U.S. patent application number 10/256035 was filed with the patent office on 2003-09-25 for method and system for providing financial information and evaluating securities of a financial debt instrument.
This patent application is currently assigned to DLJ Long Term Investment Corporation. Invention is credited to Galant, Paul S..
Application Number | 20030182220 10/256035 |
Document ID | / |
Family ID | 28041526 |
Filed Date | 2003-09-25 |
United States Patent
Application |
20030182220 |
Kind Code |
A1 |
Galant, Paul S. |
September 25, 2003 |
Method and system for providing financial information and
evaluating securities of a financial debt instrument
Abstract
An apparatus, method and data structure for procuring and
analyzing information, particularly information regarding the
financial markets. The system provides a comprehensive combination
of financial information in a format that facilitates analysis and
decision-making.
Inventors: |
Galant, Paul S.; (New York,
NY) |
Correspondence
Address: |
McDERMOTT, WILL & EMERY
600 13th Street, N.W.
Washington
DC
20005-3096
US
|
Assignee: |
DLJ Long Term Investment
Corporation
Chicago
IL
|
Family ID: |
28041526 |
Appl. No.: |
10/256035 |
Filed: |
September 27, 2002 |
Related U.S. Patent Documents
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Application
Number |
Filing Date |
Patent Number |
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10256035 |
Sep 27, 2002 |
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09280083 |
Mar 29, 1999 |
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Current U.S.
Class: |
705/36R |
Current CPC
Class: |
G06Q 40/00 20130101;
G06Q 40/06 20130101 |
Class at
Publication: |
705/36 |
International
Class: |
G06F 017/60 |
Claims
What is claimed is:
1. A method for evaluating securities using a computer connected to
a plurality of databases, comprising: searching the plurality of
databases to identify information relating to a plurality of
companies as specified by a user of the computer; transmitting the
identified information to the computer via a data network; and
manipulating the transmitted information to provide a table of
financial information.
2. The method of claim 1 wherein the security is a debt instrument
and manipulating the transmitted information comprises determining
the duration of the debt instrument.
3. The method of claim 1 wherein the security is a debt instrument
and manipulating the transmitted information comprises determining
the option adjusted spread of the debt instrument.
4. The method of claim 1 wherein the security is a debt instrument
and manipulating the transmitted information comprises determining
the average life of the debt instrument.
5. The method of claim 1 wherein the security is a debt instrument
and manipulating the transmitted information comprises determining
the option value of the debt instrument.
6. The method of claim 1 wherein the security is a debt instrument
and manipulating the transmitted information comprises determining
the theoretical value of the debt instrument.
7. The method of claim 1 further comprising targeting investors
based on current ownership of a particularly structured
security.
8. The method of claim 1 further comprising targeting investors
based on past preference of a particularly structured security.
9. The method of claim 1 further comprising identifying arbitrage
opportunities.
10. The method of claim 1 further comprising analyzing a group of
securities regarding intrinsic and incremental value of portfolio
duration.
11. The method of claim 1 further comprising analyzing a group of
securities regarding average portfolio coupon.
12. The method of claim 1 further comprising analyzing a group of
securities regarding average portfolio maturity.
13. The method of claim 1 further comprising analyzing a group of
securities regarding portfolio option value.
14. The method of claim 1 further comprising analyzing a group of
securities regarding theoretical portfolio value.
15. The method of claim 1 further comprising analyzing a group of
securities regarding portfolio efficiency.
16. The method of claim 1 further comprising comparing a first
duration/cost relationship of a security to a second duration/cost
relationship of other companies.
17. The method of claim 1 further comprising determining hedging
decisions by evaluating the costs associated with rising interest
rates and hedging.
18. The method of claim 1 further comprising storing information
relating to a plurality of securities on a plurality of
databases.
19. An apparatus for evaluating securities for duration, option
adjusted spread, average life, and option value and theoretical
value comprising: a data network; a plurality of databases operably
connected to said data network; and a computer operably connected
to said plurality of databases via said data network, said computer
having a storage area, wherein said computer searches said
plurality of databases to identify information relating to a
plurality of companies as specified by a user of said computer,
said databases transmit said identified information to said storage
area of said computer via said data network, said computer
manipulates said transmitted information to provide a table of
financial information.
20. An apparatus for evaluating securities for duration, option
adjusted spread, average life, and option value and theoretical
value comprising: means for transmitting information; means for
storing company information, said means for storing being operably
connected to said means for transmitting; and means for computing
operably connected to said means for storing via said means for
transmitting information, said means for computing comprises a
storage area, means for searching said means for storing to
identify company information as specified by a user of said means
for computing, wherein said identified information is sent from
said means for storing to said storage area of said computer via
said means for transmitting, means for manipulating said
transmitted information to provide a table of financial
information.
21. In a system for evaluating securities, a computer-readable
memory for storing data for access by an application program
comprising: a data structure stored in said computer-readable
memory, said data structure including information used by said
application program and including: a plurality of price fields; a
plurality of option adjusted spread fields; a plurality of
volatility fields; a plurality of initial coupon fields; wherein
said fields have values and said application program calculates the
values of one of said plurality of fields based upon the values of
the other three of said plurality of fields.
22. The data structure of said computer-readable memory of claim 21
further comprising a plurality of settlement date fields.
23. In a system for evaluating securities, a computer-readable
memory for storing data for access by an application program
comprising: a data structure stored in said computer-readable
memory, said data structure including information used by said
application program and including: a plurality of treasury yield
fields; a plurality of spread fields; a plurality of corporate
yield fields; wherein said application program calculates said
corporate yield fields based upon said plurality of treasury yield
and spread fields.
24. The data structure of said computer-readable memory of claim 23
wherein said plurality of spread fields comprises a plurality of
parallel shift fields.
25. The data structure of said computer-readable memory of claim 23
wherein said plurality of spread fields comprises a plurality of
pivoting shift fields.
26. The data structure of said computer-readable memory of claim 23
wherein said plurality of spread fields comprises a plurality of
two-point tilting fields.
27. In a system for creating a yield-curve environment, a
computer-readable memory for storing data for access by an
application program comprising: a data structure stored in said
computer-readable memory, said data structure including information
used by said application program and including: a plurality of term
fields; a plurality of treasury yield fields; a plurality of spread
fields; wherein said application program calculates cost of funds
fields based upon said plurality of term, treasury yield and spread
fields.
Description
BACKGROUND OF THE INVENTION
[0001] The invention relates in general to an apparatus, method and
data structure for providing financial information, including
investment information, to assist in the evaluation of securities.
More particularly, the invention relates to an apparatus, method
and data structure for analyzing a variety of debt and equity
instruments.
[0002] In the past, bond-pricing and rating information on a
specific bond issue was obtained through personal contacts and
various services. This process is cumbersome and time intensive as
no single contact could provide comprehensive information, thus a
complete market evaluation was impossible to achieve.
[0003] Several patents have been issued in the financial field. For
example, U.S. Pat. Nos. 5,812,987 (to Luskin et al.), 5,812,988 (to
Sandretto), 5,502,637 (to Beaulieu et al.), and 5,864,871 (to
Kitain et al.), each of which is herein incorporated by reference
in its entirety, relate to investments. None of these references,
however, provides the data acquisition, analytical tools, and data
record manipulation of the present invention.
[0004] The foregoing demonstrates that there is a need for an
invention which allows one to efficiently obtain and analyze
investment information.
SUMMARY OF THE INVENTION
[0005] The invention satisfies the need and avoids the drawbacks of
the prior art by providing an apparatus, method and data structure
that set forth an interactive venue for the procurement and
analysis of a comprehensive aggregate of information relating to
the financial markets. Access to this system greatly reduces the
time and costs associated with the process of identifying specific
analysts and services, obtaining and compiling investment
information, analyzing the information, and providing financial
advice. As such, the invention provides an easy and reliable tool
that combines a user-friendly interface with powerful databases and
state of the art analytics to identify financial opportunities in
the Capital Markets.
[0006] In one aspect, the invention provides a full-featured system
and method that can be used to create value, leading to transaction
advantages in the Debt Capital Markets. The invention simplifies
the process of analyzing the markets by making the most relevant
information available in an easy-to-use, integrated manner. The
primary users of the invention are those who perform the analysis
leading to liability management, new issuance, or hedging decisions
and include bankers, traders, research analysts and
salespeople.
[0007] According to another aspect of the invention, an apparatus
for and a method of communicating financial information are set
forth. The apparatus and method may include the structure for and
steps of evaluating securities using a computer connected to a
plurality of databases including searching the plurality of
databases to identify information relating to a plurality of
companies as specified by a user of the computer, transmitting the
identified information to the computer via a data network, and
manipulating the transmitted information to provide a table of
financial information. The method and apparatus also include
determining the duration, option adjusted spread, average life,
option value and theoretical value of debt issues. The method and
apparatus also target investors based on past preference or current
ownership of a particularly structured security. Further, the
method and apparatus facilitate the identification of arbitrage
opportunities. The method and apparatus additionally provide for
the analysis of a group of securities regarding intrinsic and
incremental value, average portfolio coupon, average portfolio
maturity, portfolio option value, theoretical portfolio value, and
portfolio efficiency. The method and apparatus also compare
duration/cost relationships of a number of securities to evaluate
the preferred security features. The method and apparatus include
evaluating hedging decisions by evaluating the costs associated
with rising interest rates and hedging. Additionally, the method
and apparatus include storing information relating to a plurality
of securities on a plurality of databases. The invention may also
permit a user the option of creating a debt or equity
portfolio--specific to the user's needs--from a database of
financial information.
[0008] In another aspect of the invention an apparatus for
evaluating securities for duration, option adjusted spread, average
life, and option value and theoretical value is disclosed that
includes a data network, a plurality of databases operably
connected to the data network, and a computer operably connected to
the plurality of databases via the data network.
[0009] In a further aspect of the invention, an apparatus for
evaluating securities for duration, option adjusted spread, average
life, and option value and theoretical value includes means for
transmitting information; means for storing company information;
whereby the means for storing is operably connected to the means
for transmitting; and means for computing is operably connected to
the means for storing via the means for transmitting information.
The means for searching the means for storing may identify company
information as specified by a user. The identified information may
be sent from the means for storing to a storage area of the means
for computing via the means for transmitting. The means for
manipulating the transmitted information may provide a table of
financial information, which facilitates the evaluation of
securities.
[0010] In another aspect of the invention, a system for
communicating financial information contains a computer-readable
memory for storing data for access by an application program and
includes a data structure stored in the computer-readable memory.
The data structure may include information used by the application
program and may contain a plurality of price fields, option
adjusted spread fields, volatility fields, and initial coupon
fields, wherein the fields have values and the application program
calculates the values of one of the plurality of fields based upon
the values of the other three of the plurality of fields. The data
structure may also include a plurality of settlement date
fields.
[0011] In another aspect of the invention, a system for
communicating financial information contains a computer-readable
memory for storing data for access by an application program and
includes a data structure stored in the computer-readable memory.
The data structure may include information used by the application
program and may contain a plurality of treasury yield fields and
corporate yield fields, wherein the application program calculates
the corporate yield fields based upon the plurality of treasury
yield and spread fields. The data structure may also include
parallel shift fields, pivoting shift fields, and two-point tilting
fields.
[0012] In another aspect of the invention, the data structure may
also contain a plurality of term fields, treasury yield fields, and
spread fields, wherein the application program calculates cost of
funds fields based upon the plurality of term, treasury yield and
spread fields.
BRIEF DESCRIPTION OF THE DRAWINGS
[0013] FIG. 1 illustrates a client-server-financial database
network for a preferred embodiment of the invention.
[0014] FIGS. 2A and 2B illustrate a flow of data entry and
transmission for a preferred embodiment of the invention.
[0015] FIG. 3 illustrates a user interface according to the
principles of the invention.
[0016] FIG. 4 illustrates a news page according to the principles
of the invention.
[0017] FIG. 5 illustrates a real-time display of U.S. medium term
swaps vs. 3M LIBOR.
[0018] FIG. 6 illustrates a real-time display of available exchange
rates based on the U.S. Dollar.
[0019] FIG. 7 illustrates a real-time display of money market rates
of a cross-section of fund sources.
[0020] FIG. 8 illustrates a real-time display of pricing for
Treasury Bonds and Notes.
[0021] FIG. 9 illustrates a real-time display of pricing for
Treasury Bills.
[0022] FIG. 10 illustrates a debt portfolio window according to the
principles of the invention.
[0023] FIG. 11 illustrates indicative current spreads relating to a
group of companies that represent various ratings within an
industry sector according to the principles of the invention.
