金融工程案例10-rjr.ppt

单击此处编辑母版标题样式,*,返回目录,*,单击此处编辑母版文本样式,第二级,第三级,第四级,第五级,Finan,cial,Eng,ineering,Cases in Financial Engineering,Instructor:Chen Miaoxin,1,返回目录,The Case of RJR,Nabisco Holding Capital Corporation,2,返回目录,Reference:,Robert M.Dammon,Kenneth B.Dunn.And Chester S.Pratt.1993.The Relative Pricing of High-Yield Debt:The Case of RJR Nabisco Holdings Capital Corporation.,the American Economic Review,83(Dec.),3,返回目录,Part One:Background,4,返回目录,Background 1,The firm known in 1991 as RJR Nabisco was a descendant of the tobacco firm R.J.Reynolds,founded in 1875.,Through acquisitions in the 1960s,the tobacco firm entered a variety of food businesses.,After its 1985 merger,the firm was renamed RJR Nabisco.,5,返回目录,Background 2,In the late 1980s the food products industry experienced massive consolidation through mergers.,In 1988 two main bidders proposed to take the RJR Nabisco private in a leveraged buyout contest:,The Management Group,Kohlberg,Kravis,Roberts&Co.(KKR),a firm specializing in leveraged buyouts,6,返回目录,Background 3,At the end of a bidding war,KKR prevailed by offering shareholders$81 per share in cash plus a package of bonds valued at$28.,The day before the first announcement of a possible takeover for RJR Nabisco,its stock had traded at$77.25.,Thus,KKR offered common shareholders a 41%premium over the firms pre-takeover value.,To finance the buyout,KKR increased RJRs debt from$5 billion to$29 billion.,7,返回目录,Background 4,The new firm was,structured,as a series of holding companies.,Each of these related entities had separate obligations,issued either in conjunction with the acquisition or,in the case of RJR Nabisco,Inc,the operating company,carried over from the taken-over firm.,8,返回目录,Part Two:Description of Securities,9,返回目录,Issuance,In May 1989,RJR holdings Capital Corporation issued three nearly identical debt securities in connection with the leveraged buyout of RJR Nabisco by KKR,$1.0 billion of 15-percent payment-in-kind subordinated debentures due 2001(pay-in-kind bond),$4.1 billion of subordinated discount debentures due 2001(deferred-coupon bond),$525 million of 13.5-percent subordinated debentures due 2001(cash-paying bond),10,返回目录,11,返回目录,12,返回目录,Difference,The major difference among the three securities is the form in which interest is paid.,13,返回目录,The difference 1,The 13.5-percent cash-paying bond pays interest in cash.,The bankruptcy claim of the cash-paying bond is par plus accrued interest.,14,返回目录,The difference 2,After May 15,1994,the deferred-coupon and pay-in-kind bonds become identical 15-percent cash-paying bonds.,Prior to May 16,1994,interest on the 15-percent pay-in-kind bond may,at the option of RJR,be paid either in cash or through the issuance of additional pay-in-kind bonds valued at 100 percent of par.,The bankruptcy claim of the pay-in-kind bond is par plus accrued interest.,15,返回目录,The difference 3,The deferred-coupon bond was issued on May 15,1989,at a price of$48.656 per$100 of face value.,Through May 15,1994,the deferred-coupon bond pays no coupon but accretes to face value on May 15,1994,at a rate of 15 percent per year,compounded semiannually.,Prior to May 15,1994,the bankruptcy claim of the deferred-coupon bond is its accreted value.,16,返回目录,17,返回目录,The difference 4,The deferred-coupon bond and pay-in-kind bonds,trade flat,(i.e.,without accrued interest due upon settlement)prior to May 15,1994,while the settlement price of these two bonds is the quoted price plus accrued interest after May 15,1994.,The settlement price of the 13.5-percent cash-paying bond is always its quoted price plus accrued interest.,18,返回目录,Part Three:,Theoretical Pricing Restrictions,19,返回目录,Notation,Assumption:there are no market imperfections.,We denote the quoted price(per$100 of face value)at time t of,the cash-paying bond by,the deferred-coupon bond by,the pay-in-kind bond by,We let v,t,denote the settlement price(i.e.,the quoted price plus accrued interest)at time t of a bond whose quoted price is p,t,.,20,返回目录,Prior to May 15,1994,Since the deferred-coupon and pay-in-kind bonds trade flat prior to May 15,1994,for tT*,where T*is May 15,1994.,21,返回目录,After May 15,1994,After May 15,1994,both the deferred-coupon and pay-in-kind bonds become identical 15-percent cash-paying bonds.,In addition to paying a lower coupon,the 13.5-percent cash-paying bond also has a lower call-price schedule(see table 2)than either the deferred-coupon or pay-in-kind bonds.,As a result,the following arbitrage restriction must hold after May 15,1994:,where the inequality assumed the absence of refinancing costs.,22,返回目录,1.Deferred-coupon and cash-paying bonds,Consider a portfolio consisting of one deferred-coupon bond and,U.S.Treasury strips,with face values of$6.75 that mature at each of the coupon payment dates through May 15,1994.,23,返回目录,Cont.,Beyond May 15,1994,the deferred-coupon bond is more valuable than the cash-paying bond due to its higher coupon and call-price schedule see equation(1).,Prior to May 15,1994,the portf。