Volume 1, Issue 1: January 9, 2009      

CTL image
Article One Title

QuadCapital's 12th annual Wine & Cheese Reception on Tuesday, February, 10, 2009 3:45 p.m. to 5:00 p.m. at the Manchester Grand Hyatt, Room Betsy AB (second level).

At 4:15 p.m. we will provide a brief overview of the corporate credit market, allow time for Q&A, and have $1,500 in drawings. Click here to view or print an invitation...

Article Two Title

is defined as the weighted average time to return a dollar of principal on a note or bond.

Why is Average Life used to price bonds?
Industry practice is to use an instrument's average life for pricing the purchase/sale of a bond in order to "consistently and fairly" take into consideration various attributes from one bond to another. For example, a bond's average life will be impacted by its interest rate, principal reduction schedule, payment frequency and call or put options. See Table

How to calculate Average Life? An average life calculation can be performed on any cash flow stream for which the date and amount of expected principal repayments can be determined.
See Example

QuadCapital - Calendar of Events

Walgreen Co. issues
10-yr. public bonds
5x oversubscribed!!

Amount: $1 billion
Type: Sr. unsecured bullet
Maturity: 1-15-19
Coupon: 5.25%
Yield: 5.318%
Spread: 287.5 bps
Ticker: WAG

Investor demand was strong; so much so WAG public bonds trading in the secondary market have tightened 10-17.5 bps. This provides a new pricing benchmark for Walgreen-leased CTL bonds and we have tightened spreads by 15 bps.

Market Update

In 2008 Treasury yields plummeted while credit spreads on corporate bonds rose to record levels. 2009 will likely see upward pressure on interest rates with estimates of government debt issuance around $2 trillion. Investor demand for CTL bonds will continue to focus on high quality credits.

"A-AA" rated retailers attract interest at spreads from 390 to 500 bps. Little interest exists in "BBB" rated retailers. There is strong interest in "A-AAA" rated non-retailers for fully amortizing loans. Structures with RVI have limited appeal to CTL bond investors. However, plenty of capital is available for CTL transactions. Borrowers may find CTL execution more desirable than traditional mortgage financing where low LTV constraints limit leverage.


Lois O'Rourke CFA, CRI   608-821-1204    |    Charlie Knudsen CFA, CRI   608-821-1201

QuadCapital Advisors, LLC | 402 Gammon Place | Suite 350 | Madison | WI | 53719

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