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1 Interfacing With Global Debt Markets Role of the Underwriting Syndicate Mark A. Hadden Managing Director, Head of Government Finance March 26, 2015.

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Presentation on theme: "1 Interfacing With Global Debt Markets Role of the Underwriting Syndicate Mark A. Hadden Managing Director, Head of Government Finance March 26, 2015."— Presentation transcript:

1 1 Interfacing With Global Debt Markets Role of the Underwriting Syndicate Mark A. Hadden Managing Director, Head of Government Finance March 26, 2015

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5 U NDERWRITING S YNDICATE R OLES...

6 U NDERWRITING S YNDICATE R OLES... M ARKET ADVICE

7 U NDERWRITING S YNDICATE R OLES... M ARKET ADVICE N EW ISSUE DEAL E XECUTION

8 U NDERWRITING S YNDICATE R OLES... M ARKET ADVICE N EW ISSUE DEAL E XECUTION N EW ISSUE PLACEMENT

9 U NDERWRITING S YNDICATE R OLES... M ARKET ADVICE N EW ISSUE DEAL E XECUTION N EW ISSUE PLACEMENT S ECONDARY MARKET LIQUIDITY

10 U NDERWRITING S YNDICATE R OLES... M ARKET ADVICE N EW ISSUE DEAL E XECUTION N EW ISSUE PLACEMENT S ECONDARY MARKET LIQUIDITY I NVESTOR RELATIONS

11 U NDERWRITING S YNDICATE R OLES... M ARKET ADVICE N EW ISSUE DEAL E XECUTION N EW ISSUE PLACEMENT S ECONDARY MARKET LIQUIDITY I NVESTOR RELATIONS A NALYTICS

12 U NDERWRITING S YNDICATE R OLES... M ARKET ADVICE N EW ISSUE DEAL E XECUTION N EW ISSUE PLACEMENT S ECONDARY MARKET LIQUIDITY I NVESTOR RELATIONS A NALYTICS R ESEARCH

13 U NDERWRITING S YNDICATE R OLES... M ARKET ADVICE N EW ISSUE DEAL E XECUTION N EW ISSUE PLACEMENT S ECONDARY MARKET LIQUIDITY I NVESTOR RELATIONS A NALYTICS R ESEARCH C ONDUIT FOR BANK

14 W HY IS THIS IMPORTANT ? 1. MFABC IS CURRENT ON MARKET EVENTS H ELP SHAPE THE DEBT MANAGEMENT STRATEGY K EEP TREASURY STAFF AWARE OF MARKET COMPLEXITIES G REATER BREADTH AND DEPTH TO THE MFABC BRAND STRONG ACCESS TO CAPITAL MARKETS + LOWER YOUR BORROWING COSTS

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17 Investors Bank/ Dealers Issuers

18 Investors D IFFERENT M ANDATES - WILL AIM TO BEAT AN ‘ INDEX ’ AT A MINIMUM Different types of investors, have different needs and motivations… Pension Funds Mutual Funds Hedge Funds Government Funds Bank Treasuries Insurance Companies Central Banks Corporate Treasuries Ethical Funds

19 Investors D IFFERENT M ANDATES - WILL AIM TO BEAT AN ‘ INDEX ’ AT A MINIMUM Different types of investors, have different needs and motivations… Pension Funds Mutual Funds Hedge Funds Government Funds Bank Treasuries Insurance Companies Central Banks Corporate Treasuries Ethical Funds What’s behind the fixed income investment decision? View on interest rates View on monetary policy Relative Value against other paper Coupon or dividend cash to deploy View on a specific credit View on a currency Asset reallocation Positive carry Geopolitical risks

20 D IFFERENT M ANDATES - WILL AIM TO BEAT AN ‘ INDEX ’ AT A MINIMUM A SSET C LASSES E QUITIES C URRENCIES C OMMODITIES P RIVATE E QUITY F IXED I NCOME M ONEY M ARKET D ERIVATIVES E TC..... Investors

21 D IFFERENT M ANDATES - WILL AIM TO BEAT AN ‘ INDEX ’ AT A MINIMUM A SSET C LASSES E QUITIES C URRENCIES C OMMODITIES P RIVATE E QUITY F IXED I NCOME M ONEY M ARKET D ERIVATIVES E TC.....

