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9 – 211 – 063
R EV : D EC EM BE R 6 , 2 0 1 7
TI M O TH Y A . L UE H RM A N
D A V I D LA NE
Tombstones
Capital markets offer corporations varied ways to raise funds. This Note presents summary
information for a selection of corporate securities issued during 2009-2010 following the financial crisis
of 2008–2009. They include three issues of senior unsecured notes, one floating rate note, one common
stock offering, and one convertible note. The issuers are Microsoft, Coca-Cola Enterprises, Norfolk
Southern, IBM, Ford Motor, and Cephalon. Selected supplementary data on the issuers are
summarized in Exhibit 1. A short glossary of terms appears at the end of the case.
All three senior unsecured note issues were sold in $1,000 denominations and paid interest semiannually. For each bond or note, the semi-annual interest payment equals one half the stated coupon
rate times the $1,000 face amount. Following the same convention, the annual yield to maturity for such
instruments is conventionally calculated and quoted as two times the semi-annual internal rate of return
of the bond’s market price and promised future payments of interest and principal.
Microsoft Notes
On September 22, 2010, Microsoft Corporation issued $4.75 billion in senior unsecured notes in four
series, each paying a different coupon and maturing in 2013, 2015, 2020, and 2040 (see Exhibit 2). The
company’s disclosures noted that the proceeds would be used for “general corporate purposes, which
may include funding for working capital, capital expenditures, repurchases of stock and acquisitions.”1
This was only the second time in its history that Microsoft had offered bonds; moreover, each series of
Microsoft notes reportedly set a record for the lowest yield for unsecured debt of that maturity since
Dealogic began keeping records in 1995.2
More generally, yields on U.S. Treasury obligations were near historic lows in September 2010: near zero
on short-term bills and bonds, and below 4.0% on 30-year bonds. Exhibit 3 shows the U.S. Treasury yield
curve on September 22, 2010 and, for comparison, on July 28, 2006, before the financial crisis.
Coca-Cola Enterprises Notes
On February 17, 2009, Coca-Cola Enterprises (the leading bottler of Coca-Cola beverages) issued
$600 million in senior unsecured notes, comprised of one series of 3.75% notes due in 2012, and one
series of 4.25% notes due in 2015 (see Exhibit 4). According to its SEC filing, the company planned to
use the proceeds to pay down debt.3
Professor Timothy A. Luehrman and Global Research Group Senior Researcher David Lane prepared this case. This case was developed from
published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of
primary data, or illustrations of effective or ineffective management.
Copyright © 2011, 2012, 2017 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized,
photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
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Tombstones
Norfolk Southern’s “Century” Bond
On August 23, 2010, Norfolk Southern railroad reopened a 100-year bond originally issued in March
2005 to sell an additional $250 million of unsecured senior notes with an annual coupon of 6.0% (see
Exhibit 5). Proceeds were used for general corporate purposes.4 Market observers estimated that
Norfolk Southern was paying about 0.75% more on its century bond than it would have had to pay on
an otherwise similar 30-year bond.5
IBM Floating Rate Notes
On December 13, 2010, International Business Machines Corporation sold $1 billion in floating rate
notes, with quarterly interest payments equal to 3-month LIBOR plus 0.03%, reset quarterly (see
Exhibit 6). On December 13, U.S. dollar 3-month LIBOR was 0.302%. Exhibit 7 shows historical rates
for U.S. dollar 3-month LIBOR. IBM’s disclosures indicated that issue proceeds would be used for
general corporate purposes. Only a few months earlier, in August 2010, IBM had issued $1.5 billion of
3-year notes with a fixed coupon of 1.0%. At the time, the 1.0% coupon was the lowest on record for a
U.S. corporate bond issue.
