reasonable underwriting fees

All fees must be fair and reasonable as determined by FINRA's Corporate Finance Department (CFD). The maximum spread FINRA will generally be comfortable with is 7% of the gross offer price.

10k

Amarketriskdisclosure audited financials insiders and greater than 5% shareholders ability to pay interest info executive compensation

is ev/ebitda appropriate for creditworthiness?

An EV/EBITDA multiple would not generally be used to evaluate credit quality no!!

unseasoned issuer

An unseasoned issuer has less than a $75 million non-affiliate market cap or has been an SEC filer for less than one year. It can use an FWP after filing a registration statement.

Dividend Yield =

Annual Dividend/Stock Price

Current Yield (Bond) =

Annual Interest/Current Market Value market value = current bond price (if a discount it is less than $1,000)

Reg M during M&A

For all securities that are part of a pending merger, the restricted period begins the day proxy materials are sent to shareholders.

8k

Form 8-K is the "current report" companies file to announce material events to shareholders and the market may include: definitive merger agreement defaulting on a loan delisting from an exchange changes in accountant changes in senior management an early earnings release private sales than increase shares at least 1% lawsuit would not trigger may include partial financials

pipie

"private investment in public equity" in pipe offerings investors commit to purchase a certain number of restricted shares from a public company at a specified price because pipes are exempt transactions prospectus's are not required makes them faster

S-4 term sheet

An S-4 must include the "terms of the transactions", which includes: 1) a brief summary of the term of the acquisition, 2) the reasons the issuer and target are engaging in the transactions, 3) a description of any new securities being issued, 4) any material differences between the rights of target shareholders (pre-deal) versus their rights in any new securities being offered (post-deal), and 5) a statement regarding the accounting and tax treatment of the transaction.

For a plan of reorganization to be confirmed (i.e., approved) by the court, it must provide for the repayment of

1) administrative claims (e.g., lawyers' fees, trustee expenses) and, then, 2) wages (up to $10,000) in cash on the plan's effective date.

agency bonds

1) bonds issued or guaranteed by US federal government agencies 2) bonds issued by government-sponsored enterprises (GSEs) -fixed interest rate semiannual coupons -liquidities vary greatly -credit quart of agency bonds is less than the credit quality of US treasury securities

best efforts

An alternative to a firm commitment underwriting is a best efforts underwriting, where the underwriter acts as an agent of the issuer and takes no liability for unsold shares.

golden parachute

A contractual provision promising an employee (often senior management) a large payout or bonus if employment is terminated, including due to a change of control after a merger. not tax deductible

Schedule 13E-3

A scheduled 13E-3 would be filed by a public company taking steps to go private.

total capitalization debt to cap what is book value?

debt + se (book value) debt / (debt + se book value) book value is se not market cap --> book value also known as just equity

Penalty bids:

decentivizes from short selling

comparing multiples If two companies have similar EBIT and EBITDA multiples but their P/E ratios are different, this might be explained by :

differences in the firms' interest expenses or taxes. Taxes are especially important when comparing domestic firms with foreign firms.

Summary term sheet:

disclosure document that foes in proxy must be on page 1 or 2

using dividend yield and dividend to determine stock price

dividend / dividend yield = stock price

Ineligible issuers:

dont have a current 10k/q etc filed for bankruptcy in the past 3 yrs violated a federal security law in the past 3 years or spac who raises capital with no use

interest coverage

ebitda/interest expense

turnover ratios

either sales on top and avg on bottom or cogs on top, avg on bottom

key m&a first round documents engagement letter teaser confidentiality agreement CIM initial procedures letter iois

engagement letter - fees the advisory firm is receiving teaser - highlights basic info but not company name confidentiality agreement - legal agreements CIM - gives way more info about the company given after confidentiality agreement is signed initial procedures letter - instructions for first round rib iois - the first-round bid is a non-binding bid, subject to significant additional due diligence --> will give potential purchase price --> bankers begin accretion / dilution analysis as soon as receiving this first bid

ipo lock up for insiders

executives dont sell shares after an ipo bc it looks bad by custom not law

Board and management in a Ch. 11 (DIP)

existing board stays in place and is now referred to as debtor in possession (DIP) In a Chapter 11 filing, the debtor's existing board of directors and management often continue to manage the business's day-to-day operations and prepare a reorganization plan.

secondary offering vs split offering

existing shareholders register and sell shares to new investors typically the founder ceo vc firm institutional investor etc split offering is both a primary and secondary offering

fifo vs. lifo

fifo -->> first in first out selling the old stuff first lifo -->> last in first out selling the new stuff first under inflationary lifo has Lower gross profit / tax expense and vise versa for deflationary

free writing prospectus fwp

filed with sec on first day of use includes things like the term sheet wkss may use before filing a registration statement everyone else can use it during cooling off period (after filing) ineligible issuers (blank check, SPAC, bankrupt, etc.) can never use FWPsarepreparedandfiledwiththeSECbytheissuer,attorneys,andaccountants.AnFWPwould never be prepared or filed by the underwriter.

