Volume 1, Issue 2: June 23, 2009      

50th anniversary

QuadCapital's loan closing June 4th on a CTL private placement bond in Bryan, TX marks our 50th Walgreen's CTL funding!!!

Summary of Walgreen's CTL bond fundings from July 2000 to June 2009:

  • Aggregate volume $194,011,830
  • Loan sizes from $1,558,000 to $5,165,000
  • Average loan size $3,880,236
  • Spreads between 127 bps and 390 bps
  • LTV range from 57% to 100%
  • Term/amort. schedules from 19/19 to 25/25

A special thanks to Brandon Chavoya, Holliday Fenoglio Fowler, L.P. (Dallas, TX) for sourcing the Bryan, TX transaction on behalf of QuadCapital. After closing Brandon sent QuadCapital the following hand written note:

"Just wanted to take this opportunity to thank you for all your efforts on the Walgreen's - Bryan, TX transaction. It was a pleasure working with you...great experience all around. I look forward to working with you again soon."

                                       Best Regards, Brandon

Article One Title

Otherwise known as the I-curve...

Why is the I-curve used to price bonds?
Private placement bonds are priced at a spread over the Interpolated U.S. Treasury ("UST") yield curve, or I-curve, at the spot on the curve equal to the bond's Average Life. Because on-the-run UST's are limited to specific maturities, the yield of maturities that lie between the on-the-run UST's must be interpolated.

The most accurate manner in which to determine an I-curve yield or "true interpolated yield" is available through a paid subscription to Bloomberg. However, if access to such Bloomberg screen is not available, then a linear interpolation calculation may be performed to approximate the I-curve yield.

How to calculate a linear interpolated U.S. Treasury?
Once the average life of a bond is determined, locate the on-the-run UST yields on Bloomberg with the next shorter and next longer maturity and...See Example


Market Update

The bond market continues to experience the unprecedented volatility of the past year. In late March, the 10 year U.S. Treasury declined by nearly 50 bps in one day when the Federal Reserve purchased Treasuries to provide stimulus to the market. The Federal Reserve completed a second-round U.S. Treasury buyback program on June 16-17 with purchases of three and four year notes on Tuesday and 10-year notes on Thursday. Since launching the program in late March the Fed has bought more than $160 billion of U.S. Treasuries. From the end of March through June 22nd, the 10 year U.S. Treasury has risen by about 101 bps. It is difficult for lenders to make pricing decisions and for borrowers to make investment decisions when faced with this kind of volatility.

We believe the trend in interest rates has an upward bias. While recent economic indicators show possible signs of the beginning of a better economy, or at the very least an indication that the decline is lessening, the economy certainly hasn't returned to a "healthy" state. The size of the federal deficit along with the growing supply of new Treasury issues gives rise to concern about the Fed's ability to continue to provide stimulus to a fragile economy and a fear of rising interest rates. This was exemplified by the lackluster response to the auction of the 10-year notes on Wednesday June 10th, which led to the highest interest rate levels in nearly eight months. In response to questions about pricing during his appearance before Congress in early June, Chairman Bernanke indicated in time the Fed would need to start raising the funds rate, timing of which is uncertain.

While interest rates have risen over the past few months, corporate spreads have tightened and many of them substantially. However, in the financial, healthcare and retail sectors the contraction hasn't been as marked.


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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