Ford Common Stock Offering
On May 12, 2009, Ford Motor Company announced that it would raise up to $2 billion by selling
common stock to the public (see Exhibit 8). The cash raised would be used primarily to fund in cash
rather than in stock certain payments the company was required to make to a union-controlled
Voluntary Employee Beneficiary Association (VEBA) retiree healthcare trust. The VEBA was controlled
by the United Auto Workers union.6 Ford President and CEO Alan Mulally stated, “By issuing equity
now and potentially funding a larger portion of our future VEBA obligations in cash, we are able to
further improve our balance sheet and significantly reduce the potential dilutive impact of the VEBA
obligations on existing shareholders.”7 Based on the terms of the VEBA agreement, if Ford were, in
fact, to issue the stock directly to the VEBA plan instead of the public, the issuing prices would have
been between $2.00 and $2.20 per share instead of the $4.75 per share stated in Exhibit 8. On May 11,
2009, Ford stock closed at $6.00 per share. After the announcement of the equity offering, Ford stock
closed down on May 12 at $4.94. Historical stock prices for Ford are presented in Exhibit 9.
Cephalon Convertible Notes
On May 21, 2009, biopharmaceuticals maker Cephalon issued $350 million in convertible senior
subordinated notes due in 2014 (see Exhibit 10). Concurrently, the company issued $300 million in
common stock. According to the company, the notes would be “subordinate to existing and future
senior indebtedness, equal to existing and future senior subordinated indebtedness and senior in right
of payment to existing and future subordinated indebtedness of Cephalon.” 8 The notes were not
expected to be listed on any exchange, though some of the underwriting group might (or might not)
make a market in them. Approximately $72 million of the proceeds of the convertible note issue was to
be used in conjunction with a hedging transaction arranged by the London branch of Deutsche Bank
AG. The remainder of the proceeds would be used for general corporate purposes.9
2
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Exhibit 1
-3-
Supplementary Data on Issuers
Microsoft
Corporation
Coca-Cola
Enterprises
Norfolk
Southern
IBM
Corporation
Ford Motor
Company
Cephalon,
Inc.
Senior
Unsecured
Notes
Senior
Unsecured
Notes
Senior
Unsecured
Notes
Floating
Rate
Notes
Common
Stock
Convertible
Bond
Coupon
0.875%
1.625%
3.000%
4.500%
3.750%
4.250%
6.00%
LIBOR+0.03%
2.50%
Maturity
2013
2015
2020
2040
2012
2015
2105
2012
2014
Issue datea
Settlement date
Stock price on issue date ($/share)
Market capitalization on issue date ($ millions)
Equity beta
9/22/2010
9/27/2010
$24.61
$213,319
1.02
2/17/2009
2/20/2009
$8.80
$4,297
1.28
8/23/2010
8/26/2010
$54.56
$20,138
1.04
12/13/2010
12/16/2010
$144.28
$189,527
0.68
5/12/2009
5/18/2009
$5.01
$12,129
2.55
5/21/2009
5/27/2009
$59.46
$4,093
0.38
Balance sheet date
Interest-bearing debt ($ millions)
Cash & cash equivalents ($ millions)
Credit rating at issue date (Moody’s except as noted)
6/30/2010
$5,939
$36,788
AAA (S&P)
12/31/2008
$9,029
$722
A3
12/31/2009
$7,153
$1,086
Baa1
9/30/2010
$25,468
$11,512
Aa3
3/31/2009
$145,943
$41,813
CCC+ (S&P)
3/31/2009
$800
$615
not rated
Issuer
Securities issued
Source:
Bloomberg LP, accessed January 2011.
a In the case of Ford, “issue date” actually denotes the date on which the common stock offering was announced publicly. The indicated stock price for Ford is the closing price on the
announcement date.
