Essential Elements of Treasury
Capital Markets and Funding
Capital markets and funding covers all the different techniques and sources for raising funding to finance the business, from bank debt to equity finance. There are choices to be made between the different forms of borrowing, their structures, terms and conditions and relative costs. The relationships with lenders and investors will need to be built and the borrower’s business and risk characteristics explained to credit analysts and credit rating agencies.
Capital Markets and Funding includes:
Asset and Project Finance
More complex forms of finance can be structured to finance a specific set of assets or a narrowly defined business or project where the lenders will have recourse only to those particular assets or projects. Often the borrower is seeking to limit their own risk to the project and if this is the case the lenders will want to build in more protection for themselves. Asset and Project Finance therefore covers: international securitised and collateralised debt markets; managing a securitisation, a CDO (collateralised debt obligation) / CLO (collateralised loan obligation) transaction or ABCP (asset backed commercial paper) programme; and public private partnership funding e.g. PFI, PPP. It includes asset backed or asset based loans, leasing and "sale and lease back". The complex structuring and security packages mean that care and expertise will be needed in the finance documentation and in the management of conduit companies and SPVs (special purpose vehicles).
This refers to the different forms of bank lending such as bilateral, club, and syndicated loans – committed or uncommitted, revolving facilities and backstops or standbys. Treasurers also have responsibility for the loan terms and conditions, covenants, security whether subordinated or unsubordinated and the negotiations and relationship management with lenders.
This incorporates the role of the credit rating agencies, their methodologies and processes, default probabilities and their data on defaults. Managing the rating relationships and what information to provide to them on an initial rating or at subsequent reviews.
Debt Capital Markets
This covers a range of debt capital markets and instruments from short-term Commercial Paper, Medium Term Notes (MTNs) to bond issues and more complex instruments such as convertibles, exchangeables, preference capital, puttables, callables and hybrid debt with equity characteristics. It incorporates day count conventions. Also the mechanics and processes involved in managing a one-off issue or issuance programme including prospectus obligations, US shelf regulations, disclosures, and investor relations.
The treasurer needs to be aware of the nature of the international equity markets including the US markets and ADRs (American Depositary Receipts). The treasurer will be involved in managing the processes of an equity issue including dealing with advisors, pricing, rights issues, bonus issue, IPO; the regulatory matters, listing rules, pre-emption rights and documentation including prospectus requirements, disclosures, accountants reports. Also incorporates private equity, venture capital markets and stocklending.
This refers to managing overseas trade financing such as open account, export credit insurance, guarantees, supplier / buyer credit, price bases (COD, freight paid etc). Incorporates trade finance instruments and documentary credits such as Letters of Credit, acceptances, bills, evidentiary e.g. bills of lading. Also supply chain finance and electronic systems.