[0024] FIG. 12 illustrates information relating to new issues
identified in the marketplace.
[0025] FIG. 13 illustrates a preferred manner in which a user may
conduct a search of new issues.
[0026] FIG. 14 illustrates the results of a search of new issues
according to the principles of the invention.
[0027] FIG. 15 illustrates an equity portfolio according to the
principles of the invention.
[0028] FIG. 16 illustrates a portion of a window displaying equity
high volume issues for the major exchanges.
[0029] FIG. 17 illustrates a portion of a window displaying top
percentage gainers for the major exchanges.
[0030] FIG. 18 illustrates a portion of a window displaying top
percentage losers for the major exchanges.
[0031] FIG. 19 illustrates a portion of a window displaying top net
gainers for the major exchanges.
[0032] FIG. 20 illustrates a portion of a window displaying top net
losers for the major exchanges.
[0033] FIG. 21 illustrates a suitable debt page according to the
principles of the invention.
[0034] FIG. 22 illustrates a corporate efficiency frontier page
according to the principles of the invention.
[0035] FIG. 23 illustrates shifting the yield curve according to
the principles of the invention.
[0036] FIG. 24 illustrates calculations associated with hedging
opportunities according to the principles of the invention.
[0037] FIG. 25 illustrates a call structures window according to
the principles of the invention.
[0038] FIG. 26 illustrates a put structures window according to the
principles of the invention.
[0039] FIG. 27 illustrates a synthetic putable yields securities
window according to the principles of the invention.
[0040] FIG. 28 illustrates an OAS calculator according to the
principles of the invention.
[0041] FIG. 29 illustrates the calls tab portion of the OAS
calculator window according to the principles of the invention.
[0042] FIG. 30 illustrates the calculate field box portion of the
OAS calculator according to the principles of the invention.
[0043] FIG. 31 illustrates the yield-curve environment of the OAS
calculator according to the principles of the invention.
[0044] FIG. 32 illustrates the calculate field box portion of the
OAS calculator according to the principles of the invention.
[0045] FIG. 33 illustrates the yield analysis of the OAS calculator
according to the principles of the invention.
[0046] FIG. 34 illustrates input data of the Debt Refinancing
Analysis window according to the principles of the invention.
[0047] FIG. 35 illustrates the Calls aspect of the Debt Refinancing
Analysis window according to the principles of the invention.
[0048] FIG. 36 illustrates the wait-to-call issue aspect of the
Debt Refinancing Analysis window according to the principles of the
invention.
[0049] FIG. 37 illustrates the repurchase study result according to
the principles of the invention.
[0050] FIG. 38 illustrates the wait-to-call study result according
to the principles of the invention.
[0051] FIG. 39 illustrates the debt search window according to the
principles of the invention.
[0052] FIG. 40 illustrates the security search results according to
the principles of the invention.
[0053] FIG. 41 illustrates a suitable equity page according to the
principles of the invention.
DETAILED DESCRIPTION
[0054] FIG. 1 shows a system 10 for communicating financial
information according to one aspect of the invention. The system 10
depicted in FIG. 1 includes a server 12 having a memory 14, and a
database 16 defined in the memory 14. The server 12 may be an ALPHA
server, a minicomputer, a microcomputer, a UNIX machine, a
mainframe computer, a personal computer with an Intel Pentium
processor, a Macintosh personal computer, or any other suitable
computer. The memory 14 is preferably non-volatile (e.g., CD-ROM,
hard disk, tape drive, etc.). The server 12 has a central
processing unit (CPU) 18, input devices such as a keyboard and
mouse (not shown), output devices such as a monitor and printer
(not shown), random access memory (RAM) 20, read-only memory (ROM)
22, serial and parallel ports (not shown), and communication
hardware 24. There may also be additional memory (not shown) remote
from the server 12 and connected to the server 12 via one of the
aforementioned serial or parallel ports. The communication hardware
24 may connect the server 12 to the Internet. In a preferred
embodiment, the server 12 is a World Wide Web server connected to
the Internet. Preferably, the server 12 has an operating system
that is capable of multiple users and multi-tasking, such as UNIX,
Windows NT, or LINUX. FIG. 1 also demonstrates the inclusion of one
or more client machines 26 and one or more financial databases 30
which communicate with the server 12. FIG. 1 does not disclose the
specific interconnections between and among the various components
in the server 12 as this information is well known.
[0055] The client machines 26 may be connected to the server 12 by
communication links 28, and the financial databases 30 may be
connected to the server 12 by communication links 29. The
communication links 28, 29 between the server 12 and the client
machines 26 and between the server and the financial databases 30,
respectively, may include a large variety of connections, including
a telephone link, a hard-wired connection, a satellite link or
other wireless connection, an Internet connection, a local area
network (LAN), a wide area network (WAN), any combination of the
preceding, or any other suitable type of connection. Multiple
client machines 26 may communicate simultaneously with the server
12, and each connection may be by a different type of link (e.g.,
one connection may be by telephone while another may be by the
Internet). Similarly, multiple financial databases 30 may
communicate simultaneously with the server 12, and each connection
may be a different type of link as discussed above. As discussed
above, the server 12 connects to communication links 28, 29 via
communication hardware 24.
[0056] The server 12 may communicate--via communication link
29--with a particular financial database 30 by a variety of
communication protocols, including file transfer protocol (FTP),
electronic mail (e-mail), transfer control protocol/Internet
protocol (TCP/IP), ASCII, X-MODEM, Y-MODEM, KERMIT, any combination
of the preceding protocols, or any other suitable type of protocol.
The server 12 may gather information from a financial database 30
automatically (e.g., at regularly scheduled intervals), only in
response to data requested from a client machine 26, or both
automatically and in response to a request from a client machine
26. Depending on the nature of the information provided by a
particular financial database 30, the connection between the server
12 and the particular financial database 30 may be "live" at all
times or may be established intermittently.
[0057] After a link is established between the server 12 and a
client machine 26, communication may take place via a variety of
communication protocols, as described above with respect to
communication between the server 12 and a financial database 30.
The software running on a client machine 26 that accesses
information on the server 12 may be a known Internet browser such
as Netscape Navigator or Internet Explorer or may be any other type
of software suitable for transmitting information to and receiving
information from the server 12.
[0058] In a preferred embodiment, the server 12 is an ALPHA server.
With this platform, CPUs, memory, networking capabilities, storage,
and software may be modified as appropriate to meet specific
requirements. One preferred platform is an ALPHA 2000 4/275, which
features 128 MB of memory, a CD-ROM drive, a 4.3 GB redundant an-ay
of independent disks (RAID), an 8 GB tape backup, and a 100 base-T
network interface. The selection of a suitable server requires
consideration of CPU speed as well as disk subsystem performance
and network bandwidth. For example, a disk with a 7200 RPM
rotational speed may be a suitable disk subsystem. Once the RAID is
selected (RAID 0, 1, 2, 3, 4, or 5), the size of the database and
its projected growth must be analyzed as part of the known design
considerations.
[0059] The database 16 on the server 12 may be of any suitable
type. One type of server commonly used for large database
applications is Oracle. Oracle is an extremely powerful and
flexible relational database system. Procedural Language/Standard
Query Language (PL/SQL) is a sophisticated programming language
used to access the Oracle database from various environments. The
Oracle database combines the power and flexibility of SQL (a fourth
generation language (4GL)) with the procedural constructs of a
third generation language (3GL). PL/SQL is integrated with the
database server, so that the PL/SQL code may be processed quickly
and efficiently. Another important tool that PL/SQL provides is
designed for data manipulation both internally (i.e., within
Oracle) and externally in applications.
[0060] PL/SQL extends regular SQL by adding constructs found in
other procedural languages. Another advantage of PL/SQL is that
several SQL statements may be bundled together into one PL/SQL
block and sent to the server as a single unit. This results in
considerably lowered network traffic and a much faster
application.
[0061] Another preferred database that may be employed is Oracle8i.
The Oracle8i database is useful for Internet applications and
manages the content, data and files typically managed by an
operating system. Oracle8i has a Java Virtual Machine, a native
Java compiler, and a feature called Internet File System (iFS),
which provides the ability to store, query, and manage a wide range
of relational and non-relational data within the database. iFS,
written in Java, allows users to store 164 data types, including
spreadsheets, word processing documents, Web pages and e-mail,
within the database and retrieve them either in native file format
or in HyperText Markup Language (HTML) through a browser. iFS
indexes each file automatically and gives users enhanced security,
database search capabilities, backup and recovery.
[0062] Other features in Oracle8i include WebDB, a environment run
through a browser that enables developers to dynamically generate
Web content and pages; SQLJ, a programming syntax that embeds SQL
database statements into client or server Java code; and
interMedia, a system for managing rich data types used over the
Web. Of course, other database systems may be utilized according to
the invention.
[0063] In a preferred embodiment, as seen in FIGS. 1, 2A, and 2B, a
user uses a client machine 26 to connect to the server 12 via a
communication link 28. The user may then log onto the database 16,
as seen at step 40. Optionally, a password may be required of the
user, as seen at step 42. If a password is required and the user
has not used the system previously, as seen at step 44, the user is
given a password by the server 12 or is prompted by the system 10
to obtain a password from an administrator of the server 12, as
seen at step 46. Next, the user must enter the previously obtained
password, as seen at step 48. FIG. 2A does not illustrate
additional steps for repeating the requests for a password and a
sales associate number if the contractor enters incorrect data, as
these additional steps are known. A contractor who has used the
system previously has the option of editing or deleting the
contractor's record (not shown).
[0064] After logging onto the server 12, a user may enter pertinent
information into the database 16 concerning the type or types of
information desired, as seen at step 50. A wide variety of data may
be entered at step 50 and is not limited to requests concerning
various securities.
[0065] The server 12 may be connected to one or more financial
databases 30, as is seen at step 58. If the data are of a type that
is not automatically generated (step 62), the server 12 may request
information indicating the information requested by the user and
entered into the database 16. This is seen at step 60. If the
information from the financial databases 30 is of the type that may
be automatically provided to the database 16, step 60 is skipped as
is indicated by step 62.
[0066] Once the information from one more financial databases 30 is
entered into the database 16, a search may be performed using
server 12 to identify information requested by a user. This search
is seen at step 52 and need only be performed for data
automatically generated by one or more financial databases.
[0067] The server 12 may then format the requested information
appropriately, as is seen at step 54. Once the information is
formatted, it may then be transmitted to a user at a client machine
26, as seen in step 56.
[0068] Navigation through the system 10 is easily accomplished via
a Web-style environment of point-and-click that directly links a
user to desired sections. It is understood that selecting,
pointing, clicking, choosing, and the like refer to the use of a
mouse and mouse pointer. In a preferred embodiment, five tabs are
provided on Front Page 100. Markets tab 101, Debt tab 102, Equity
tab 103, Research tab 104, and Help tab 105 are shown in FIG. 3.
These tabs, when selected, connect a user directly to the section
relating to the selected tab.
[0069] In FIG. 3, Quote window 106a, Quote tab 106b, and Quote
Window Launch tab 106c are disposed, as shown adjacent to Help tab
105. A user may receive a stock quote by entering a stock symbol in
Quote window 106a and then clicking on Quote tab 106b.
Alternatively, a user may select Quote Window Launch tab 106c and
enter a desired stock symbol in the provided window. The system 10
provides stock quote information and, in a preferred embodiment,
news relating to the company associated with the stock symbol. More
preferably, a user may select news over various time frames, such
as the past 24 hours, the past week, the past month, and the past
six months.
[0070] Print tab 107 is also located at the top of FIG. 3. In a
preferred embodiment, clicking on the Print tab 107 permits three
choices within the markets section: Window Snapshot, Text, and
Printer Set Up. The Window Snapshot option prints an image of the
current window and is limited to what is visible in the current
window. The Text option prints all of the current market data from
the page including portions that are not visible, but can be viewed
via scrolling. The Printer Setup option permits the user to select
a particular printer and change the properties of the printer, such
as the paper orientation (i.e., portrait or landscape).
[0071] As seen in FIG. 3, another series of tabs are located below
tabs 101-107. Back tab 141 and Forward tab 142 permit a user to
quickly access the contents of a previous or subsequent screen,
respectively. Refresh tab 143 permits a user to refresh the screen
with the most current information at a time decided by the user.
Auto Refresh tab 143a may alternatively be selected to enable the
screen to refresh automatically, for example, every two minutes.