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Tombstones
Exhibit 2
Microsoft Notes
Final Term Sheet
September 22, 2010
MICROSOFT CORPORATION
0.875% Notes due 2013
1.625% Notes due 2015
3.000% Notes due 2020
4.500% Notes due 2040
Issuer:
Microsoft Corporation
Title of Securities:
0.875% Notes due 2013 (the “2013 Notes”)
1.625% Notes due 2015 (the “2015 Notes”)
3.000% Notes due 2020 (the “2020 Notes”)
4.500% Notes due 2040 (the “2040 Notes” and, together with the 2013
Notes, the 2015 Notes and the 2020 Notes, the “Notes”)
Aggregate Principal Amount Offered:
2013 Notes: $1,000,000,000
2015 Notes: $1,750,000,000
2020 Notes: $1,000,000,000
2040 Notes: $1,000,000,000
Price to Public (Issue Price):
2013 Notes: 99.835% of principal amount
2015 Notes: 99.561% of principal amount
2020 Notes: 99.136% of principal amount
2040 Notes: 98.911% of principal amount
Maturity Date:
2013 Notes: September 27, 2013
2015 Notes: September 25, 2015
2020 Notes: October 1, 2020
2040 Notes: October 1, 2040
Coupon (Interest Rate):
2013 Notes: 0.875% per annum
2015 Notes: 1.625% per annum
2020 Notes: 3.000% per annum
2040 Notes: 4.500% per annum
Interest Payment Dates:
2013 Notes: Semi-annually on March 27 and September 27,
beginning on March 27, 2011
2015 Notes: Semi-annually on March 25 and September 25,
beginning on March 25, 2011
2020 Notes: Semi-annually on April 1 and October 1, beginning on
April 1, 2011
2040 Notes: Semi-annually on April 1 and October 1, beginning on
April 1, 2011
Trade Date:
September 22, 2010
Settlement Date (T+3):
September 27, 2010
Source:
4
Excerpted from Microsoft Corporation, September 22, 2010, “Final Term Sheet,” www.sec.gov/Archives/edgar/
data/789019/000119312510214938/dfwp.htm, accessed January 2011.
Tombstones
Exhibit 3
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Yield Curves for U.S. Treasury Instruments, as of July 28, 2006 and September 22, 2010
6%
5%
Yield
4%
3%
2%
1%
0%
0
5
10
15
20
Years to Maturity
7/28/2006
Source:
25
30
35
9/22/2010
Time to Maturity
Yield (%) on 9/22/2010
3 Month
6 Month
1 Year
2 Year
3 Year
5 Year
7 Year
10 Year
30 Year
0.157
0.191
0.252
0.436
0.684
1.320
1.954
2.560
3.751
Bloomberg LP, accessed January 2011.
5
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Tombstones
Exhibit 4
Issuer:
Coca-Cola Enterprises Inc.
Securities Offered:
3.750% Notes due 2012
4.250% Notes due 2015
Principal Amount:
$350,000,000 of 2012 Notes
$250,000,000 of 2015 Notes
Coupon:
3.750% per year for 2012 Notes
4.250% per year for 2015 Notes
Stated Maturity Date:
March 1, 2012 for 2012 Notes
March 1, 2015 for 2015 Notes
Redemption Provisions/
Make-Whole Call:
At the option of the Company, all or a portion of the 2012 Notes and
2015 Notes may be redeemed at any time, or from time to time, at a
redemption price equal to the greater of (a) 100% of the principal amount
of the 2012 Notes and 2015 Notes to be redeemed and (b) the sum of
the present values of the remaining scheduled payments discounted to
the redemption date on a semi-annual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Rate plus .40% (40
basis points) for 2012 Notes and at the Treasury Rate plus .40% (40
basis points) for 2015 Notes, plus, in either case, accrued and unpaid
interest, if any, on the principal amount being redeemed to, but
excluding, the redemption date, as more fully described in the preliminary
prospectus supplement.
Initial Public Offering Price:
99.812% for 2012 Notes plus interest from February 20, 2009 99.227%
for 2015 Notes plus interest from February 20, 2009
Interest Payment Dates:
Each March 1 and September 1, beginning September 1, 2009
Purchase Price by Underwriters:
99.587% for 2012 Notes
98.877% for 2015 Notes
Trade Date:
February 17, 2009
Settlement Date:
T + 3 (February 20, 2009)
CUSIPS:
191219BU7 for 2012 Notes
191219BV5 for 2015 Notes
Expected Ratings:
A3 (stable outlook) by Moody’s Investors Service, Inc.
A (negative outlook) by Standard & Poor’s Ratings Services
A (stable outlook) by Fitch, Inc.
Joint Book-Running Managers:
Banc of America Securities LLC, Citigroup Global Markets Inc., HSBC
Securities (USA) Inc. and J.P. Morgan Securities Inc.