22 A SSET C LASSES E QUITIES C URRENCIES C OMMODITIES P RIVATE E QUITY F IXED I NCOME M ONEY M ARKET D ERIVATIVES E TC..... YIELD%YIELD% Investors C APITAL S TRUCTURE H IGH Y IELD / J UNK C ORPORATES ABS/ MBS M UNICIPALITIES P ROVINCIAL BONDS SSA S CMB C ANADA B ONDS D IFFERENT M ANDATES - WILL AIM TO BEAT AN ‘ INDEX ’ AT A MINIMUM

23 C APITAL S TRUCTURE H IGH Y IELD / J UNK C ORPORATES ABS/ MBS M UNICIPALITIES P ROVINCIAL B ONDS CMB C ANADA B ONDS YIELD%YIELD% Investors D IFFERENT M ANDATES - WILL AIM TO BEAT AN ‘ INDEX ’ AT A MINIMUM A SSET C LASSES E QUITIES C URRENCIES C OMMODITIES P RIVATE E QUITY F IXED I NCOME M ONEY M ARKET D ERIVATIVES E TC.....

24 A SSET CLASSES E QUITIES C URRENCIES C OMMODITIES P RIVATE E QUITY F IXED I NCOME M ONEY M ARKET D ERIVATIVES C APITAL S TRUCTURE H IGH Y IELD / J UNK C ORPORATES ABS/ MBS M UNICIPALITIES P ROVINCIAL B ONDS CMB C ANADA B ONDS YIELD%YIELD% P R O D U C T S FIXED FLOATING CAD USD 5 YR 10 YR 30 YR ULTRALONG 3 MOS RESETS AMORTIZING RESIDS COUPONS CALLABLE PUTABLE EQUITY LINKED Investors

25  Variety of different ‘investor’ classes to choose from  Lots of asset classes to navigate  There’s an entire capital structure to explore  Large spectrum of products to investigate OUR GOALS (1) Make sure MFABC has a high degree of visibility amongst investors (2) Broaden the ‘buyer’ base (3) Educate investors on the municipal sector and where MFABC fits within that. Investors

26 Bank/ Dealers Issuers

27 Trading floors - these days are LONG gone !!!

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29 Government Finance Bond Sales Desk Investors Issuers Banks/ Dealers *PRIMARY MARKET* Flow of MFABC debt (PRIMARY)

30 Bond Trading 1. Agency 2. Inventory Investors Banks/ Dealers *SECONDARY MARKET* Flow of MFABC debt (SECONDARY) Bond Sales Desk

31 Government Finance Bond Trading 1. Agency 2. Inventory Investors Issuers Banks/ Dealers *PRIMARY MARKET* *SECONDARY MARKET* Flow of MFABC debt (PRIMARY + SECONDARY) Bond Sales Desk

32 Banks/ Dealers CDN Government Credit (C$ Primary Issuance) CDN Government Credit (C$ Secondary Trading *PER DAY*) Source: Bloomberg League Tables CDN Government Credit = CMB + Prov + Muni + Other ? How many $millions of government credit paper do CDN dealers trade PER DAY?

33 Banks/ Dealers CDN Government Credit (C$ Primary Issuance) CDN Government Credit (C$ Secondary Trading *PER DAY*) Source: Bloomberg League Tables Source: IIROC trading statistics CDN Government Credit = CMB + Prov + Muni + Other CDN Government Credit = CMB + Prov + Muni + Other

34 Banks/ Dealers CDN Government Credit (C$ Secondary Trading *PER DAY*) Source: IIROC trading statistics CDN Government Credit = CMB + Prov + Muni + Other What The Street Holds Primary Dealer Positions By Asset Class (US$ Bln) CDN Government Credit = CMB + Prov + Muni + Other Source: NY Fed, Haver Analytics

35 Banks/ Dealers What this means…. Trading levels remain elevated …but dealer balance sheet limitations and inventory costs are becoming more difficult Regulatory/ Compliance related issues are negatively impacting inventories too Growth of issuance versus dealer limitations – will be an important test for liquidity. What The Street Holds Primary Dealer Positions By Asset Class (US$ Bln) Source: NY Fed, Haver Analytics CDN Government Credit = CMB + Prov + Muni + Other

36 Banks/ Dealers CDN Government Credit (C$ Secondary Trading *PER DAY*) Source: IIROC trading statistics CDN Government Credit = CMB + Prov + Muni + Other Secondary Trading Characteristics Ontario is the most traded (~C$3.5Bln traded per day). Ontario is the bell-weather, with most CDN government credits referenced against it (yield versus yield) Ratings are bucketed by capital structure, pricing (by yield) follows. MFABC’s ratings, brand exposure, investor depth, and size helps position itself as a hybrid between provincial and municipal paper.