When the screen is refreshed, the system 10 updates Last Refresh
field 143b and preferably displays the date and time. A debt or
equity portfolio, the creation and modification of which are
discussed in detail below, may be displayed by selecting the Debt
Portfolio tab 144 or Equity Portfolio tab 145, respectively.
[0072] In a preferred embodiment, tabs 101-107 and 141-145 are
present in every view to permit efficient navigation throughout the
system 10. Of course, the window contents and toolbar options may
be constantly modified by the user.
[0073] Selection of Markets tab 101 permits a user to view a
comprehensive listing of options in a convenient drop-down menu or
toolbar that is located on the left-hand side of Front Page 100, as
shown in FIG. 3. A user can be linked directly to any of the
toolbar options 111-15, 117-18, 120-23, and 125-32 to obtain market
information by clicking on the desired option. An arrow will appear
adjacent to the selected toolbar option so the user will know what
screen the user is viewing at all times. In a preferred embodiment
of the invention, toolbar options that are gray may not be selected
until they become black or green. More information about the
markets tab 101 information may be obtained by selecting help tab
105 or help toolbar option 131, which are discussed below.
[0074] The markets section provides easy access to current market
information. Note that toolbar option Front Page 111 includes an
arrow, which indicates that the screen is displaying the Front Page
100 under Markets heading 110. The Front Page 100 is a composite of
information relating to the debt and equity markets. The other
pages of this section are accessible by clicking one of the options
in the toolbar displayed on the left side of FIG. 3.
[0075] In a preferred embodiment, up to five headlines 151 are
displayed on Front Page 100; however, a greater or lesser number
may be provided. By clicking on the news headline a pop-up box will
appear on front page 100 containing the requested news article in
full, a print button and stock tickers for related companies. In a
preferred embodiment, the news items are displayed in real-time and
are automatically scrolled downward as new articles are posted. The
source of each article may preferably be displayed adjacent to the
headline.
[0076] In a preferred embodiment, Treasury Benchmarks field 152,
Financial Futures field 153, Benchmark Swap Spreads and Yields
field 154, and Currencies field 155 may be displayed in real-time
(though certain field updates may be delayed, for example,
approximately 20 minutes) as depicted in FIG. 3. The financial
futures information is provided as pricing for the two-year,
five-year, ten-year, and 30 year futures traded on the Chicago
Board of Trade. FIG. 3 also shows North American indices field 156
and World indices field 157 in real-time. This information
preferably includes the total of the index and the change for the
day. In one embodiment, positive changes in the numbers may be
displayed in black, while negative changes may be indicated in red.
Additionally, a user may click on "(more)" tab 160 to view more
information relating to that particular database. The "(more)" tab
is employed throughout the system 10 to indicate that more
information may be viewed by clicking on the "(more)" tab.
[0077] News Page 200, when selected, provides a search engine for
searching for news based on a user's specified criteria, as is
shown in FIG. 4. The focus of the search is on worldwide company
business news and is preferably real-time. This information can be
obtained from Reuters and Dow Jones, for example. To initiate a
news search a user may enter specific criteria and select the
Search button 212 located at the top of News Page 200. The search
provides a list of news headlines. A particular story may be
retrieved by clicking on the headline associated with the story. A
close button may be selected to return to the list of
headlines.
[0078] In a preferred embodiment, the system 10 retrieves up to 25
headlines for the current day by setting Search Limit field 210 to
25 and Time Frame field 211 to the current day. The search may be
expanded to retrieve 25, 50, 100, or 200 stories, by modifying
Search Limit field 210, over a period of two days, seven days,
fourteen days, 30 days, or six months, by modifying Time Frame
field 211, using the provided pull-down menus.
[0079] The system 10 permits searching using ticker symbols, key
words, topics and industries. A user may specify a company's stock
ticker symbol in Ticker field 220 to search for news stories
relating to the company.
[0080] Key word searching by entering words in Word field 230 is
also possible and may be focused through the utilization of the
radio buttons 231-35 located to the right of the key word window in
order to specify how the search is done for the entered key words.
The radio buttons 231-35 permit searching for news stories having
any entered key word, all entered key words, or an exact phrase,
and the user may specify a headline search or a headline-plus-story
search.
[0081] A user may also select from a list of Topics fields 240
which will limit the search to only identify stories related to the
selected topics.
[0082] A user may further limit the inquiry by selecting one or
more Industry fields 250 by clicking on the box to the left of the
industry. Again, this will restrict the news search to only locate
stories related to the selected industries.
[0083] FIG. 5 displays the real-time U.S. Medium term Swaps vs. 3M
LIBOR, which may be viewed by selecting toolbar option Swap Spreads
113. FIG. 6 displays a portion of the available real-time exchange
rates based on the U.S. Dollar. This screen may be viewed by
selecting toolbar option Currencies 114.
[0084] FIG. 7 displays real-time money market rates of a
cross-section of fund sources, which may be viewed by selecting
toolbar option Short Terms 115. The prime rate, discount rate and
federal funds rate are located at the bottom of FIG. 7.
[0085] The Governments heading 116 includes information relating to
government bonds, notes, and bills. FIG. 8 demonstrates typical
government bonds and notes, which may be viewed by selecting
toolbar option Bonds/Notes 117. Selecting this option provides
real-time pricing for Treasury Bonds and Notes. Benchmarks are
highlighted with bold typeface and a benchmark label in the left
column. FIG. 9 demonstrates typical government T-bill information,
which may be viewed by selecting toolbar option Bills 118.
Selecting this option provides real-time pricing Treasury Bills.
Benchmarks are highlighted with bold typeface and a benchmark label
in the left column.
[0086] The Corporates heading 119 includes debt information
relating to Portfolios, Current Spreads, Priority Issues, and All
New Issues. Debt portfolios may be displayed by selecting toolbar
option Portfolios 120 or Debt Portfolio 144. The portfolios may be
displayed along with the last price for each individual bond in the
portfolio. The portfolio window only is depicted in FIG. 10. If
more than one debt portfolio has been saved on system 10, the
desired portfolio may be selected from the debt portfolio box (not
shown).
[0087] FIG. 11 shows indicative current spreads relating to a group
of companies that represent various ratings within an industry
sector. This information is displayed by selecting toolbar option
Current Spreads 121. The spreads are generally updated several
times per week. More detail on a particular company may be obtained
by clicking on the company name.
[0088] FIG. 12 displays information relating to new issues
identified in the marketplace which may be viewed by selecting
toolbar option Priority Issues 122. For example, the last 14 days
of new issues are displayed. The last two columns are the New Issue
Spread (N.I. Spread) and the Free To Trade Spread (F.T.T.
Spread).
[0089] Selection of toolbar option All New Issues 123 permits a
user to view all new corporate and preferred debt securities issued
throughout the world. Selection box 310, displayed in the center of
FIG. 13 demonstrates a preferred manner in which a user may conduct
a search of new issues. After selecting the Search button 320, the
securities identified by the search are preferably displayed as
shown in FIG. 14 with the search criteria (not shown) located at
the bottom of the list of securities. The search criteria mechanism
shown in FIG. 13 is generally self-explanatory. If Corporate is
selected, then a user may refine the search criteria by selecting
one or more of the listed products from Products field 330. The
search may also be limited by selecting one or more of the
industries from Industry field 340. Additionally, the search may be
limited by timing of the announcement, such as one day ago, three
days ago, seven days ago, fourteen days ago, by selecting the
desired Timing field 350.
[0090] The Equity heading 124 includes equity information relating
to Portfolios, Quotes, Most Active, Pct Gainers, Pct Losers, Net
Gainers, and Net Losers. Equity portfolios may be displayed by
selecting toolbar option Portfolios 125 or Equity Portfolio 145.
The portfolios may be displayed along with the current price and
volume for each individual ticker in the portfolio as is shown in
FIG. 15. Clicking on a specific ticker provides greater detailed
information about that ticker. In a preferred embodiment, the
headlines of news stories relevant to the selected companies are
displayed in conjunction with the stock information. A particular
news story may be viewed by clicking on its associated
headline.
[0091] Toolbar option Quote 126 displays a real-time stock quote in
a manner similar to that provided by Quote tab 106b, discussed
above.
[0092] The top ten issues for each exchange, including NYSE,
NASDAQ, AMEX, and OTC:BB, having the largest volume of shares
traded for the day may be viewed by selecting toolbar option Most
Active 127. A portion of the window is shown in FIG. 16.
[0093] The top ten issues for each exchange having the largest
percentage gains for the day may be viewed by selecting toolbar
option Pct Gainers 128. A portion of the window is shown in FIG.
17.
[0094] The top ten issues for each exchange having the largest
percentage losses for the day may be viewed by selecting toolbar
option Pct Losers 129. A portion of the window is shown in FIG.
18.
[0095] The top ten issues for each exchange having the largest net
gains for the day may be viewed by selecting toolbar option Net
Gainers 130. A portion of the window is shown in FIG. 19.
[0096] The top ten issues for each exchange having the largest net
losses for the day may be viewed by selecting toolbar option Net
Losers 131. A portion of the window is shown in FIG. 20.
[0097] The information is somewhat delayed by each exchange.
Additional issues from a particular exchange may be viewed by
selecting the (more) button 160.
[0098] Selecting toolbar option Help 132 provides the user with
guidance in operating the system.
[0099] Selection of Debt tab 102 allows a user to view options for
debt analysis and searching on Debt Page 400. In a preferred
embodiment, Debt Page 400 facilitates analysis of Portfolios, Debt
Refinancing, option adjusted spread ("OAS"), Hedging, and Yield
Curve Analysis. More information about Debt Page 400 information
may be obtained by selecting Help tab 105 or toolbar option Help
132.
[0100] Debt Page 400 provides a menu of options as shown in FIG.
21. Specifically, toolbar options 412-15, 417, 419-20, 422-24, and
426-36 include the analytics and search functions relating to debt.
In a preferred embodiment, when debt is initially selected, a Yield
Curve window 440 appears. However, another preferred chart or graph
may be viewed by selecting another option from the toolbar options.
As with Front Page 100, an arrow appears adjacent to the selected
toolbar option that allows the user to keep track of the selected
screen. In FIG. 21, the arrow is located on toolbar option Treasury
412.
[0101] Under the Debt heading 410, six main topics are listed:
Yield Curve 411, Hedging 416, New Issue 418, Analytics 421, Search
425, and toolbar option Portfolio 429. Under each main topic a
series of sub-topics or toolbar options are listed that when
selected connect a user directly to the selected screen. Grayed
items located in the menu may not be used until they become black
or green. The grayed items related to the topics that are being
viewed, but are not active at the time.
[0102] A yield curve is a fundamental financial tool. When making
decisions about debt issuance and refunding, a user may refer to
the yield curve to view a detailed picture of both the interest
rate environment and the corporate credit spread environment. The
yield curve may also be used as a powerful tool in refinancing
analysis. A user must understand how to view the points along the
yield curve and how to interpret the "shape" of the yield
curve.
[0103] The construction of a yield curve is relatively straight
forward. When creating the yield curve, the system 10 selects
Treasury securities having three-month, six-month, one-year,
two-year, three-year, five-year, seven-year, ten-year, and 30-year
maturities and, for each security, plots the time to maturity
(x-axis) against the percent value of the yield (y-axis). Hence, a
user may refer to the system-provided yield curve to find the yield
of any of the above-listed securities. For example, if a user would
like to find the yield of a five-year Treasury bond, then the user
should identify the point along the yield curve that has an x-axis
value of 5Y, and find the corresponding value along the y-axis.
This y-axis value represents the percent value of the yield.
[0104] The yield curve is not a continuous curve since every point
along the curve does not represent the true maturity/yield
relationship. This is because the system plots the values for the
above-listed securities and forms the curve by connecting the
discrete data by a series of line segments. Therefore, the system
plots only those data that correspond to the above-listed
securities. The other points on the curve that lie on the line
segments do not represent true values. For example, the system does
not plot the datum representing the four-year security as the
four-year security is an interpolation between the three- and
five-year security yields.
[0105] The above-listed securities are known as the "On-The-Run"
treasury securities. The data that correspond to these securities
determine the basic shape of what is known as the On-The-Run
Treasury Yield Curve or O-T-R Treasury Yield Curve.
[0106] The shape of the yield curve represents the change in yield
from one point along the yield curve to another point on the same
curve. Although one cannot view the curve to determine the percent
yield of each security along the x-axis, one can view the overall
shape of the yield curve to get a sense of the basic yield curve
environment.
[0107] Several theories attempt to explain the basic shape of the
yield curve. For example, the following two theories attempt to
explain the positive, upward slope of the yield curve. Note that
these theories are not mutually exclusive.
