Investment Bankinghw3
1. Why do you think JPMorgan and Merrill Lynch were selected to underwrite and book-run all $23.3 billion in financings (all debt, common stock, and convertible), instead of sharing the underwriting with additional firms?
JPMorgan and Merrill Lynch had positive reputations after they both ranked highly in convertibles and common stock underwriting. These trustworthy banks had well-established ties to FCX. Also, these two firms agreed to issue a bridge loan to FCX prior to the acquisition.
2. What was the role of the leveraged finance group at JPMorgan and why was its involvement important to the acquisition?
The leveraged finance group was responsible for the analysis behind making the bridge financing commitment to FCX. This was important to the acquisition because the bridge loan enabled FCX to show Phelps Dodge that they were committed to financing them.
3. Describe the forms of risk that an investment bank must consider in relation to acquisition and underwriting transactions. Describe what it means for a firm to set aside capital when it completes underwriting transactions.
Capital Risk-financial risk a bank takes on when it agrees to finance an acquisition. Reputation Risk-comes from associating the investment firm with the company for which it is raising capital for or funding. When a bank sets aside capital when completing underwriting transactions it is usually cash invested in risk-free securities to hedge their risk.
4. Describe the role and importance of credit rating agencies in the Freeport-McMoRan transaction. Which group within an investment bank has the primary responsibility to work with companies regarding rating agency considerations?
The credit rating agencies were important because they were needed to secure the highest possible ratings on the upcoming bond offerings. This determines how much a bank can borrow and at what cost. The debt capital markets group works with the credit rating agencies.
5. Describe the
JPMorgan and Merrill Lynch had positive reputations after they both ranked highly in convertibles and common stock underwriting. These trustworthy banks had well-established ties to FCX. Also, these two firms agreed to issue a bridge loan to FCX prior to the acquisition.
2. What was the role of the leveraged finance group at JPMorgan and why was its involvement important to the acquisition?
The leveraged finance group was responsible for the analysis behind making the bridge financing commitment to FCX. This was important to the acquisition because the bridge loan enabled FCX to show Phelps Dodge that they were committed to financing them.
3. Describe the forms of risk that an investment bank must consider in relation to acquisition and underwriting transactions. Describe what it means for a firm to set aside capital when it completes underwriting transactions.
Capital Risk-financial risk a bank takes on when it agrees to finance an acquisition. Reputation Risk-comes from associating the investment firm with the company for which it is raising capital for or funding. When a bank sets aside capital when completing underwriting transactions it is usually cash invested in risk-free securities to hedge their risk.
4. Describe the role and importance of credit rating agencies in the Freeport-McMoRan transaction. Which group within an investment bank has the primary responsibility to work with companies regarding rating agency considerations?
The credit rating agencies were important because they were needed to secure the highest possible ratings on the upcoming bond offerings. This determines how much a bank can borrow and at what cost. The debt capital markets group works with the credit rating agencies.
5. Describe the