37 Banks/ Dealers Bonds trade on a price basis BUT for simplicity they’re generally evaluated on the spectrum on a yield basis MFABC Secondary Trading -Borrowing costs continue to drive lower, alongside global interest rate markets -MFABC bonds trade at the strongest end of the municipal spectrum, also trading stronger than some provinces. -MFABC debt continues to trade with reasonable liquidity

38 Banks/ Dealers  Fluent primary and secondary markets remain important for MFABC performance.  Liquidity is becoming a greater challenge for banks/ dealers.  Trading volumes remain elevated, however pressure on inventories remains a concern.  Strong commitment by the banks/ dealers to have MFABC bonds trade with a high level of exposure and profile (domestic and international) OUR GOALS (1) Provide liquidity and market making for MFABC bonds (2) Continue to educate the market on the MFABC brand (3)Focus on initiatives to reduce borrowing costs for MFABC (4)Help to design approach strategies to funding in the market

39 Investors Bank/ Dealers Issuers

40 Background  Majority of government credit deals are underwritten.  Transaction time from start to finish is minutes.  Issuers are generally planting ‘buzz’ in the market to better understand investor demand profile (happens 1-3 weeks in advance).  The treatment of ‘large sized’ orders is taking on greater concentration within the issuer community.  Over the last few years, deals are seeing greater international take-up. The process takes 10 minutes start to finish

41 C APITAL S TRUCTURE H IGH Y IELD / J UNK C ORPORATES ABS/ MBS M UNICIPALITIES P ROVINCIAL B ONDS SSA S CMB C ANADA B ONDS I S S U E R S

42 P R O D U C T SI S S U E R S FIXED FLOATING CAD USD 5 YR 10 YR 30 YR ULTRALONG 3 MOS RESETS AMORTIZING RESIDS COUPONS CALLABLE PUTABLE EQUITY LINKED

43 Purpose INFORM investors about the issuer’s story GOAL is to entice buyers and lower borrowing costs INVESTORS CONCERNS that need to be addressed BROADEN the base of global investors is a core program objective THANK THEM for their time and support of the borrowing program Give UPDATE on the issuer’s story FORWARD OUTLOOK on finances of the issuer BORROWING strategy education Receive FEEDBACK on the issuer’s story and outlook COMMENTS AND IDEAS to help with the borrowing strategy APPRECIATION for your time discussing the issuer’s program in a closed setting. ROI ~$3,000 ~$900,000 Value of ONE 10yr basis point on $1B program IR Trip Cost

44 Reach a broad range of investors, and it’s cost effective Useful for developing contacts Formal Q&A often limited to a short time frame Raises the public profile of the issuer Should be followed by numerous one-on-one discussions Often the best way to make a solid impression for the credit Investors appreciate the initiative to attend meetings face-to-face Dialogue tends to be quite open. This contributes to the building of credibility between the investor and issuer It takes added logistical efforts to book several meetings Having an IR pitch on your website is a great convenience for investors to learn about the credit An active list of bond debentures in the market is helpful too for those looking up securities Credit ratings reports readily available are appreciated by investors – at a minimum the ratings themselves. Any financial statements are an asset to making the lives of investors easier Cost effective way for meeting investors and answering any questions Can cover a variety of clients in a short period of time Generally convenient for investors as any cancellations don’t have a large impact on either one’s day In Person Meetings Phone One-on-Ones Conferences Website

45  The ‘issuer’ field is highly competitive, both in terms of names and products.  Contact with investors is key towards positioning yourself for sector outperformance.  Investor relations work requires a ‘cyclical’ approach, and a structured strategy.  Investor relations work typically has a significant skew when comparing cost versus potential rewards. OUR GOALS (1) Help to design an effective investor relations strategy (2) Help to identify opportunities for MFABC to meet new investors (3) Advise the MFABC on how to best educate the market about the product. Issuers

46 Conclusions The underwriting syndicate works with MFABC to enhance profile and lower their cost of funds. Fully functioning primary and secondary bond markets ensure (1) fluent access to funds, and (2) investors return to the product following a positive experience. Potential capital markets headwinds comes from thinner liquidity and regulatory pressures on the banking sector The issuer landscape remains highly competitive. MFABC has been rewarded for their investor relations strategy, distinguishing themselves from the issuing community.

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