[0108] According to the Liquidity Preference Theory, market
participants prefer to purchase shorter-term, more liquid, and less
interest-rate-sensitive instruments that are on the shorter end of
the maturity spectrum. The fact that market participants prefer
shorter-term securities results in a greater demand for these
securities. This increased demand serves to lower the yields of the
shorter-term securities relative to the yields of the longer-term
securities. Because the shorter-term securities have lower yields
than the longer-term securities, the yield curve has a positive,
i.e., upward, slope.
[0109] According to the Market Segmentation Hypothesis, different
market participants (e.g., banks, mortgage companies, corporate
treasury departments) tend to purchase securities that have certain
maturities. The nature of the participant's business determines
which securities the firm tends to purchase. For example, many
corporate treasury departments tend to invest money in shorter-term
instruments so that cash can be more readily available for accounts
payable, payroll, debt services, or other unexpected expenses.
Because fixed-income purchasers tend to invest in shorter-term
maturities, the demand for shorter-term securities is higher than
that for longer-term securities. This increased demand serves to
lower the yields on the shorter-term securities. Because the
shorter-term securities have lower yields than the longer-term
securities, the yield curve has a positive, i.e., upward,
slope.
[0110] Although the Liquidity Preference Theory and the Market
Segmentation Hypothesis may have intuitive appeal, one cannot
easily quantify their effects upon the yield curve. Most market
professionals rely upon the Expectations Hypothesis.
[0111] According to the Expectations Hypothesis, the yield from any
given maturity can be "built" or "bootstrapped" from a current
short-term yield and a forward yield. The forward yield is the
mathematically projected value of the yield at some future date.
For example, a two-year yield can be thought of as a combination of
the current one-year yield and the one-year forward rate, which is
the one-year rate that market participants expect will "exist" one
year from the current time.
[0112] If the investment horizon is two years, the borrower may
issue a two-year note. Alternatively, the borrower may issue two
securities: a one-year security at the current one-year rate and,
at the end of the first year, another one-year security at the
then-prevailing rate. For example if the current two-year yield is
6.0% and the current one-year yield is 5.5%, an issuer (1) can
issue a two-year note at 6.0% or (2) issue two successive one-year
notes. With the one-year rate at 5.5%, a forward yield of
approximately 6.5% makes the second option mathematically
equivalent to the first option. If the rate at the end of the first
year is less than 6.5%, then the second option is more
advantageous. On the other hand, if the rate is greater than 6.5%,
then a two-year note would have been the better economic
option.
[0113] An issuer can look at the yield curve to determine the cost
of "going out along the curve" to issue a longer-term security. For
example, a borrower may consider issuing a five-year rather than a
three-year security. The issuer can refer to the yield curve to
determine the cost of the longer maturity. If the three-year
security has a yield of 6.0% and the five-year security has a yield
of 6.5%, then the borrower must pay 0.5% (50 basis points) for
locking in a longer-term financing rate.
[0114] The steepness of the yield curve may be viewed to assess
trade-offs between yields as maturity increases. For example, an
issuer seeking finding in the three- to five-year maturity range
would view the steepness in this section of the curve. If the curve
is flat or possibly sloping downward, increasing maturity
(duration) of debt may have little negative increase in the cost of
funds; however, a steep upwardly sloping curve implies a large
increase in the cost of funds in order to achieve an increase in
maturity (or duration) of debt.
[0115] The steepness of the historical yield curve can be computed
for up to five dates in the past using the system 10. This function
may be used to compare the current incremental cost of funds for
increasing maturity to the incremental cost in the past. If the
incremental cost of funds is small compared to the historical
costs, an issuer might consider issuing longer maturity debt to
take advantage of the relative flatness in the yield curve.
[0116] The Treasury Yield Curve may be displayed by selecting
toolbar option Treasury 412. In a preferred embodiment, a current
yield curve will be automatically displayed. To select another
curve, choose one of the following options in the Treasury field
441:
1 Current (default) 1 Day Ago 1 Week Ago 1 Month Ago 1 Year Ago
Specific Date
[0117] A specific date may be selected by first entering the date
(mm/dd/yy) in the Date field 442, and then checking the specific
Date Display Option field 443.
[0118] The current yield curve may be refreshed by clicking the
Refresh tab 444. The date and time of the most recent update are
preferably displayed on the screen in Last Refresh field 445.
[0119] The flattest segments of each curve may be highlighted by
selecting the Highlight Flattest Segments field 510, which is
demonstrated in FIG. 22. The flattest segments are those that have
the smallest change in y-value or, in other words, the smallest
change in the percentage value of the cost of funds. In a preferred
embodiment, the flattest segments 521 are indicated by displaying
the line segments in a color that is distinct from the color
employed for the other line segments. A segment of the curve may be
magnified by employing the user's mouse pointer by (1) positioning
the mouse pointer to the left and to the top of the segment, (2)
holding down the left mouse button, and (3) dragging the pointer
down and to the right. The box appears as the mouse is dragged.
Then the user releases the mouse button and an enlarged curve is
shown. To return to the full view of the curve, the mouse pointer
is positioned anywhere on the graph, the left mouse button is held
down, the mouse is dragged to the left and up, and the mouse button
is released. A user may display the y-axis data on the curve by
placing the mouse pointer on the curve and clicking either the left
or right mouse buttons.
[0120] To view the data in tabular form, the user may refer to the
Bid Yield (%) table 450 at the bottom of Debt Page 400. Note that,
in a preferred embodiment, the information for each curve appears
in a separate row in the table.
[0121] The system 10 automatically calculates the steepness of the
yield curve from point A to point B along the x-axis and displays
the data in a Steepness table 460 at the bottom of Debt Page
400.
[0122] The system 10 computes the amount of time that a yield for
O-T-R maturities have been below yields in the past. This function
allows the user to assess whether or not current yields are at
high, low, or average levels compared to the recent past. If, for
example, yields in certain maturities are at or near historical
lows, an issuer might choose to issue a security having these
maturities in order to reap the benefits of advantageous current
costs of funds. By selecting the Historic Analysis tab 447, the
results of an historical analysis of the following Treasury
securities is displayed:
2 3 Year 5 Year 10 Year 30 Year
[0123] For each security and for each of the following time
periods, the system 10 calculates the percentage of time during
which the benchmark treasury yield was at or below the current bid
side yield of the benchmark reference treasury that is used for the
pricing and hedging of corporate bonds.
[0124] Time Periods
3 Last Year Last 3 Years Last 5 Years Last 10 Years Last 20
Years
[0125] The Corporate Efficiency Frontier is the curve plotted from
all available bonds in the marketplace which have the lowest
modified duration of each value of the cost of funds. For example,
all corporate bonds with a cost of funds of 7% are found (the
Investor Search fluction could be used), and the corporate bond
with the lowest modified duration is selected. This bond's cost of
funds (7%) and its modified duration are plotted on the Efficiency
Frontier. The above procedure is repeated for a large range of cost
of funds, and a curve emerges. Any point along this curve is
considered efficient, because no other bond possesses a lower cost
of funds (y-axis) for any value of modified duration (x-axis).
Alternatively stated, no other bond possesses a lower modified
duration (x-axis) for any value of cost of funds (y-axis).
[0126] Corporate Efficiency Frontier Page 500 is displayed in FIG.
22 and may be viewed by selecting toolbar option Corp Eff Frontier
414. The Efficiency Frontier Page 500 contains three panels of
information. Graph 520 of the efficiency frontier for a selected
portfolio is disposed at the top of Page 500. A user may access the
OAS Analysis for any point on the graph by placing the user's mouse
pointer on one of the marked data and clicking the right mouse
button.
[0127] The table, below the graph 520, contains the following
information for each Treasury security:
4 Maturity (year) Maturity Date Treasury Yield (%) Corp. Spread
(bps) Corp. Yield (%) Issuance Expenses (bps) All-in Yield (%)
Modified Duration (year) Increment All-in Cost (%) Increment
Duration (year) Increment Cost vs. Duration
[0128] Highlight flattest Segments field 510 and Display Treasury
Yield Curve field 511 are located to the right of graph 520. The
efficiency frontier curve and the Treasury curve may be plotted at
various times including current, one day ago, one week ago, one
year ago, and a specific date. The timing is determined by the
user's input in Time fields 512. A Refresh button 513 and Last
Refresh Field 514 are displayed next to the Time fields 512.
[0129] A user may interactively manipulate the cost-of-funds curve
based on various inputs. Credit Rating field 515 includes the
following options: AGNCY, AAA, AA, A, BBB, BB, B, CCC, any of which
may be selected from the preferably provided dropdown list.
[0130] Credit spreads may be selected by choosing either Generic
field 516 or Specific field 517. Note that the system defaults to
Generic field 516. A user may or may not be able to enter specific
credit spreads depending upon the user's profile. A specific credit
spread may be created by typing the name of the Credit Spread
Environment in Credit Spread field 518, or by clicking the Select
button 519 to access the Environment Selection screen and then
clicking on the desired credit spread environment. A user may also
modify a specific corporate spread value by placing the mouse
pointer in an appropriate cell, left-clicking, typing the correct
value (in basis points), and pressing <Enter>. The system 10
automatically recalculates the values and updates the efficiency
frontier curve. Fees, located below credit spreads, are employed in
analogous fashion by system 10.
[0131] Corporate spreads may widen (increase) or narrow (decrease)
for variety of reasons. For example, an economic recession may
cause low-rated companies to default on debt at a higher rate than
during an economic expansion. This often results from lower
revenues coupled with typically higher debt burden. A user may wish
to analyze a security or a portfolio using a yield curve
environment where corporate spreads have widened.
[0132] Corporate spreads may be shifted by entering or modifying
the values on the Yield Curve Graph window 600, illustrated in FIG.
23. This screen may be accessed by selecting the toolbar option
Yield Curve Env 415 when a user is either creating a new yield
curve environment or selecting an existing yield curve
environment.
[0133] Corporate spreads may be shifted by entering the appropriate
shift values (bps) into the Corporate Shift field 610 on the Yield
Curve Graph window 600. This window 600 may be accessed by
selecting either the Apply Shift or the Graph button on the Yield
Curve Environment tab screen. The Corporate Shift field 610
contains Term Column field 611 and Shift Column field 612. The
Shift Column field 611 contains the numeric value of the shift for
each x-axis value listed in the Term Column field 611. The shift
value may be modified for any given term. A new value may be
entered by typing the value in the appropriate cell and clicking
the Apply button 614. The system 10 automatically modifies the
Shifted Corporate Curve to reflect the modified values.
[0134] The system 10 also interpolates between the non-zero entered
values to calculate the Treasury yields and corporate spread
values. The interpolated function enables a user to speed the
process of creating a yield curve by allowing a user to enter a few
points and click on the Interpolate button 613 to fill in the
remaining values.
[0135] A parallel shift in the yield curve occurs when all yields
increase or decrease by the same number of basis points. By
entering the appropriate shift values (bps) into the Shift Amount
field 615 a user may generate a parallel shift in the corporate
spreads. For example, to shift the yield curve along the y-axis, a
user may enter the shift amount in the Shift Amount field 615 and
then clicks the Apply button 616. The number of basis points
entered is the change in percent Yield for every point along the
curve. Once entered and applied, all the points on the curve shift
"in parallel." To decrease the y-value, the user enters a negative
number.
[0136] A pivot in the yield curve occurs when a single point on the
curve is chosen to remain constant. Then, yields of shorter-term
maturities move in one direction (e.g., down), and yields on
longer-term maturities move in the opposite direction (e.g., up).
Thus, the curve effectively pivots around the chosen pivot point
(clockwise, in the above example).
[0137] A user may define the pivot point (yr) by entering into the
Pivot Point field 617 the appropriate x-axis value. The number of
basis points may be entered at Shift at Pivot field 618 to increase
or decrease yield (%) at the pivot point. To decrease the y-value,
the user enters a negative number. The number of basis points may
be entered at Pivot Amount field 619 by the pivot curve. A positive
value shifts the curve in a counterclockwise direction around the
pivot point and a negative value to shift the curve in a clockwise
direction around the pivot point. After entering the appropriate
information, the user may click the Apply button 620 to view the
shifted yield curve.
[0138] The corporate spreads may be modified by entering the
appropriate shift values (bps) to obtain two-point tilting. The
first pivot point may be defined by entering the appropriate x-axis
value in Point 1 field 621. The number of basis points by which the
user would like to increase or to decrease the yield (%) at the
pivot point 1 may be indicated at Shift at Point 1 field 622.