Co-Managers:
Greenwich Capital Markets, Inc. and Wachovia Capital Markets, LLC
Source:
6
Coca-Cola Enterprises Notes
Excerpted from Coca-Cola Enterprises, February 17, 2009, www.sec.gov/Archives/edgar/data/804055/
000119312509031175/dfwp.htm, accessed January 2011.
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Exhibit 5
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Norfolk Southern’s “Century” Bond
PROSPECTUS SUPPLEMENT
Filed Pursuant to Rule 424(b)(2)
(To Prospectus Dated March 27, 2009)
Registration Statement No. 333158240
$250,000,000
6% Senior Notes due 2105
We are offering $250 million aggregate principal amount of our 6% senior notes due 2105 (the “Notes”). The
Notes will bear interest at a rate of 6% per year. We will pay interest on the Notes on March 15 and September 15
of each year. The Notes will mature on March 15, 2105. Interest on the Notes will accrue from March 15, 2010, and
the first interest payment on the Notes will be due on September 15, 2010. The Notes are being offered as additional
notes under the Indenture (as defined herein) pursuant to which we issued $300,000,000 principal amount of our
6% senior notes due 2105 on March 11, 2005 (the “Prior Notes”). The Notes offered hereby and the Prior Notes will
be treated as a single series of debt securities under the Indenture. We may redeem the Notes prior to maturity, in
whole or in part, as described in this prospectus supplement.
The Notes will be unsecured obligations and rank equally with our other unsecured senior
indebtedness. The Notes will be issued only in registered form in denominations of $1,000 and integral
multiples of $1,000.
The Notes will not be listed on any securities exchange.
Price to Public1
Per note1
Total
Underwriting
Discount
Proceeds to Us
(before expenses)1
100.833%
1.00%
99.833%
$252,082,500
$2,500,000
$249,582,500
1 Plus accrued interest from March 15, 2010, the last date on which interest was paid on the Prior Notes, to the date of issuance
of the Notes.
Source:
Excerpted from Norfolk Southern, August 25, 2010, 424b2, www.sec.gov/Archives/edgar/data/702165/
000093041310004589/c62586_424b2.htm, accessed January 2011.
7
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Tombstones
Exhibit 6
IBM Floating Rate Notes
PROSPECTUS SUPPLEMENT
(to Prospectus dated July 27, 2010)
$1,000,000,000
International Business Machines Corporation
Armonk, New York (914) 499-1900
Floating Rate Notes due 2012
We will pay interest on the Notes at a floating rate of three month LIBOR reset quarterly plus 0.03%.
Interest payable quarterly on March 15, June 15, September 15, and December 15
The Notes may not be redeemed prior to maturity.
Per Note
Price to Public1
Underwriting Discounts and Commissions
Proceeds to Company1
Total
100.00%
0.10%
$1,000,000,000
$1,000,000
99.90%
$999,000,000
1 Plus accrued interest from December 15, 2010.
The Securities and Exchange Commission and state securities regulators have not approved or disapproved of
these securities, or determined if this prospectus supplement or the accompanying prospectus are truthful or
complete. Any representation to the contrary is a criminal offense.
The Underwriters expect to deliver the Notes to purchasers in book-entry form only through the Depository
Trust Company, for the benefit of its participants, including Clearstream Banking and the Euroclear System, on
December 15, 2010.
JOINT BOOK-RUNNING MANAGERS
Barclays Capital
UBS Investment Bank
CO-MANAGERS
BBVA Securities
UniCredit Capital Markets
December 13, 2010
Source:
8
Excerpted from IBM, December 14, 2010, 424b5; www.sec.gov/Archives/edgar/data/51143/000104746910010408/
a2201416z424b5.htm, accessed January 2011.
Tombstones
Exhibit 7
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Historical Rates for 3-Month U.S. Dollar LIBOR and 90-day U.S. T-Bill (in percent)
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
3 Month LIBOR
Source:
6/1/2011
9/1/2010
12/1/2009
3/1/2009
6/1/2008
9/1/2007
3/1/2006
12/1/2006
6/1/2005
9/1/2004
12/1/2003
3/1/2003
6/1/2002
9/1/2001
3/1/2000
12/1/2000
6/1/1999
9/1/1998
12/1/1997
3/1/1997
6/1/1996
9/1/1995
3/1/1994
12/1/1994
6/1/1993
9/1/1992
12/1/1991
3/1/1991
6/1/1990
9/1/1989
0%
3 Month US T-Bill
Compiled by casewriter using data from www.wsjprimerate.us/libor/libor_rates_history.htm; accessed
December 2010.