Syndicate settlement date

final syndicate settlement must occur within 90 days following the "syndicate settlement date"

a ceo who wants to continue to work for his company would sell to a: strategic buyer or financial sponsor?

financial sponsor

are financial buyers more or less likely to use an lob than a statregic

financial sponsors (like pe firm) more likely

accretion dilution Strategic buyers v. financial sponsors

financial sponsors do not consider accretion / dilution strategic do

Standby Underwriting

firm commitment that goes with a rights offering

notification of the restricted period

five day and one day stock require notification one day prior to the restricted stock actively traded securities must notify finra the day after pricing at least

inter-creditor agreement bond indenture and credit agreement are helpful

for determining the position of creditors in bankruptcy

Post-effective research

for ipos 10 days for synidate members 3 days for follow on syndicate members egcs? research can be published immediately --> they are companies that have less than 1 billion in revenue

meaningful, cautionary language

forward looking statements are permitted in SEC filings (10-K, 10-Q, etc.) but they must use meaningful cautionary language

reg fd

full and fair disclosure to all investors publish an 8k when you f up and say something you shouldn't or combo with press release and social media

company that disposes of an asset that was held for over one year (i.e. equipment) would pay tax on any capital gain at the

long-term capital gains tax rate, rather than the ordinary income tax rate.

value investors look for

low p/e ratios and low peg ratios hoping it is undervalued

In the case of declining interest rates, a company might choose to refinance existing debt to a ___LOWER OR HIGHER__ rate to reduce interest expense.

lower less interest expense increases net income

Sarbanes-Oxley (SOX):

majority of the board must be independent the boards audit committee must be entirely independent directos the company must disclose whether a member of the audit committee is a financial expert (i.e. someone with experience auditing financials) sox prohibits loans but lets ceos loan if thats what their bank would do for anyone SOX does not require that a financial expert serve on the audit committee; it merely requires disclosure of whether there is one. nyse and nasdaq want one on there tho

gross spread

managers fee + underwriting fee + selling concessions Other items, such as reimbursed issuer expenses, a book- runner fee, or blue sky fees, are not part of the spread. Note that any syndicate expenses are paid out of the underwriting fee component of the spread.

Reg M

market manipulation Regulation M's restricted period applies when a broker-dealer acts as an underwriter for a deal and is also a market maker for those same securities in the secondary market. During a Regulation M restricted period, a broker-dealer cannot bid on, purchase, or induce others to bid on or purchase the restricted securities.

piggybacking with rule 144a (the rule that lets qibs freely trade unregistered securities between each other)

may be given a piggybacking option to sell pre ipo shares in a private placement

Section 11 of the Securities Act of 1933

misleading statements imposes civil liability on issuers, and their employees, underwriters, attorneys, and consenting accountants when a registration statement filed with the SEC contains a false statement or material omission can be made whole

A buy-side adviser evaluating a potential acquisition of a private company would be more/less(?) likely to use an LBO analysis than a comparable companies analysis.

more likely to use lbo!

Form 13D Disclosure

must disclose purpose of investment

printing data room materials requires 1 _____ of issuer 2 _____ 3 _____

name of issuer watermark date

are treasury stock or authorized shares included in market cap

no

2 step deal

no proxy instead offers purchase of shares to the company sharehodlers via tender offer next step is attempt fort squeeze out 90% disadvantage would be to not receive expected about of tendered shares fastest bc no shareholder vote

is an lbo analysis relevant to vc firms?

no! VC firms generally make equity investments.

do syndicate members participate in the preparation of underwriting documents?

no. Syndicate members do not typically participate in the preparation of underwriting documents. Their role is to share risk and broaden the issue's distribution channels.

yield curves

nominal inverted humped expect interest rates to rise in nominal

equity vs debt research what happens if it intends to terminate a subject companys coverage

notify customers if equity research NOT required for debt research

14D-9 (tender response)

once tender commences the board has 20 days to 1) Recommend acceptance or rejection of the tender 2) Express no opinion and remain neutral toward the tender offer, or 3) State that the company is unable to take a position with respect to the tender offer if goes through then 20 days for shareholders to look over before vote

green shoe

oversell if stock price rises post ipo

A benefit of organizing as an S corp, LLC, Business Development Company (BDC), or Limited Partnership

pass through taxation

If a company wants cash to fund growth and wants to partially liquidate, it would likely approach a _____

pe firm

Sell-side adviser

perform a comprehensive valuation analysis populate data room discuss final bids

Ch. 11 trustee and proof of claim

permits either liquidation to reorganization Under Chapter 11, a creditor does not need to file a proof of claim if it agrees with the amounts scheduled (listed) on the debtor's bankruptcy petition. If the creditor disagrees, or is not listed on the schedule, it must file a proof of claim in a timely fashion.