[0139] The second pivot point may be defined by entering the
appropriate x-axis value in Point 2 field 623. The number of basis
points to increase or to decrease the yield (%) at the point 2 may
be indicated at Shift at Point 2 field 624. To view the shifted
corporate curve, the user clicks the Apply button 625.
[0140] In all of these examples, the shifted yield curve may be
removed from the graph by clicking the Clear Shift button 626.
[0141] The yield curve environment represents a company's cost of
funds curve, comprised of Treasuries and corporate credit spreads.
The yield curve environment is employed throughout the debt section
of system 10 to calculate and compare values among companies,
securities, and maturities. It is a fundamental component of both
the debt refinancing analysis and the option adjusted spread
calculation.
[0142] A yield curve environment may be created and saved under a
user's login identification so that it may be retrieved at a later
time. Each time a yield curve environment is saved, the treasury
and spread values are saved together so that a user may restore the
environment at a future date. If a user is performing a tax-related
analysis (e.g., debt refinancing) and has entered a tax schedule,
then that tax schedule may also be saved along with the yield curve
environment.
[0143] The yield curve is set up to allow users to re-create
analyses very quickly, such as modeling various scenarios to
perform "what if" analyses with hypothetical changes to the
treasury curve, or updating corporate credit curves with current
treasury rates at the touch of a button. The system 10 has helpful
functions to let users quickly create new curves by pulling in
generic spreads, or using the interpolate function.
[0144] The yield curve environment is a reusable module in the
system 10 that appears in the OAS Calculator, the Debt Refinancing
Analysis, the Portfolio Analysis, and the Corporate Efficiency
Frontier. In fact, a user may assign a yield curve environment to a
portfolio so that each time the user loads the portfolio for
analysis, the assigned yield curve will be associated with the
portfolio. A yield curve may be assigned to multiple
portfolios.
[0145] Graphing the On-the-Run or O-T-R Treasury Yield Curve
provides a visual representation of yield versus maturity. Although
the maturity and corresponding yields are displayed in a table, the
graph provides a more easily understood view of yields and the
steepness of sections of the yield curves.
[0146] The historical yield curve can be graphed for up to five
dates in the past. This function may be used to compare the
movement of yields throughout time. If a user is considering a
five-year issuance, the user may graph the, five-year yields for
each of the last five years. If, for example, the current five-year
yield is significantly lower than in the previous five years, the
time may be attractive for such a debt issuance.
[0147] The Generic Rate Lock window 700 of system 10, displayed in
FIG. 24, illustrates the various costs of executing an interest
rate lock on various benchmark securities for various terms. The
objective, of a rate lock is to lock in the current benchmark
Treasury yield for pricing of a future fixed rate corporate debt
issue. This provides an issuer with protection against a rise in
Treasury yields by effectively pricing, in advance, the Treasury
component of a future debt financing.
[0148] The Generic Rate Lock window 700 may be viewed by selecting
toolbar option Generic Rate Lock 417. To perform an analysis of the
several hedging options, the user refers to the Hedge Costs table
710 on the window 700. For each given Treasury security, the system
calculates the hedge costs for the following rate-lock periods:
5 2 week 1 month 2 month 3 month 6 month
[0149] For each given Treasury security, the system also calculates
the hedge ratio (%) and the interest rate-risk ($MM). The hedge
ratio measures the relative volatility of the future bond offering
to be hedged versus the volatility of the hedged Treasury. The
hedge ratio (%) allows for matching of the volatilities to provide
optimal execution of an interest rate lock. The 2-month Hedge-Ratio
column 711 is located on the right side of window 700. An issuer is
exposed to risk between the time that a financing decision is made
and when the transaction is priced. Risk is expressed in terms of
dollar cost per basis point rise in the benchmark Treasury. The
Interest-Rate Risk column 712 displays the risk for an illustrative
$100 million borrowing.
[0150] An Explanation Text Box field 713 is provided at the bottom
of window 700 to explain the calculation results that may be
accessed by clicking on the appropriate cell. The Company Name may
be entered into Name field 714 at the top of window 700. The
appropriate credit rating option may be selected from the drop-down
list 715. Treasury data may be updated by clicking the Refresh
button 716. The date and time of the most recent update preferably
appear in Last Refresh field 717.
[0151] The Call Structures window 800 provides a "template" for
many of the common issued callable bond structures. For example, a
10NC3 is a bond with a ten-year final maturity that is not callable
during the first three years from the original issue date. Thus,
the bond is callable by the issuer during years four through
ten.
[0152] Callable bonds provide the issuer with protection from
falling interest rates. If a bond were issued that was not callable
at any time, and if interest rates were to fall, the issuer would
have to pay the above market coupon (interest) for the entire
remaining maturity of the bond. But, if the bond were callable, the
issuer could call or redeem the bonds at a pre-specified call
price, and issue new bonds at a lower interest rate. Such a call
and re-issuance would lower the issuer's interest expense. Of
course, the issuer of a callable bond must pay a higher yield
(coupon) on callable bonds to entice investors to purchase these
bonds.
[0153] The Call Structures window 800, illustrated in FIG. 25,
contains four tables of information and may be accessed by clicking
toolbar option Structures 419 and the Call Structures tab 810. The
main table 820 contains a listing of the various options for
structuring the bond. For each Structure field 821, the system
displays the following five columns of information:
6 Coupon (%) field 822 Treasury Yield (%) field 823 Bullet Spread
(bps) field 824 Volatility (%) field 825 Option Value (bps) field
826 Duration (years) field 827
[0154] After a structure has been selected from the main table, the
system automatically populates the Security Indicatives table 830,
Valuation table 840, and Call Schedule table 850 with data related
to the chosen structure. The Security Indicatives table 830
contains the following information:
7 Structure field 831 Issue Date field 832 Coupon (%) field 833
Maturity Date field 834 Rating field 835 Treasury Yield (%) field
836 Bullet Spread (bps) field 837
[0155] The Valuation table 840 contains the following four columns
of information:
8 Volatility (%) field 841 Coupon (%) field 842 Option Value (bps)
field 843 Duration (years) field 844
[0156] The Call Schedule table 850 displays each Call Date and the
corresponding call price in Call Date field 851 and Call Price
field 852, respectively.
[0157] The Put Structures window 900, illustrated in FIG. 26,
provides a "template" for many of the commonly issued putable bond
structures. For example, a 10PUT3 is a bond with a ten-year final
maturity that is not putable during the first three years from the
original issue date. Therefore, the bond is putable by the investor
during years four through ten.
[0158] Putable bonds provide investors with protection against
rising interest rates. If interest rates rise, an investor holding
a putable bond may put the bond back to the issuer at a
pre-specified put price, and use the proceeds to purchase a bond
with a higher coupon payment. If the bond were not putable, the
investor would own a bond with a below market coupon rate. The
investor must relinquish a certain amount of yield (coupon) to
purchase a bond that is putable, so the issuer can lower interest
expense by issuing putable bonds.
[0159] The Put Structures window 900 contains four tables of
information that is analogous to the Call Structures window 800.
The Put Structures window 900 may be accessed by clicking toolbar
option Structures 419 and the Put Structures tab 910. The main
table 920 contains a listing of the various options for structuring
the bond. For each Structure field 921, the system displays the
following six columns of information:
9 Coupon (%) field 922 Treasury Yield (%) field 923 Bullet Spread
(bps) field 924 Volatility (%) field 925 Option value (bps) field
926 Duration (years) field 927
[0160] After a structure has been selected from the main table 920,
the system automatically populates the Security Indicatives table
930, Valuation table 940, and Put Schedule table 950 with data
related to the chosen structure.
[0161] The Security Indicatives table 930 contains the following
information:
10 Structure field 931 Issue Date field 932 Coupon (%) field 933
Maturity Date field 934 Rating field 935 Treasury Yield (%) field
936 Bullet Spread (bps) field 937
[0162] The Valuation table 940 contains the following four columns
of information:
11 Volatility (%) field 941 Coupon (%) field 942 Option Value (bps)
field 943 Duration (years) field 944
[0163] The Put Schedule table 950 displays each put date and the
corresponding put price in Put Date field 951 and Put Price field
952, respectively.
[0164] Step-Up Put Structures screen provides a "template" for many
of the commonly issued step-up put bond structures. For example a
13PUT3 Step is a bond with a thirteen-year final maturity that is
not putable during the first three years from the original issue
date. Therefore, the bond is putable by the investor during years
four through thirteen.
[0165] Step-Up Put Structures are putable bonds that have coupon
payment rates that rise over the life of the bond. The issuer, who
makes lower coupon payments in the early years of the bond,
benefits from the lower interest expense in these early years.
[0166] The Step-Up Put Structures screen contains five tables of
information and is analogous to Put Structures window 900. The main
table contains a listing of the various options for structuring the
bond. For each structure, the system 10 displays the following six
columns of information:
12 Coupon (%) field Treasury Yield (%) field Bullet Spread (bps)
field Volatility (%) field Option value (bps) field Duration
(years) field
[0167] After a structure has been selected from the main table, the
system automatically populates the Security Indicatives, Valuation,
Put Schedule, and Coupon Schedule tables with data related to the
chosen structure.
[0168] The Security Indicatives table contains the following
information:
13 Structure field Issue Date field Coupon (%) field Maturity Date
field Rating field Treasury Yield (%) field Bullet Spread (bps)
field
[0169] The Valuation table contains the following four columns of
information:
14 Volatility (%) field Coupon (%) field Option Value (bps) field
Duration (years) field
[0170] The Put Schedule table displays each Put Date and the
corresponding Put Price.
[0171] The Coupon Schedule table displays the Step-Up Date and the
Coupon.
[0172] The Synthetic Putable Yields Securities (SPYSsm),
illustrated in FIG. 27, may be accessed by selecting toolbar option
Structures 419 and the SPYSsm tab 860.
[0173] The system 10 displays the following information for each
Synthetic Putable Yield Security:
15 Treasury Coupon (%) field 1001 Treasury Maturity field 1002
Treasury Yield (%) field 1003 Credit Spread (bps) field 1004 Credit
Spread Premium (bps) field 1005 Coupon (%) field 1006 Reference
Treasury Strike (%) field 1007 Volatility (%) field 1008 Up-front
Premium (%) field 1009 Per Annum Value (%) field 1010 Effective
Coupon (%) field 1011 Effective Spread to Treasury (bps) field 1012
Gross Spread (%) field 1013 All-in Cost (%) field 1014 All-in
spread to Treasury (bps) field 1015 The Synthetic Putable Yield
Securities include: 12 Put 2 field 1021 13 Put 3 field 1022 15 Put
5 field 1023 17 Put 7 field 1024 The credit rating may be selected
from the Credit Rating Drop-down list 1025. For each SPYS, the user
enters the appropriate: Credit Spread (bps) Credit Spread Premium
(bps) Volatility (%)
[0174] Values may be entered by using the mouse to select the text
box, typing the appropriate value, and pressing <Enter>.
[0175] The user clicks the Calculate button 1030 at the top of the
screen to view the results of the entered values on the screen.
Clicking the Calculate button 1030 also accesses the most recent
Treasury data. In a preferred embodiment, the date and time of the
most recent update are displayed in Last Refresh field 1031.
[0176] The analytics section provides three options: OAS
Calculator, Debt Refinancing and Ratings Model.
[0177] The OAS Calculator window 1100, illustrated in FIG. 28, may
be used to perform a variety of analytical calculations on callable
and/or putable bonds and may be accessed by selecting toolbar
option OAS Calculator 422. As the first step in performing an OAS
calculation, both the security profile (indicatives) and the yield
curve environment must be defined. The embedded call and/or put
options may be American, European, or Bermudan (see below). A bond
having a sinking fund schedule (with delivery options) and a
varying coupon rate schedule may be selected. As discussed above,
the yield curve environment defines both the Treasury yield curve
and the corporate yield curve. The system 10 uses these curves to
evaluate the price of the bond using the OAS calculator.
[0178] An OAS calculation may be performed on either an existing
security or on a new security. To define a new security, a user
must enter the appropriate information into the text fields on the
Security Profile tab 1101, including:
16 Credit Rating field 1104 Coupon Frequency field 1108 Amount
Issued field 1109 Call Date(s) field 1122 Call Price(s) field
1123
[0179] To perform a calculation on an existing security, the
Security Search tab 1131 may be employed to select the security
from the database or from the user's own personal portfolio. The
system 10 automatically populates the Security Profile fields with
the appropriate information when selecting an existing
security.
[0180] When performing an OAS calculation, an existing or new yield
curve environment may be utilized. To select an existing
environment, the Environment Search tab 1141 may be used to access
the list of environment names and to make the user's selection.