9
211-063
Tombstones
Exhibit 8
Ford Common Stock Offering
PROSPECTUS SUPPLEMENT
(To Prospectus dated June 2, 2008)
Ford Motor Company
300,000,000 Shares
Common Stock
We are offering 300,000,000 shares of our common stock, par value $0.01 per share.
Our common stock is quoted on the New York Stock Exchange (“NYSE”) under the symbol “F.” The last
reported sales price of our common stock as reported on the NYSE on May 12, 2009 was $5.01 per share.
Investing in the shares involves risks. See “Risk Factors” on page S-3 of this prospectus supplement and the Risk Factors
contained in our Annual Report on Form 10-K for the year ended December 31, 2008 and our Quarterly Report on Form 10Q for the quarter ended March 31, 2009, each incorporated by reference herein.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or
disapproved of these securities or passed upon the adequacy or accuracy of this prospectus supplement and
the accompanying prospectus. Any representation to the contrary is a criminal offense.
To the extent the underwriters sell more than 300,000,000 shares of common stock, the underwriters have the
option to purchase up to 45,000,000 additional shares from us at the initial price to the public less the underwriting
discount.
The underwriters expect to deliver the shares against payment in New York, New York on May 18, 2009.
Initial price to public
Underwriting discount
Proceeds, before expenses, to Ford
Per Share
Total
$4.75
$0.1425
$4.6075
$1,425,000,000
$42,750,000
$1,382,250,000
Goldman, Sachs & Co.
J.P. Morgan
Morgan Stanley
Deutsche Bank Securities
Merrill Lynch & Co.
Prospectus Supplement dated May 12, 2009
Source:
10
Excerpted from Ford Motor Company, May 13, 2009, 424b2, www.sec.gov/Archives/edgar/data/37996/
000095015209005168/k47849b2e424b2.htm, accessed January 2011.
Ford
Source:
Thomson Reuters ONE Banker.
Note:
S&P 500 indexed to the Ford stock price of $14.49 on May 12, 2004.
5/12/2009
2/12/2009
11/12/2008
8/12/2008
5/12/2008
2/12/2008
11/12/2007
8/12/2007
5/12/2007
2/12/2007
11/12/2006
8/12/2006
5/12/2006
2/12/2006
11/12/2005
8/12/2005
5/12/2005
2/12/2005
11/12/2004
Exhibit 9
8/12/2004
5/12/2004
Ford Stock Price ($/share)
Tombstones
211-063
Five-Year Stock Chart of Ford Motor Company and the S&P 500 Index
25
20
15
10
5
0
S&P 500
11
211-063
Tombstones
Exhibit 10 Cephalon Convertible Notes
Prospectus Supplement (to Prospectus Dated May 20, 2009)
Cephalon, Inc.
$435,000,000
2.50% Convertible Senior Subordinated Notes due 2014
We are offering $435,000,000 aggregate principal amount of our 2.50% convertible senior subordinated notes due 2014 (the
“notes”). We will pay interest on the notes on May 1 and November 1 of each year, beginning November 1, 2009. The notes will
mature on May 1, 2014. We may not redeem the notes before maturity. The notes will be our unsecured senior subordinated
obligations and will be effectively subordinated to all of our present and future secured debt to the extent of the collateral securing
that debt, equal to all of our existing and future senior subordinated debt and senior in right of payment to all of our existing and
future subordinated debt. The notes will effectively rank junior to our subsidiaries’ liabilities. The notes will be issued only in
denominations of $1,000 and in integral multiples of $1,000.
Upon conversion, we will pay cash, and, if applicable, deliver shares of common stock based on a daily conversion value (as
described herein) calculated on a proportionate basis for each trading day of the relevant conversion …
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