when is a PPM required to be prepared (not required for 504 bc 10m so low)

ppm is not required for accred investors but if non accred participate then they need to make a ppm a ppm is not required if the private placement is less than 10m regardless of non accred

things needed in a lob analysis: could you need(y/n) precedent transactions dcf comparable company analysis debt/cap ratios to produce an irr

precedent transactions - you could use dcf - you could use comparable company analysis - you could use debt/cap ratios - NO to produce an irr - yes

preliminary proxy vs definitive proxy

prelim (pre14a) if required is sent 10 days before definitive (def14a) which comes 20 days before the shareholder meeting he preliminary and definitive proxy contain identical information, including a -list of board nominees, the composition of membership on board committees (e.g., -compensation committee, -audit committee, etc.), and -director attendance, specifically listing any director who attended less than 75% of the previous year's meetings.

Offering price, will a red herring have it?

preliminary prospectus (red herring) will NOT

merger proxies

prem14a and defm14a both required A merger proxy will include the terms of the merger, such as the price and form of consideration (e.g., cash v. stock) and whether the management team will receive additional compensation as a result of the change in control.

Sections 4(a)(2) and 4(a)(5) of '33

private placements are permitted under Sections 4(a)(2) and 4(a)(5) of the Securities Act of 1933

allocating ipo shares

should allocate to buyers with long term investment horizons A banker may NOT consider future investment banking work or post-IPO secondary market orders when determining allocations.

Pitching prospective clients

should include a tombstone ad

Signatures on a registration statement

signed by: issuers CEO, CFO, and controller (i.e. chief/principal accounting officer), and by the *majority* of the board

indemnification

similar to a break up free indemnification is sometimes relevant in compensating for a low / harm before closing after signing the definitive agreement

asset purchase means on what basis

stepped up basis because it benefits the buyer with higher depreciation costs

stock price = in a dividend growth model given Last Year's Dividend Growth Rate discount rate

stock price = [Last Year's Dividend x (1 + Growth Rate)] / (Discount Rate - Growth Rate)

underwriting compensation

syndicate manager must disclose to FINRA all items of value received from the issuer as early as 180 days prior to the filing of the registration statement

Generally, only _____ company shareholders vote on whether to accept or reject a deal, not acquirer company shareholders.

target

A buy-side adviser often conducts interviews with the

target's suppliers and customers to learn more about the target company

primary offering

the company sells new shares to investors

When deciding whether to exercise the greenshoe clause, the least relevant factor for the underwriter would be the ______

underwriting discount

levered beta =

unlettered beta / (1 + (1-tax rate)*(D/E))

exempt securities

us treasuries muni bonfs commercial paper commercial bank securities nonprofits that issue securities eurodollar and eurodollar bonds are not sec registered so they are also kind of exempt

Growth at a reasonable price (GARP)

valued below the market but exceeded to grow

A tender offer must remain outstanding to shareholders for at least 20 business days. For example, a tender launched on July 5 and terminated on July 25 is a _____

violation BUSINESS DAYS NOT CALENDAR

form 4

when a corporate insider trades stock in the open marker

reallowance

when an underwriter works to sell shares but retains a portion of the selling concession for themself

firm commitment

where the underwriter purchases the shares from the issuer and agrees to resell them to the public. The underwriter is liable for any unsold shares. Firm commitments allow issuers to *minimize* execution risk.

sell side due diligence interviews A sell-side banker executing due diligence on a potential buyer ____will/will not___ generally interview the company's customers. The banker _____will/will not_____ meet with auditors, consultants, and company management.

will will not

sell side adviser who's ceo is the sole stock holder

will conduct extra due diligence on the CEO to ensure that company assets are being used appropriately and not for personal reasons not just rely on an affidavit

IRR

with LBOs When calculating IRR for a bond or a deal, the timing of cash flows is significant. Also, just because a bond or an investment has greater total cash flow than another investment does not mean it will have a greater IRR

ib marketing materials

would most likely incorporate this data by listing the names of the customers by sales rank and include their familiar logos.

can their be insiders in an impaired class in a cram down

yes but their votes don't count

crowdfunding

you can raise $5 million per year small amounts from many investors typically

implied stock price implied equity value

Implied Stock Price EPS × P/E Implied Equity Value Net Income × P/E

fixed price offering

In a fixed-price offering, all shares must be sold at the public offering price (POP). They cannot be sold at a discount to any investor, such as retail or institutional investors.

