The company agreed. It then experienced a strong financial recovery over the ensuing two years, whereupon it asked its existing bondholders to waive the pari passu covenant. They refused, and with all the leverage on their side, negotiated to buy up an entirely new offering immediately junior to their existing debt, but yielding an additional 400 basis points. A savvy adviser, Pritchard says, would have sought language in the original deal allowing a pari passu offering if the company’s earnings hit certain milestones.
“The buy side looks at umpteen deals a month,” comments Pritchard. “You will not craft a deal that is so favorable to the issuer that you get investors to buy something they would really rather not buy. However, the very sophisticated investor can put provisions in place that cannot be fully appreciated and understood by issuers.”
All That, and More
Bartlett says Daniels was helpful on his company’s notes offering in ways that went beyond pricing, too. American Tower was just in the process of getting an investment-grade rating, he says, “and he helped us dissect the different products the banks were proposing we might use, and to get his advice on our overall financial policy, not just in terms of where our leverage should be, but also in terms of how much fixed-rate versus floating-rate debt we should have and how much cash we should have on the balance sheet.” With Daniels, he says, he was able to “knock stuff around that I generally couldn’t with a banker, not because they’re not good people with good ideas but because I really wanted an objective view.”
Bartlett also consulted with Daniels’s firm when American Tower initiated a new notes offering, and says its advice helped convince the company to expand the number of bookrunners on that deal, not just to do a better job of spreading fee income among its banks but also to encourage more input from their traders and sales desks.
To be sure, not every capital-raising transaction requires the services of an independent adviser. “If a public company that’s been in the market a couple of times is issuing common stock, it’s not hard to understand how it gets priced and that underwriting discounts are pretty much the same,” says Berick of Squire, Sanders. “You’re picking an underwriting syndicate based on industry coverage and all the other usual sorts of factors.”
“A Cheap Date”
But companies undertaking more-complex transactions may benefit from having an independent adviser. “If you’re evaluating different kinds of debt offerings — for instance, whether to do a convertible-preferred rather than a convertible-debt offering, or a PIPE [private investment in public equity] or rights offering — then I think companies may be more inclined to want some kind of market check from somebody who really is just working for them,” Berick says.
While neither Daniels nor Pritchard will say exactly how much their firms charge, Pritchard notes that it is a fraction of what investment banks earn on a capital-markets transaction. Bartlett says the price of Daniels’s help at American Tower was a relative bargain compared with the cost of building the same expertise in-house. “It’s a very effective way to get an objective view of the world, and I don’t need to build or create a tremendous treasury function within my own organization to get it,” he says.