When the user selects an existing yield curve environment, the
system automatically populates the Yield Curve Environment
fields.
[0181] To define a new environment, a user must complete the table
on the Yield-Curve Environment mini-window 1151. Specifically, the
user must input the Treasury yield and the corporate spread into
Trsy fields 1152 and Spread fields 1153, respectively, for each
term. A user may use the interpolate function to calculate and to
enter the appropriate values in Interpolate field 1154. If
necessary, a user may alter the environment by shifting either the
Treasury yield curve or the corporate spreads, as discussed above,
by clicking Shift Curve button 1155.
[0182] The settlement date, which is the date on which the user
would like to value the security, must be entered in Settlement
Date field 1161. The date is typed in a mm/dd/yy format, and then
the user presses <Enter>.
[0183] Once the settlement date is defined, one of the values
located in Price field 1162, OAS field 1163, Volatility field 1164,
or Initial Coupon field 1165, may be calculated.
[0184] A user must first enter the values of the three known
variables and then click on the button adjacent the field that
corresponds to the unknown value. To price a security, for example,
a user must first input the OAS, Volatility, and Initial Coupon
values into their respective fields and then click on the Price
button 1162a.
[0185] The system 10 automatically calculates the results of the
various analytical calculations and displays them on the OAS
Results mini-window 1171:
17 Yield to Maturity field 1172 Yield to Call field 1173 Yield to
Put field 1174 Yield to Sink field 1175 Yield to Average Life field
1176 Internal Rate of Return field 1177 Value of Option-Price field
1178 Value of Option-Yield field 1179 Effective Duration field 1180
Effective Convexity field 1181 OAS DV01 field 1182 OAS Vol32 field
1183
[0186] The OAS Calculator may be used to perform a comparative
analysis and to help a user determine an appropriate bond
structure. For instance, a user may perform a comparative analysis
by performing an OAS calculation on a 10NC3 bond, changing the
structure of the bond to 10NC5, recalculating the OAS values, and
comparing the results of the two calculations. The OAS Calculator
may also be used to determine the cost of funds (initial coupon)
associated with each bond structure.
EXAMPLE
[0187] A user chooses an 8.650% bond due on Aug. 20, 2022. To
define this security, the user may either (a) use the Security
Search tab screen to select the security from his or her portfolio
or (b) enter the information listed below into the appropriate
fields on the Security Profile tab 1101 in FIG. 28:
18 PROFILE TAB 1102 INPUT FIELD Issuer Name XYZ Company 1103 Credit
Rating BBB 1104 Coupon 8.650 1106 Issue Date Aug. 20, 1992 1105
Maturity Date Aug. 20, 2022 1107 Coupon Frequency Semi-Annual 1108
Amount Issued ($MM) 100.00 1109 Amount Outstanding ($MM) 100.00
1110 Offered Price 100.00 1113 Original Proceeds 99.125. 1114
[0188] The user then enters the information listed below into
fields on the Calls tab 1121, which is displayed in FIG. 29.
19 CALLS TAB 1121 INPUT FIELD First Call Date Aug. 20, 2002 1124
First Par Call Date Aug. 20, 2012 1125 First call price 104.325
1126 Call Frequency Annual 1127 Call Type American 1128 Refund Date
[blank] 1129 Callable before Refund Date? [No] 1130
[0189] After entering the above information, the user clicks on the
Generate Schedule button 1121a to create the following call
schedule, which is displayed in Call Date fields 1122 and Call
Price fields 1123:
20 Call Date Call Price Aug. 20, 2002 104.325 Aug. 20, 2003
103.893
[0190]
21 Aug. 20, 2004 103.460 Aug. 20, 2005 103.028 Aug. 20, 2006
102.595 Aug. 20, 2007 102.163 Aug. 20, 2008 101.730 Aug. 20, 2009
101.298 Aug. 20, 2010 100.865 Aug. 20, 2011 100.433 Aug. 20, 2012
100.000
[0191] Note that the first call date (Aug. 20, 2002) is the first
date on which the issuer can repurchase the security. By exercising
the call option on this date, the issuer can repurchase the
security at 104.325%. If the issuer does not exercise the option,
he or she must wait, until the next call date (Aug. 20, 2003). Note
that the final call date (Aug. 20, 2012) is the date on which the
issuer can repurchase the security at par.
[0192] To define the yield curve environment, the user either (a)
accesses the Environment Search tab screen to select "XYZ" from the
list of previously created environments or (b) enters the
appropriate information into the text boxes on the Yield Curve
Environment tab screen as described above.
[0193] The Calculate field box 1200, illustrated in FIG. 30,
contains Price field 1201, OAS field 1202, Volatility field 1203,
and Initial Coupon field 1204. The system automatically populates
the OAS Results mini-window 1211 with the value that the user has
entered into the Security Profile (8.650%) in Maturity field 1212.
Note that the Price defaults to 100.000% in Price field 1201.
Before performing any calculations, the user must enter the
settlement date, which is the date on which the security is valued,
in Settlement Date field 1209. In this example, the user enters a
settlement date of Aug. 25, 1998.
[0194] After entering the appropriate information, the user can use
the Calculate field box 1200 to perform various analytical
calculations. To calculate the OAS value for example, the user
clicks on the OAS button 1206 to obtain the results displayed in
FIG. 30. The system automatically calculates the values that appear
on the OAS Results mini-window 1211.
[0195] When determining the value of the option adjusted spread,
the system 10 inputs into the calculation a bond price of 100.000%
in Price field 1201 and a yield volatility of 10.0% in Volatility
field 1203. Note that the system 10 automatically changes the
settlement date to the issue date. See Settlement Date field 1401
in FIG. 32.
[0196] When the user calculates the OAS value, the system clears
the Spread fields 1501 of Yield-Curve Environment tab 1502 and
displays only the values for the Trsy fields 1503 as is
demonstrated in FIG. 31.
[0197] After calculating the value of the OAS, the user may decide
to recalculate the price of the bond based on the new OAS value. To
do so, the user clicks on the Price button 1402 to obtain the
following value (91.301%), as shown in FIG. 32. FIG. 32 also
exemplifies the relationship between price and OAS, as the system
automatically recalculates the values displayed on the OAS Results
mini-window 1403 when the user clicks on the Price button 1402.
[0198] As described above, an OAS calculation may be performed on
either an existing security or on a new security. Additionally, the
yield curve environment may be defined by accessing an existing
yield curve environment or by creating a new one, as described
above. The OAS calculations may be performed as described above by
the user entering the values of the three known variables and then
clicking the on button corresponding to the unknown value. The OAS
Results screen is also described above.
[0199] The Yield Analysis mini-window 1301, displayed in FIG. 33,
may be selected to modify price, spread, call date, put date and
sink date and to perform a variety of calculations. The Yield (%)
and the corresponding Spread (bps) may be recalculated for a new
value for Price (%). The Yield (%) and the corresponding Price (%)
may be recalculated for a new value for the Spread (bps). The Yield
(%) and the corresponding Spread (bps) may be recalculated by
selecting another Call date from the drop-down list. The Yield (%)
and the corresponding Spread (bps) may be recalculated by selecting
another Put date from the drop-down list. The Yield (%) and the
corresponding Spread (bps) may be recalculated by selecting another
Sink date from the drop-down list.
[0200] An issuer may want to refinance a debt obligation on a date
that is before either the redemption date or the call date for at
least one of the following two reasons:
[0201] (a) The issuer has a security with a call option, and would
like to exercise the option in order to realize the net present
value ("NPV") positive savings, or
[0202] (b) The issuer would like to refinance a high coupon
security with a low coupon security in order to reduce its annual
interest expense.
[0203] When structuring the debt refinancing transaction, the user
must (a) chose to retire all or part of the Original Issue security
through a call, tender, or open market repurchase and (b) define
the New Issue security that the user is utilizing to refinance the
original transaction.
[0204] The system 10 calculates the debt refinancing on an
after-tax basis. Therefore, a user should consult a tax
professional to determine the tax consequences of refinancing the
debt obligation.
[0205] As the first step in performing a debt refinancing analysis,
a user must define both the Original Issue security profile
(indicatives) and the yield curve environment.
[0206] To define the original (target) security, a user must enter
the appropriate information into the Credit Rating field 1602,
Coupon Frequency field 1603, and Amount Issued field 1604 on
Profile tab 1605; and Call Date(s) field 1701 and Call Price(s)
field 1702 on Calls tab 1606. Both Profile tab 1605 and Calls tab
1606 are on the Original Issue Profile mini-window 1601, as seen in
FIG. 34.
[0207] The Security Search mini-window 1607 may be used to select a
security from the database or from the user's own personal
portfolio. The system 10 automatically populates the Original Issue
Profile mini-window fields with the appropriate information when an
existing security is selected.
[0208] Once both the target security and the yield curve
environment have been defined, a user must enter the necessary
information into Analysis Type field 1612, PV Date field 1613,
Common Shares (MM) field 1614, and Tax Rate fields 1615 in order to
perform debt refinancing analysis. Specifically, the Analysis Type,
PV Date, Common Shares (MM), and Tax Rate must be defined.
[0209] After the basic parameters have been entered, a user must
enter the transaction details into the Original Issue Repurchase
field box 1620. The New Issue tab 1630 may be used to define the
security to be utilized to refinance the transaction. If the
original issue is callable at a future date, a user may use the
Wait-to-Call Issue tab 1631, as seen in FIG. 36, to analyze the
benefits of refinancing the security at the present time versus
refinancing the security at the call date.
[0210] Once the appropriate information has been entered, the
system performs the necessary calculations. The results may be
viewed on the Repurchase Study Result or Wait-To-Call Study Result
screen.
EXAMPLE
[0211] A user chooses an 8.650% bond due on Aug. 20, 2022. To
define this security, the user may either (a) use the Security
Search tab screen to select the security from his or her portfolio
or (b) enter the below information into the appropriate fields on
the Security Profile tab screens:
22 PROFILE TAB 1605 INPUT FIELD Issuer Name XYZ Company 1641 Credit
Rating BBB 1602 Coupon 8.650 1642 Issue Date Aug. 20, 1992 1643
Maturity Date Aug. 20, 2022 1644 Coupon Frequency Semi-Annual 1603
Amount Issued ($MM) 100.00 1604 Amount Outstanding ($MM) 100.00
1645 Offered Price 100.00 1646 Original Proceeds 99.125 1647
[0212] The user then enters the below information into the fields
on the Calls tab 1606, which is shown in FIG. 35.
23 CALLS TAB 1606 INPUT FIELD First Call Date Aug. 20, 2002 1651
First Par Call Date Aug. 20, 2012 1652 First call price 104.325
1653 Call Frequency Annual 1654 Call Type American 1655 Refund Date
[blank] 1656 Callable before Refund Date? [No] 1657
[0213] After entering the above information, the user clicks on the
Generate Schedule button 1658 to create the following call
schedule, which is displayed in Call Date fields 1701 and Call
Price fields 1702, as seen in FIG. 37:
24 Call Date Call Price Aug. 20, 2002 104.325 Aug. 20, 2003 103.893
Aug. 20, 2004 103.460 Aug. 20, 2005 103.028 Aug. 20, 2006 102.595
Aug. 20, 2007 102.163 Aug. 20, 2008 101.730 Aug. 20, 2009 101.298
Aug. 20, 2010 100.865 Aug. 20, 2011 100.433 Aug. 20, 2012
100.000
[0214] Note that the first call date (Aug. 20, 2002) is the first
date on which the issuer can repurchase the security. By exercising
the call option on this date, the issuer can repurchase the
security at 104.325%. If the issuer does not exercise the option,
he or she must wait until the next call date (Aug. 20, 2003). Note
that the final call date (Aug. 20, 2012) is the date on which the
issuer can repurchase the security at par.
[0215] To define the yield curve environment, the user either (a)
accesses the Environment Search tab screen to select "XYZ" from the
list of previously created environments or (b) enters the
appropriate information into the text boxes on the Yield Curve
Environment tab screen as described above.
[0216] When selecting the tax rate, the user has the option of
choosing a flat tax rate or a variable tax schedule. For this
example, the user inputs the following tax schedule, which is
identified in Tax Rate fields 1615:
25 Effective Date Rate (%) Jan. 1, 1998 35.000 Jan. 1, 2000 20.000
Jan. 1, 2002 35.000
[0217] The user enters the following information to define the new
security:
26 Maturity Date (field 1632): Mar. 20, 2022 Issuance Expense
(field 1633): 0.875%
[0218] By selecting to issue the new security "On the Curve," by
checking Issue on the Curve field 1634, the user indicates that the
new issue is to have the same coupon rate and the same price as the
original issue. The user does not enter a sink schedule for the new
security in this example as is shown by no entries in Sink Schedule
fields 1635.