managing a 363 sale

Investment bankers are often retained to run the 363 sale process --> its an auction process "stalking horse bidder," that will enter into an asset purchase agreement (APA) to purchase these debtor's assets, setting a floor, or minimum bid.

delayed filing

Issuers may file the final prospectus, including pricing and number of shares, with the SEC up to 15 business days after the effective date

Registration statement (S-1) --> Preliminary prospectus (red herring) --> Final prospectus

Issuers typically have multiple iterations of the red herring as the deal's expected offering price or underwriters change. A red herring and tombstone ad can be used to market a deal before it is effective (i.e., during the cooling-off period). A red cannot be used before a registration statement has been filed.

inorganic vs organic growth

Organic growth represents business expansion due to increasing market share in existing product lines (e.g., by increased advertising) or in new product lines (e.g., by introducing a new niche product) growth from m&a is inorganic

when to use p/e vs dcf

P/E is a useful multiple for established companies with consistent profitability. It is not as useful for companies with negative net income or with significant earnings volatility. DCF would also be useful in an environment with earnings volatility. def is also helpful for companies with differences in nwc

p/e ratio per share basis overall company basis

Per Share Basis Stock Price/EPS Overall Company Basis Equity Value/Net Income

M&A Deal File

Post-closing, an advisor's deal file will generally include the definitive agreement and a comfort letter from an auditor

identifying m&a synergies

Potential synergies and post-merger savings (i.e., costs that will not be incurred once the companies merge) can be identified on the target's income statement. Here are two examples of pro forma EBITDA adjustments: -->"Non-essential employee wages" that can be eliminated or reduced -->Large executive bonuses that were paid out in previous years but will not be necessary in the future

fairness opinion

Prior to selecting a winning bid, the target company's board of directors will typically hire a *broker-dealer* (aka investment bank) to write a fairness opinion shows that the bofd did their fiduciary duty confirms the price being paid is reasonable

qibs

QIBs are institutional investors (pool funds) managing a *discretionary* portfolio of at least $100 million in assets (broker-dealers qualify as QIBs if they manage more than $10 million)

quick ratio

Quick Ratio = (Current Assets - Inventories)/Current Liabilities

Reg A+

Reg A+ Tier 1 permits up to $20 million per year. tier A+ Tier 2 permits up to 75 million

foreign capital

Regulation S allows an issuer to sell securities exclusively to non-US residents and avoid SEC registration. Regulation S equity securities can be resold in the US after six months subject to Rule 144 if the issuer is a current SEC filer. can be resold immediately offer shore can be to anyone who does not reside in the use

Rule 147a

Rule 147A is substantially identical to Rule 147 (the exempt transaction for intrastate offerings) except it allows a company to be incorporated out-of-state as long as the company has its principal place of business in the state.

safe harbor and reg d

Rule 504 - 10 mil max deal size unlimited non accred 506(b) - unlimited but 35 non accred and 506(c) - unlimited but zero non accredited investors

Accounts Receivables Turnover

Sales/Average Accounts Receivables

reale of qib securities

Securities sold to a QIB under Rule 144A are not subject to a holding period and do not require an offering memorandum

institutional suitability

Sophisticated institutional investors can be exempt from customer specific suitability as they can effectively gauge risk on their own.

Book-entry bonds

US Treasury and US government agency securities ownership is not a physical certificate its book entry

Block trade during share buyback under rule 10b-18

Under Rule 10b-18, an issuer is prohibited from purchasing more than 25% of its stock's average daily trading volume in any given day, with one exception: an issuer can do one block trade per week, purchasing as many shares as it wants, provided it does no other buybacks on that particular day.

Automatic stay defined

Upon filing for bankruptcy protection, the debtor (the bankrupt company) benefits from an immediate automatic stay on claims An automatic stay requires all creditors to cease all collections efforts outside of the bankruptcy court (e.g., to stop lawsuits, foreclosures, garnishments, and all collection activity against the debtor). gives them time to figure their shit out

insider purchases

When corporate insiders buy stock, it will typically have a positive impact on the company's stock price.

public appearances and disclosures

When making a public appearance, research analysts must disclose any material conflicts of interests, including their firm has received compensation from the subject company in the past 12 months. Note that the analyst is NOT required to disclose whether the firm intends to provide investment banking services in the next three months.

yield-to-worst

bond trade confirmation must include this the lower of the yield to call and yield to maturity

Disclosing material events

but the material event should be disclosed in the registration statement and prospectus

who is ucc appointed by

by the US Trustee (a division of the Department of Justice)

research analyst can / can't

can attend joint due diligence with ib banker and bakeoff for EGCs but NOT go on road show where they sell securities

