Our business is growing. Wendy Silverstein, Executive Vice President - Capital Markets, and Richard Reczka, working with Mike, are responsible for executing the
capital market transactions that fuel this growth. Access to capital markets in scale and at efficient pricing is a
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critical aspect of our business franchise. Below is a ten-year schedule of our capital markets activity. Appendix II
presents the transaction-by-transaction detail of our 2006 and 2007 to-date activity.
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I used to think that perpetual preferred (the security
with the due date of never) with a fixed coupon and a
one-way issuer call after five years was the best security
ever. We started issuing this security about eight years ago, issuing a total of $1.2 billion at an average coupon of 8.3%. Taking advantage of the decline in rates, we called these securities on the first five-year call date
and reoffered about the same principal amount at an average coupon of 6.6%. We can again call this new round of preferreds in about three years.
But a new contender has emerged for best security ever, twenty-year convertible debt. Interestingly, this debt can be called by the Company or put back to the Company on the 5th, 10th, and 15th anniversary dates. In an era of ever declining cap rates, we must lower our cost of capital to
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remain acquisitive and competitive. We recently issued two tranches of this security:
November 2006 $1 billion, 3.625% convertible at $153.45 (up 30%)
March 2007 $1.4 billion, 2.85% convertible at $162.46 (up 30%)
Here's how I look at this. If our straight five-year debt is 5.25%, we are saving, with certainty, $240 million of interest to the first five-year put/call date (5.2% -say,
3.2% x 5 years x $2.4 billion). In essence, we have sold for $240 million, a five-year up 30% call on $2.4 billion of our stock. Black Scholes says this is a better deal for us than our counterparty.
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