[0219] The user may use the Wait-to-Call Issue tab 1631 to analyze
the benefits of refinancing the security at the present time versus
refinancing the security at the call date. To do so, the user must
select the desired type of New Issue Yield from the Drop-down list
1636, shown in FIG. 36. In this example, the user chooses "Forward
Rate" as the New Issue Yield and "0.350" as the decimal value in
the Issuance Expenses field 1637.
[0220] The user selects "NPV to Maturity" from the Drop-down list
1612, enters "Aug. 25, 1998" as the PV [Present Value] Date field
1613, and "100.000" as the number of Common Shares (MM) field 1614.
The user selects "Tender" from the Drop-down list 1621 of available
options, which include tender, open market research, call, and
wait-to-call, for the Original Issue field box 1620. The user
enters "0.250" in Fee field 1622 as the decimal fee (cost)
associated with the transaction and "70.000" in Amount field 1623
as the percent of the transaction that the user expects to be
successful. Because the user chooses to value the security at the
next call date, the user enters "YTC" (Yield-to-Call) in Yield Type
field 1624 as the appropriate yield type, which includes
Yield-To-Maturity and Yield-To-Next-Call. The user may then
calculate Treasury field 1625, Spread filed 1626, or Price field
1627.
[0221] To calculate the price of the security, the user must enter
values for both the Treasury and the Spread. The system 10
automatically populates the Treasury text box with the current
Treasury yield. In this example, the user enters "25.0" as the
Spread value, and clicks on the Price button to calculate the price
at which the issuer repurchases the security.
[0222] After entering the necessary information, the user clicks on
the Calculate button 1628 to generate both the Repurchase Study
Result 1700 and the Wait-to-Call Study Result 1800.
[0223] The Repurchase Study Result 1700 is displayed as FIG. 37 and
displays the results of performing a debt refinancing analysis of a
security that is repurchased on the PV date. When analyzing the
results, the user must be sure to compare the values on this screen
to those on the Wait-to-Call Study Result 1800, as seen in FIG.
38.
[0224] The user must enter the percent value of the issuance
expense (field 1633, discussed above) that an issuer must pay to
the Investment bank on the call date for refinancing the
security.
[0225] Because the wait-to-call is in the future, a user cannot
know with certainty what the price and yield curve will be. The New
Issue Yield (field 1636, discussed above) may be determined from
the forward rate, call date to maturity, PV date to maturity, or
user specified, which are available on the call date.
[0226] 1. Forward Rate.
[0227] Using the current yield curve, the system calculates the
forward rate from the next call date to the maturity date of the
new issue.
[0228] 2. Call Date to Maturity.
[0229] The second choice is the current yield for a security with
the same maturity as the security from the next call date to the
new issue maturity date. The amount of time is displayed in the
choice itself.
[0230] 3. PV Date to Maturity.
[0231] The third choice is the current yield for a security with
the same maturity as the security from the PV date to the new issue
maturity date. The amount of time is displayed in the choice
itself.
[0232] 4. User Specified.
[0233] If the user selects the User-Specified Rate option, the
system displays a Coupon text box.
[0234] The user enters the appropriate rate into this text box.
[0235] The Repurchase Study Result 1700 contains the following five
field boxes:
27 Original Issue 1710 New Issue 1720 NPV Summary 1730 Efficiency
Study 1740 Cash Flow Analysis 1750
[0236] In the Original Issue field box 1710, the system 10 displays
information related to the original issue that is being refinanced.
The notional amount that the issuer is going to buy back or
restructure through a tender, call, or open market repurchase is
70. The coupon of the original issue security is 8.650. The
maturity date of the original issue security is Aug. 20, 2022. The
issue date of the original issue security is Aug. 20, 1992. The
original proceeds of the original issue security is the amount left
over after the fee is deducted from the issue price and is
calculated as 99.125. The current tax basis is calculated as 99.3,
which represents the taxable cost of the original issue. The next
call date of the original issue is the date that the wait to call
study is based on. The next call price refers to the original
issue.
[0237] The New Issue field box 1720 contains several indicative
values for the new issue security. The system 10 displays the
coupon, maturity and issue dates in the new issue fields. The
coupon of 6.784 for the new security was calculated from the curve
because the "Issue on the Curve" box was checked on the input
screen. The user may also input the coupon. The maturity date of
the new issue security is Aug. 20, 2022, which is entered by the
user. The issue date (Aug. 25, 1998) of the new issue security is
the PV Date, which is entered by the user.
[0238] The NPV Summary field box 1730 displays the results of the
NPV analysis. In this example, box 1730 displays are four columns,
two percentage columns labeled (%) (pre-tax and after-tax), and two
dollar amount columns labeled (MM) (pre-tax and after-tax). To
calculate the dollar amount columns, the corresponding % column is
multiplied by the restructuring amount, which is $70 million in
this example. The restructuring amount is calculated by taking the
outstanding amount, $100 million, of the issue and multiplying that
by estimated 70% tender success rate.
[0239] The Efficiency Study field box 1740 contains Repurchase
Price, After-tax NPV Savings, After-tax Option Value, and Refunding
Efficiency.
[0240] The Repurchase Price (%) is the price at which an issuer
will repurchase the original issue security and is a user input
field. A user may also use spread and yield on the input screen to
calculate the repurchase price. If an issuer buys above the current
tax base, the issuer may generate a tax loss, which may be tax
deductible. If an issuer buys below the current tax base, then the
issuer may generate a gain that may be a tax liability.
[0241] Pre-Tax Repurchase Price: 114.247%
After-Tax Repurchase Price (%)=Current Tax Basis+(Pre-Tax Price-Tax
Basis)(1-Current Tax
Rate)99.3%+(114.247%-99.3%)(1-35%)=109.016%
After-Tax Repurchase Price (%)*Amount Restructuring=109.016%*70
MM=76.311 MM
[0242] The Repurchase Fee, which may be tax deductible, is a
user-entered field.
[0243] Pre-Tax Fee: 0.250%
After-Tax Fee=Pre-Tax Fee*(1-Tax Rate)=0.250%*(1-35%)=0.163%
[0244] The Cost of Repurchase is the repurchase price plus the
repurchase fee.
28 Pre-Tax New Issue 0.875% Expense (%): After-Tax New Issue
After-Tax Expense(%) * Size of New Expense (MM): Issue(MM) = 0.875%
* 77.099 MM = 0.674 MM After-Tax Cost (%): Cost of Repurchase/(1 -
New Issue Expenses) 109.178%/(100% - 0.875%) = 110.142% After-Tax
Cost (MM): Cost of repurchase (%) * Amount Restructuring = 110.142%
* 70 MM = 77.099 MM
[0245] The New Issue Expenses are entered by the user. These are
not initially tax deductible; rather, they are amortized over the
life of the new issue. The after-tax dollar amount is based on the
size of the new issue. The Size of the New Issue is a calculated
field that takes into account the size of the new issue, repurchase
fee, and the new issue fee so that no additional cash outlay is
necessary.
29 Pre-Tax Cost of Repurchase: 114.247% + 0.25% = 114.497%
After-Tax Cost of Repurchase: 109.015% + 0.163% = 109.178%
[0246] The NPV Savings is the amount of savings obtained by
performing the refinancing transaction. A security with a call
option should have a positive NPV. A bullet security will most
likely have a negative NPV. The details relating to NPV savings are
set forth in the Cash Flow Analysis field box 1750. The After-Tax
Net Present Value Savings for the transaction is 7.980% of the
restructured notional amount or $5.586 million by refinancing the
security on Aug. 25, 1998.
[0247] The Avg. Annual Interest Savings is the amount of interest
expense that an issuer would save each year by refinancing the
security on the PV Date.
After-tax (MM)=After-tax (%)*Amount Restructuring 0.759%*$70
MM=$0.531 MM
[0248] The Continued Annual EPS Benefit is the Average Annual
Interest Savings divided by the total common shares outstanding.
The benefit is 0.53 cents per share ($0.531 million/100 million
shares).
[0249] The Up Front EPS Benefit (Loss) measures the initial
economic impact of the transaction. A negative number indicates
negative earnings per share impact because the issuer has a loss
due to the Cost of Repurchase being above the tax basis. The loss
translates into a reduction in earnings in the year during which
the transaction occurred. On the other hand, a positive number
reflects an earnings benefit.
(Tax Basis-Cost of Repurchase)/Common Shares Outstanding(99.3% *
$70 Million-$76.425 Million)/100 Million Shares=-6.91 cents per
share
[0250] Note that the Tax Basis is translated into dollars by taking
the price and multiplying it by the restructured notional
amount.
[0251] The purpose of the efficiency study is to demonstrate how
much savings may be realized as a percentage of the option value
embedded in the original security. If the security does not have a
call schedule then the efficiency study is not relevant and does
not appear in the results.
[0252] The after-tax option value is 11.572% on the PV date of Aug.
25, 1998 with a 10% volatility. The repurchase price of the
security at 114.247 would yield an after tax NPV savings of 7.980%
and a refunding efficiency of 68.958% (calculated by dividing the
after tax NPV Savings of 7.980% by the after-tax option value of
11.572%). This means that an issuer would realize 69% of the option
value by refinancing on Aug. 25, 1998. The percentage is higher if
the option is valued at a lower than 10% volatility.
[0253] For reference purposes the table also calculates the
repurchase price that would give the user a 90% reftmding
efficiency, an 80% refunding efficiency, and a 0% reftnding
efficiency. The price of 126.481 at a refunding efficiency of 0% is
the breakeven price, which would result in a 0 NPV.
[0254] The detail behind the cash flow analysis and the NPV Savings
Calculation is summarized in Cash Flow Analysis field box 1750. The
number 5.586, located in the bottom right corner in this example,
is the After Tax NPV Savings. All numbers in this table are
after-tax numbers. The Original Cashflow is equal to the After-Tax
Interest Payment less the Tax Benefit of the Issuance Fee
Amortization. The Interest Payment is the sum of the coupon
payments and accretion of tax basis. For example, if the original
security is issued at a discount, the tax basis on the issuance day
is the offering price. Then, the tax basis accretes to par over the
life of the bond using a constant yield or straight-line method
depending on the issuance date and the amount of original
discount.
[0255] The Issuance Fee is the difference between the offering
price and the original proceeds on original issue. In this example
the offering price was 100, and the original proceeds were 99.125;
therefore, the issuance fee was 0.875%.
[0256] The original cashflow on Jan. 1, 2002 in the example is the
reduced tax deduction during the amortized period of a lower tax
rate carried forward to this date. The tax benefit of -1.823 is the
benefit carried forward during the prior amortized period. The
refunding cashflow ($MM) is distinguished from the original
cashflow except that it pertains to the new issue. The refunding
cashflow on the PV date is the accrued interest of the original
issue. In this example it is $0.055 million shown on Aug. 25, 1998.
The Incremental Cashflow ($MM) is the difference between the
original cashflow and the refunding cashflow. The Discount Factor
is the amount that an issuer discounts the cashflow to factor in
the time value of money. This is derived from the yield curve
environment used in the calculation. The PV of Incremental Cashflow
($MM) is the incremental cash flow multiplied by the discount
factor.
[0257] The Wait-To-Call Study Result 1800 shown as FIG. 38 displays
the results of performing a debt refinancing analysis of a security
that is repurchased on the "next" call date. When analyzing the
results, the user must be sure to compare the values on this screen
with those of the Repurchase Study Result 1700.
[0258] The following relates to a discussion of fields that are not
found on the Repurchase Study Result 1700. The Break-Even between
Repurchase and Wait-To-Call shows the value of refinancing on the
PV Date against waiting to call the security on the next call date.
The Break-Even yield (%) is the refinancing yield an issuer obtains
when repurchasing the security on the next call date. In this
example, 7.196% is the yield at which the user would be indifferent
to refinancing the security today versus waiting to the call date.
Thus, an issuer would benefit from repurchasing the security on the
next call date if the issuer can issue a new bullet security below
7.196%. In this example, the issuer realizes a 7.980% NPV savings
if the issuer refinances the security on the call date and issues a
new security that yields 7.196%. The percent value for this field
matches the NPV savings (%) on the Repurchase Study Result
screen.