Among other things, a buy-side adviser would perform due diligence on a target's company _____, which includes outstanding debt and equity.

capital base aka capital structure

10k signatures

ceo, cfo, chief accounting officer, chairman of board does not have to sign

form 5

change of ownership form 3 - 5 available publicly on secs website

Chapter 7 and Chapter 11 bankruptcy

chapter 7 liquidates business chapter 11 keeps it going

Credit turnover

cogs / accounts payable

inventory turnover

cogs / avg inventory

Section 11 defenses: misleading statement defenses

conducted due diligence prudent man in the management of his own property would conduct --> didn't know the facts were untrue at the time the registration statement went effective

Rule 144 control stock

control stock is stock owned by an insider or affiliate - 1/4 avg weekly trading volume - 1% of the outstanding shares ^ volume limits

CAPM =

cost of equity = CAPM = Risk-Free Rate + (Levered Beta × Market Risk Premium)

"stalking horse bidder," in a 363 asset sale

"stalking horse bidder," that will enter into an asset purchase agreement (APA) to purchase these debtor's assets, setting a floor, or minimum bid. Toenticeastalkinghorse,thedebtorwilloftenreimbursethestalkinghorse'sprofessionalfees,such as lawyers and bankers, as well as offer a break-up fee if the stalking horse does not win the auction. Ifnooneelsebidsonthedebtor'sassets,thestalkinghorseisobligatedtocompletethetransaction. But the stalking horse does not receive exclusivity. If another bidder wins the auction, the debtor will sell the assets to the highest bidder and increase the assets available to satisfy creditor claims.

rule 144a

(the rule that lets sibs freely trade unregistered securities between each other)

10-18 safe harbor

- normal market hourse - not more than 25% normal average daily trading volume - can bid the highest of the highest independent bid or the last sale price - cannot repurchase share son the first trade or the day or within 30 min to trading for huge first (1mm hdtv, 150m public float) this is the last 10 min

fairness opinion disclosures If the board approves a deal, the fairness opinion may be distributed to shareholders to support the board's recommendation to accept the deal in which case it would disclose:

- whether the compensation for preparing the fairness opinion is contingent on s successful trainable (this is allowed just needs disclosure-- don't need to mention the exact fee though) any material relationship the firm has had with the other deal participants in the last 2 years whether the data was given by an independent third party whether the opinion was approved by a fairness committee with non deal team members not required to disclose whether the firm is a market marker in the securities fairness opinions in general are not required

Voting on a plan of reorganization (creditor vote) requires

1) Two-thirds vote of the dollar amount claims, and 2) One-half the number of claims

Fairness opinion written procedures:

1) the process for selecting fairness committee members, 2) the qualifications for fairness committee members, and 3) the process to ensure a balanced review by the committee, including review and approval of the opinion by non- deal team individuals Additionally, the firm's procedures must disclose the types of transactions and circumstances under which it will use a fairness committee as well as procedures to determine that the valuation analyses used are appropriate. Note that these internal procedures are not required to be disclosed to shareholders.

tender responde document

14d-9

Any prospectus that is more than nine months old may not include any financial information that is more than __ months old.

16 an amended prospectus must be filed if: --> The prospectus is nine months old, and The financials in that prospectus are more than 16 months old

gun jumping

30 days before the registration statement is filed --> not a violation to do normal business

An issuer must wait ______ after its IPO to conduct a share buyback within 10b-18's safe harbor.

4 weeks

Disclosure documents for various security issuances: 424b ppm offering circular

424b - public offering - prospectus private offering - reg d - ppm reg a - small business - offering circular

when is 13d and 13g activated amended is when

5.1% is the most accurate. goes up by 1%

wksis what are they

700m market cap (public float) or 1 bil in non convertible debt in the last 3 years and have to have been field with the sec for a full year an issuer with securtites trading on a foreign exchange may be a wiki but a mutual fund may NOT

seasoned issuers

75m + market cap (smaller than wksis) permitted to use a short form s-3 to register securities!!!!!!!!

public float

= market cap but subtract insiders The public float is the outstanding shares minus the shares owned by insiders.

market out clause

A "market-out clause" is a provision in an underwriting agreement that permits the underwriter to terminate the engagement or deal in the event of a material adverse change or material adverse event.

wksis benefits

A WKSI might use an FWP to communicate information about a follow-on offering prior to filing a registration statement Automatic shelf registration: means their registration statements are effective immediately upon submission to the SEC

buy side due diligence

A buy side adviser would be expected to conduct due diligence outside the scope of the provided documents. The buy-side adviser would not be tasked with hiring a PR firm to announce the deal.

