The Capital Raising Process

James T. Ratner

EVP Finance and Corporate Strategy

American Financial Realty Trust

The Capital Raising Process

♦Recognition of a capital need♦Review of capital options

Equity (common/preferred) Debt Convertibles Public vs. Private

♦Selection of managers/agents♦Preparation of offering materials♦Execution of transaction

Recognition of a Capital Need

♦Capital budgeting is critically important

♦Match funding reduces dilution

♦When Company already needs the money, it is often too late

♦“The Street” smells desperation

Secured Debt

Unsecured/Convertible Debt

Preferred Stock

Common Stock

Review of Capital Options

Payment Type

•Interest

•Interest

•Pref. Dividends

• Dividends

Claim on Assets

•Highest

•Next Highest

•Mid-Level

•Residual

Review of Capital Options

Capital Raising Alternatives

Flexibility Complexity Cost

Straight Debt

Low Low Low

Convertible Debt

Medium High Medium

Preferred Stock

Medium MediumMedium High

Common Stock

High Low High

Convertible Alternatives

♦Offers equity linkage at lower near-term cost

♦Permits “sale” of common stock in the future at more attractive price

♦Will produce significant shorting activity from hedge fund buyers

♦Convertible debt is STILL debt

Convertible Debt Case Study

♦Issuer: Company X

♦Security: Convertible Senior Notes

♦Issue Size: $300 million

♦Date: June 2004

Interest Rate: 4.38%vs.

Common Dividend Yield: 7.11%

Common Stock Price: $14.05vs.

Conversion Price: $17.84

Review of Capital Options

Other Considerations:

♦Public / Private

♦Overnight or extended offering period

♦Number of managers / agents

Selection of Managers / Agents

♦Choice was historically driven principally by relationships, but times have changed

♦Most managers will offer a variety of products, including equity and debt

♦Most managers will now put their own capital at risk

♦Fee-based competition is still limited

Preparation of Offering Materials

♦Not a legal function, but a Company function

♦Particularly important for equity

♦Similar disclosure requirements for both public and private deals

♦Timing can be very tight

Execution of Transaction

♦Distribution of “Red Herrings”

♦Roadshow / Marketing

♦SEC effectiveness, if applicable

♦Closing and payment

Role of the IRO

♦Press Releases

♦Initial inquiries from prospective investors

♦Questions from existing stakeholders

♦Roadshow planning

♦SEC Compliance

♦Pricing and initial trading activity

♦Ongoing monitoring

The Capital Raising Process

James T. Ratner

EVP Finance and Corporate Strategy

American Financial Realty Trust