[0259] The break-even yield movement (bps) of 41.2 basis points is
the difference between the current refinancing yield (6.784%) and
the break-even yield (7.196%). Note that that the issuer would
benefit from refinancing on the PV date (Aug. 25, 1998) rather than
on the next call date (Aug. 20, 2002) if the percent yield value
increases (moves) by more than 41.2 basis points.
[0260] Of course, the user may return to the Input Data screen to
make any adjustments and to recalculate the analytical values.
[0261] The Investor analysis search engine may be employed to find
previously issued securities that match or approximate user-defined
criteria. This enables an issuer to target investors, bankers,
traders, brokers, research analysts and salespeople based on
present or past ownership of or relationship to a particular
security or type of transaction. In conducting the search, a user
may input the security indicatives and/or define the company
profile.
[0262] To structure or price a new issue, a user may want to search
for the securities of other companies in the industry that have a
similar credit rating. For example, if structuring an issue for a
gaming company that has a BBB credit rating, then a search for
securities of other gaming companies with similar or like credit
ratings should be conducted.
[0263] To structure a preferred security, a user may conduct a
search of other preferred securities in order to perform a
comparative analysis By entering the indicatives that define the
proposed new issue, a search can be performed for similar or like
securities.
[0264] A debt securities search may be conducted by selecting
toolbar Option Debt 426. The Debt Search window 1900, as seen in
FIG. 39, may then be displayed on the user's screen and may be
utilized to search for either a specific security or a specific
issuer. To do so, the user must follow the below steps:
[0265] Step 1: Enter the Issuer Name, Ticker, and/or CUSIP in
fields 1910, 1911, 1912, respectively. If necessary, the user must
click on the Symbol Lookup button 1913 to find the appropriate
ticker symbol.
[0266] Step 2: Indicate whether or not the search should include
equity securities. To include equity securities, the user must
place a checkmark in the Also Retrieve Equity field 1914.
[0267] Step 3: Indicate whether the search should include only
active securities or both active and inactive (retired) securities.
To search for active securities only, the user must place a check
mark in the Active Security Only field 1915.
[0268] Step 4: If necessary, limit the number of results by
selecting the appropriate number of rows from the pull-down list
attached to the Max Rows text box. For example, the user must
select 500 rows in field 1916 if the user would like to obtain no
more than 500 search results.
[0269] Step 5: Indicate whether the search should add the
securities to an existing portfolio. To add the securities the user
must, place a checkmark in the Append to Result field 1917.
[0270] Step 6: Further define the search criteria by entering the
appropriate information into the Main, Schedules, Origination,
Pricing, Company, Convertible/Preferred, and Managers text
boxes.
[0271] Step 7: Click on the Search button to view the results. If
necessary, the input fields may cleared by clicking on the Clear
button and the search parameters may be re-entered.
[0272] A search for securities by Announcement Date under the
Origination text box may also be conducted.
[0273] To conduct a basic search the toolbar option Basic 427
should be selected. The basic search screen may then be displayed
on the user's screen and may be utilized to search for either a
specific security or a specific issuer. The basic search follows
the principles of debt search, described above. To conduct a
search, the user must follow the steps listed below:
[0274] Step 1: Enter the Issuer Name, Ticker and/or CUSIP. If
necessary, the user must click on the Symbol Lookup button to find
the appropriate ticker symbol.
[0275] Step 2: The user must use the mouse to select the
appropriate Security Type from the list of available options:
[0276] All (debt and equity)
[0277] Debt Only
[0278] Equity Only
[0279] Step 3: If necessary, limit the number of results by
selecting the appropriate number of rows from the pull-down list
attached to the Max Rows text box. For example, the user must
select 500 rows if the user would like to obtain no more than 500
search results.
[0280] Step 4: Indicate whether the user would like to search for
only active securities or if you would like to search for both
active and inactive (retired) securities. To search for active
securities only, the user must use the mouse to place a check mark
in the Active Security Only check box.
[0281] Step 5: Indicate whether or not the user would like to add
the securities to an existing portfolio. To add the securities, the
user must use the mouse to place a checkmark in the Append to
Result check box.
[0282] Step 6: Click on the Search button to view the results. If
necessary, the input fields may cleared by clicking on the Clear
button and the search parameters may be re-entered.
[0283] The Security Search Results window 2000, as seen in FIG. 40,
may be viewed by clicking on toolbar option Search Results 428. The
following tab options: debt, convertible, preferred and equity, are
available to view the search results. In FIG. 40, Debt tab 2010 has
been selected. The search results may be sorted using the
information contained in the various columns. For example, the user
may want to sort the debt securities by the Option Adjusted Spread
(bps). To do so, the user must place the mouse pointer in the title
cell of this column. The user must then left-click to sort the
information from A-to-Z and right-click to sort the information
from Z-to-A.
[0284] To select a security, the user must place a checkmark in the
appropriate cell in the far-left column in field 2011 of the table
using the mouse pointer. Then the user must click the Select All
button 2012 at the top of the screen to select all the securities
in the table and click the Unselect All button 2013 to remove all
checkmarks from the far-left column.
[0285] Next the user must select toolbar option Holders 436 and
choose either Selected Securities or All Securities to view the
current holding of selected securities.
[0286] The following pop-up menu may be accessed by right-clicking
on any cell in the table as represented below:
30 OAS Calculator Debt Refinancing analysis Rate Lock Trades
Holders Response Graph Search for Comparable Securities
[0287] The system 10 displays the appropriate input screen
associated with the selected pop-up menu choice.
[0288] One or more securities may be added to a new portfolio by
placing a checkmark in the appropriate row(s) of each security and
clicking the Add to Portfolio button 2013. The system 10 displays
the Untitled Portfolio screen and populates the table with
information related to the selected securities.
[0289] One or more securities may be added to an existing portfolio
by clicking the Add to Portfolio button 2013 before selecting any
securities. After the system displays the Untitled Portfolio
screen, the user must select Portfolio from the main menu bar, and
choose Open from the pull-down menu to access a list of existing
portfolios. The user must then select the appropriate portfolio,
and click Open. After opening the portfolio, the user must return
to the Security Search Results window 2000 to select the
securities. After the securities have been selected, the user must
click the Add to Portfolio button 2013 to add the selected
securities to the opened portfolio.
[0290] After a portfolio exists, system 10 may display a variety of
information about the securities included in the portfolio. The
Indicative Data tab screen contains the following information:
31 Issue Name Coupon (%) Maturity Date Amount Outstanding ($MM)
Issue Date Rating Amount Issued ($MM) Call Flag Put Flag Sink Flag
Step-Up Flag Coupon Frequency Security ID CUSIP Next Call Date Next
Call Price Current Call Price
[0291] Maturity Profile button may be selected to view the maturity
profile for the selected portfolio. The Maturity Profile includes
the following options:
32 OAS Calculator NPV Analysis Delete Edit Holdings Holders
Response Graph
[0292] The Holders Graph screen may be accessed to obtain
information on the holders of the selected security. The system
displays the number of holders and the dollar amount held by known
holders.
[0293] The equity tab 103 allows a user to view options for equity
searching and analysis. In a preferred embodiment, tab 103
facilitates conducting equity searches, creation of new portfolios,
and manipulation of existing portfolios. More information about the
equity tab 103 information may be obtained by selecting Help tab
105 or toolbar option Help 132.
[0294] Equity Page 2100 may be viewed by selecting equity tab 103.
An example of a useful Equity Page 2100 that may be employed
according to the principles of the invention is depicted in FIG.
41. Three main topics are displayed: Market Summary heading 2111,
Search heading 2113, and Portfolio heading 2117. Below each main
topic appears a list of toolbar options 2112, 2214-16, and 2118-24
that connect a user directly to the selected screen when the
toolbar option is selected. Grayed items located in the menu may
not be used until they become black or green.
[0295] Toolbar option Indices 2112 provide the user with current
equity information similar to that displayed on Front Page 100,
although in greater detail. In a preferred embodiment, the curves
for each index are provided. In a further preferred embodiment,
each graph contains a pull-down menu that permits a user to select
any of a variety of indices including Dow Jones Composite Average,
Dow Jones Industrial Average, Dow Jones Transportations, Dow Jones
Utilities, NASDAQ Composite, NYSE Composite, Russell 200, S&P
500, and AMEX Composite.
[0296] An equity securities search may be conducted by selecting
toolbar option Equity 2114. The equity search screen may then be
displayed on the user's screen and may be utilized to search for
either a specific security or a specific issuer. The equities
search is analogous to the debts search. To do so, the user must
follow the below steps:
[0297] Step 1: Enter the Issuer Name, Ticker, and/or CUSIP. If
necessary, the user must click on the Symbol Lookup button to find
the appropriate ticker symbol.
[0298] Step 2: Indicate whether or not the search should include
debt securities. To include debt securities, the user place a
checkmark in the Also Retrieve Debt check box.
[0299] Step 3: If necessary, limit the number of results by
selecting the appropriate number of rows from the pull-down list
attached to the Max Rows text box. For example, the user must
select 500 rows if the user would like to obtain no more than 500
search results.
[0300] Step 4: Indicate whether the search should add the
securities to an existing portfolio. To add the securities, the
user must place a checkmark in the Append to Result check box.
[0301] Step 5: Further define the search criteria by entering the
appropriate information into the Main, Financial, and Company text
boxes.
[0302] Step 6: Click on the Search button to view the results. If
necessary, the input fields may cleared by the user clicking on the
Clear button; the user may then re-enter the search parameters.
[0303] To conduct a basic search the toolbar option Basic 2115
should be selected by the user. The basic search screen, which is
the same screen employed by selecting toolbar option Basic 427 in
connection with Debt Page 400, may then be displayed on the user's
screen and may be utilized to search for either a specific security
or a specific issuer. To do so, the user must follow the below
steps:
[0304] Step 1: Enter the Issuer Name, Ticker and/or CUSIP. If
necessary,,the user must click on the Symbol Lookup button to find
the appropriate ticker symbol.
[0305] Step 2: Use the mouse to select the appropriate Security
Type from the list of available options:
[0306] All (debt and equity)
[0307] Debt Only
[0308] Equity Only
[0309] Step 3: If necessary, limit the number of results by
selecting the appropriate number of rows from the pull-down list
attached to the Max Rows text box. For example, the user must
select 500 rows if the user would like to obtain no more than 500
search results.
[0310] Step 4: Indicate whether you would like to search for only
active securities or if you would like to search for both active
and inactive (retired) securities. To search for active securities
only, the user must use the mouse to place a check mark in the
Active Security Only check box.
[0311] Step 5: Indicate whether or not the user would like to add
the securities to an existing portfolio. To add the securities, the
user must use the mouse to place a checkmark in the Append to
Result check box.
[0312] Step 6: Click on the Search button to view the results. If
necessary, the input fields may cleared by the user clicking on the
Clear button; the user may then re-enter the search parameters.
[0313] The search results may be sorted using the information
contained in the various columns. For example, the user may want to
sort the debt securities by the Option Adjusted Spread (bps). To do
so, the user must place the mouse pointer in the title cell of this
column. The user must then left-click to sort the information from
A-to-Z and right-click to sort the information from Z-to-A. The
following tab options: debt, convertible, preferred and equity, are
available to view the search results.
[0314] To create a portfolio the user may employ Equity Portfolio
tab 145. The user may then search for equity securities based on
criteria that the user specifies. There is additional help for the
Search function that can be found by clicking on Help tab 105
located at the top of the application followed by Context and
Index.
[0315] After a user runs a search, the search results window
indicates the securities identified with the criteria specified.
The user then selects some or all of the securities, and hits the
Add to Portfolio button. Finally, the user selects Portfolio, Save
As, and then gives the portfolio a name to save it. Once this has
been completed the user may select the Equity Portfolio tab 145 to
place the portfolio in the Markets section (the user must then hit
the Refresh button 143 on Front Page 100 to see the changes
reflected).
[0316] Research tab 104 allows a user to view a list of sites and
links that can be used to get fixed income or equity information on
topics relating to finance and the marketplace. More information
about the Research tab 104 information may be obtained by selecting
Help tab 105 or toolbar option Help 132.
[0317] Selection of the help tab 105 provides explanations and
contact numbers for any questions that a user may have regarding
any aspect of the system 10. A menu of options is provided which
permits a user to identify information on how to contact a
technical support group for questions concerning the system 10.
Information is also provided regarding downloading the system 10,
agreements, release notes, and other system information.
[0318] In a preferred embodiment, a user may customize Front Page
100 to display equity tickers based on the stocks selected in the
equity portfolios created by the user. The equity ticker may be
displayed on the right side of the Front Page 100. A user may click
on the Equity Portfolio tab 145 to view the entire portfolio.
* * * * *