Credit arbitrage

Credit arbitrage occurs when an investor borrows money at a low rate (short-term liabilities) and invests it to earn a higher return (long-term bonds).

bring down (final) due diligence

Bring-down due diligence is the final due diligence session where parties to corporate actions (e.g., advisers or underwriters) confirm the results of their original due diligence and receive assurance that no material events or changes have affected the company, or its business, since the initial due diligence investigation. no Macs

IPO certification (Form 5130):

Broker-dealers underwriting IPO shares will require potential investors to certify they are not restricted prior to allocating an investor any new shares. An underwriter can also satisfy this obligation by sending customer a letter annually to confirm that they are not restricted.

Canadian companies:

Canadian companies do not issue ADRs. Instead, they can directly list common stock on us exchange

operating leverage

Companies with low COGS and high fixed expenses have high operating leverage because they have higher profit margins because their expenses are fixed not variable

convertible bonds do what to float?

Convertible bonds would increase an issuer's public float once they are converted Advantages of convertible bonds for an issuer include lower borrowing costs and the tax deductibility of the interest expense. However, issuing converts would cause a company's leverage to increas

communications between closing and signing definitive agreement

During the period between signing the DA and closing the deal, these communications are prospectuses and must be filed with the SEC no later than the date of first use.

economic value added eva =

EVA = [EBIT × (1 - Tax Rate)] - (Investment Amount × WACC) aka ebiat - (investment amount * wacc) mind you, wacc = discount rate

Earnings Yield =

Earnings per Share (EPS)/Stock Price

Restricted persons in an ipo include

Employees of broker-dealers and their immediate family members, defined as spouses, parents, in-laws, siblings, and children Note who is not immediate family and therefore not restricted: grandparents, aunts and uncles, cousins, nieces and nephews, and ex-spouses A person who owns 25% or more of a broker-dealer AnexceptionallowsrestrictedpersonstobuyIPOcommonstockincertaincircumstances.These investors, called permitted purchasers, include: Employees of the issuer or their family members—even if they would otherwise be restricted Example: Husband works for a broker-dealer, so he and his family are normally restricted, but if the spouse's company goes public, the spouse could buy the IPO shares of her employer. An account that has no more than 10% beneficial ownership by restricted persons. This 10% test is based on fund ownership, not the number of people in the fund. Example: An investment club that is 8% owned by restricted persons is a permitted purchaser. A broker-dealer or registered rep was already an investor in the company prior to its IPO and wants to avoid dilution. Issuer-directed shares: These are shares specifically directed by the issuer to a restricted person (e.g., the CEO directs underwriter to allocate IPO shares to a college roommate who is otherwise restricted).

equity vs debt research barriers with trading desk barriers with ib analysts

Equity research is not required to have an information barrier between it and trading desk personnel. Debt research must have information barriers. But all research must have information barriers between research and investment banking.

Free Cash Flow =

Free Cash Flow = Net Income + D&A - Capital Expenditures - Increase in NWC

EV = (using free cash flow)

Free Cash Flow/(WACC - Growth Rate) same as: EV = Annual Cash Flow / (WACC - Growth Rate) EV = [Cash Flow to Invested Capital × (1 + Growth)] / (WACC - Growth Rate)

bond spreads

High-yield bonds have wider spreads than investment grade or Treasury bonds

Ch. 7 trustee and proof of claim

If a company files for bankruptcy under Chapter 7 of the Bankruptcy Code, a trustee will be appointed to liquidate the assets and distribute funds to creditors. Under Chapter 7, creditors who are owed funds are required to file a proof of claim with the court in a timely fashion. A proof of claim is a written statement that describes the reason the debtor owes the creditor money.

Divestiture

If a company sells (divests) a key line of business, it would present this on their income statement as income from discontinued operations.

bad actor disqualification

If a company's owners were subject to SEC disciplinary action (e.g., cease- and-desist orders, stop orders) within the past five years, the company could NOT raise capital via crowdfunding or Regulation A/A+.

cram down

If a plan of reorganization does not receive the required votes(2/3 and 1/2), it can still be approved through a cramdown. In a cramdown, the plan can be approved if one impaired creditor class votes to accept it.

when is a dividend recap a good option

If a shareholder wants to maintain ownership (avoid dilution) and create liquidity, a dividend recap is a good option A dividend recap would tend to have a smaller impact on day to day operations of a company when compared to a sale.

purchase price adjustment : working capital peg

If actual working capital is higher than the peg, the purchase price will be adjusted upwards, vice versa if it is lower.

issuer conflicts

If an issuer is deemed to have a "conflict of interest," it may still self-underwrite but is required to hire a qualified independent underwriter (QIU) to assist in preparing the registration statement and prospectus. A conflict of interest occurs when the issuer: - is a broker deal (finer member firm) - intends to become a BD -is 10% owned by a BD or its employees

executives tendering and receiving future employment

If target executives (e.g., CEO) will be personally tendering shares and are also receiving employment contracts with the new company, the employment contracts must be approved by the acquirer's compensation committee.

Low coverage ratio with regards to creditworthiness Low debt/EBITDA ratio with regards to creditworthiness

Low coverage ratio : less credit worthy than its peers Low debt/EBITDA ratio : more credit worthy than its peers

stock splits and stock dividends

New shares issued to existing shareholders via a stock split or stock dividend are exempt from SEC registration.

tender open market purchases>

Once a tender offer is made, the proponent of the tender offer for common stock may not purchase any common stock in the open market during the tender period.

court approval for a 363 asset sale

Once a winning bidder in a 363 sale signs the APA, it requires bankruptcy court approval.

effectiveness of a registration statement

Once the SEC declares the registration statement effective, the underwriter can confirm indications of interest (i.e., confirm sales) A prospectus can be delivered electronically (access=delivery)--> hyperlink

Agreement among underwriters (AAU)

The AAU requires shares trading at a premium that are returned by a purchaser to a syndicate member after trading begins (this is unusual) to be: syndicate short positions given to unfilled customer orders sold in secondary markets with profits anonymously donated to charity

Unsecured creditor's committee (UCC):

The UCC consists of the seven largest unsecured creditors reviews motions filed in court does not perfect liens for secured creditors helps create reorg plan

dividend growth model

The dividend growth model values a stock's price by projecting the growing dividend in perpetuity

documenting a 363 sale

The winning bidder in a 363 sale signs an asset purchase agreement (APA) detailing the terms of the purchase

Carry trade

a carry trade is when an investor borrows money in a currency with a low interest rate and uses it invest in a currency with high rates

rights offering

a company with significant debt may do a rights offering rights offered to existing shareholders to purchase additional stock shares no dilution

whats a private equity firm looking to get wb a vc firm

a company with stable cash flows to service lots of debt vc wants a young startup company with steady cash flow

as wacc (discount rate) increases .....(dcf)

a companys valuation falls expected cash flow from the discounted cash flow analysis falls

form 3

a person becomes a corporate insider

Promissory note

a promissory note is a short- to medium-term loan. may or may not(less than 270 days) be considered a security and therefore require registration for lawful public sale.

Announcing an M&A deal when? how?

after definitive agreement is signed with an 8k then prospectus or proxy

Final closing procedures after d&a:

after definitive agreement is signed its mostly legal stuff left like her hsr

'33 Act registration statement may expect to have (form 1)

audited financials cap table price, gross spread, deal size (although these may be filed in subsequent amendments) not required to have forward looking financials although it might (a change in market interest rates would not require an amendment to the registration statement)

contingency underwriting

all or none mini max have a min they have to hit and until then they are in escrow

363 sales specifically

allows a debtor to sell its assets during a bankruptcy case. It allows assets to be transferred or sold to a purchaser "free and clear" of any liens. These assets can include property, plants, equipment, business lines, and even the entire business. 363 is NOT used to arrange DIP financing A debtor can pursue a Section 363 sale immediately after being appointed a debtor in possession.

falling interest rates

an investor who expects interest rates to fall would want a long duration zero coupon bond

reg m rule 105

an investor who sells stock shot 5 days before the follow on offering could not subsequently invest in the new issue unless they make a bonafide purchase of the securities in an amount greater to or equal to the short

foreign issuers

an overseas company raising equity in the us could do so via either exempt transaction or by registering the shares

irr calc

annual return * irr = new annual return new annual return * irr = new new annual return this repeats

Shareholders who vote against a merger can request ______ thru court to ensure the company is being sold for fair value

appraisal rights done through shareholder vote

t-bills money market funds

appropriate for money market funds have a maturity of 1 year or less A T-bill's bond equivalent yield will always be greater than its discounted yield --> money market funds generally hold short term debt securities

company with a strong balance sheet and no debt would likely seek funding from an _______ lender

asset backed

363 sales broadly

asset sales in bankruptcy

Stock buybacks typically ___ the stock price of the company.

increase

A firm seeking to do a leveraged buyout and exit after ten years would most likely target a company with a _____high/low_____ annual EBITDA growth rate and ____high/low_____ interest expense.

high annual ebitda low interest expense

hsr --> minimum her scrutiny -->

hsr --> minimum submission 62mm her scrutiny --> Under the HSR Act, a merger between two companies in the same sector would receive the greatest scrutiny.

Undersubscribed tenders

if a tender is undersubscribed, the purchaser could choose to extend the offer. However, it cannot try to entice a large shareholder by only giving them favorable terms. All shareholders must receive the same terms in a tender.

bond pricing

if an issuer is disappointed with the amount raised in a debt offering it could increase the interest rate i.e. +200bps to +250 bps

oversubscription

if oversubscribed the underwriter may upsize the deal by increasing the number of shares in the deal, increasing the offering price, or both.

Investors who do not tender their shares to the issuer ____ their ownership percentage

increase

who is accred

individualizing 200k 300k if married or 1 mil minus house net worth officers and directs of the issuer regardless of wealth institutional investors trust w 5 mil

pik (payment in kind) interest

instead of receiving cash interest you offer just to get more at the end with a higher principal

Distressed and special situation funds

invest in companies experiencing operational or financial challenges (i.e. retracted earnings guidance)

Subscription agreement

investor will sign a subscription agreement to officially confirm their investment in the private placement

price momentum

investors buy securities that have seen substantial gains over the past year.

book building

iois happens during the road show all happens during roadshow syndicate desk is not responsible for preparing offering documents (i.e. red herring ) ibers collect iois no one else

1) Pitch for business (bake-off) 2) Win mandate 3) Sign engagement letter 4) File registration statement with SEC 5) Book-building/marketing 6) Go effective (shares are registered under '33) 7) Confirm allocations, distribute securities, and settle transactions to investors

ipo deal process

refits

issues SEC-registered securities 75% assets invested in real estate 75% REIT's income must be from real estate investments & 90% pass through to investors

who would be responsible for filing any motions in court in a bankruptcy?

legal counsel

one step merger

proxy statement (prem14a then defm14a) prepared for sec by target and acquirer jointly --> if one private then only the public company prepares and submits proxy stock consideration --> proxy includes pro forma stock / issuance --> the two companies file a joint prospectus on an SEC Form S-4 to register the securities If the issuer is a foreign corporation, the signature of its authorized representative in the US is required on the registration statement. SHAREHOLDERS VOTE TO ACCEPT OR REJECT DEAL!!!! TAKES 20 DAYS this is why 2 step is shorter

ebitdar

r stands for rent

stabilization

reg m 104 can do a stabilization bid once the market is closed and it can last indefinitely The stabilizing bid may be entered at the greater of the highest bid or last sale price

reg a / reg a+

require a form 1a to be issued

in a pipe transaction the issuer will usually file a ___ statement which allows investors to ___ immediately

resale sell

c corp vs. s corp

s corps are typically filled with individuals as investors --> pass through (no corporate taxes) 100 shareholders max single class of common stock both have capital gains tax c corp Most large corporations are organized as subchapter C corporations. Unlimited number of investors No restrictions on ownership institutional ownership is permitted yes to corporate taxes multiple share classes

Sale leasebacks and EBITDA

sale lease back negatively effects ebitda (because debt stays the same and equity falls)

equity turnover

sales / avg shareholders equity

Priority of claims in a bankruptcy put these in the right order: common stock govt claims unpaid taxes preferred stock sub. debentures secured claims pension contributions warrants

secured claims --> recent employee wages --> recent pension contributions --> government claims (ie unpaid taxes) --> unsecured claims (general creditors and unsecured debt)--> subordinated debentures--> preferred stock --> common stock and warrants

___ may offer staples financing to reduce ___ risk

sell side adviser execution

Ability to pay In an all-cash deal, the _______ primary concern is the acquirer's ability to pay.

sell side adviser The sell-side adviser is less concerned about the strength of the buyer's management team or the composition of the acquirer's board. checks this out via the balance sheer

selling group

selling group members act in agency capacity. They can accept indications of interest (IOIs) in connection with an IPO but don't take on risk for unsold shares

proxy statement

shareholder communication form 14a is distributed to shareholders prior to a shareholder meeting to elect directors, approve a merger, and address other corporate actions

if you change the terms of the tender

the new terms must be available for at least 10 business days Any updated terms apply to all--> "all holders, best price."

No-objection letter

the underwriter must submit the key offering documents (e.g. prospectus) to FINRA at least 15 days prior to effectiveness and must receive a no-objection letter from FINRA to sell the securities.

if less than 30 days happens between two private placements

they count as one private placement

Prohibited allocations in an ipo

tie ins - allocations that require investors who receive ipo shares to purchase additional shares in the secondary market --> market manipulation quid pro quo - can't use allocations to pay excessive compensations for other services of underwriter spinning - The allocation of new shares to the officers, directors, or senior management of current, future, or prospective investment banking clients from whom the broker-dealer has received compensation in the past 12 months for investment banking services or expects to in the next three months

debt / tangible net worth

total debt / (se - goodwill - intangibles)

Using 338(h)(10)

treats a stock purchase like an asset purchase for tax reasons

T/F: A public company acquiring a private company is not required to disclose the private (target) company's financials in an 8-K announcement.

true