REAL 1095 Regency Centers Corp Case Study Debt Issuance Analysis

Regency Centers Corporation: Unsecured REIT Debt Evaluation REG.GL / CUSIP: 75884RAQ

1 REAL1-GC 1095 Capital Markets

Jonathan Smith

REG

ENC

Y CR

EDIT P

RO

FILE Standard & Poor's

BBB 4/12/2012

Bond Details

REG.GL / CUSIP: 75884RAQ6

Last: 114.772 Yield: 2.215%

Security Category: Corporate

Issue Description: Note

Issuer Name REGENCY CTRS LP

Coupon Rate: 5.875

Coupon Type: Fixed

Maturity Date: 06/15/2017

Pay Frequency: Semi-annual

First Coupon Date: 12/15/2007

Offer Price $99.527

Offer Size $400,000,000

Yield to Maturity 5.017%

Offer Date: 5/31/2007

Settlement Date: 6/05/2007

Amount Outstanding $400,000,000

Call Frequency Continuous

Underwriter Fee $2,600,000

High Price / Equivalent Yield:

$114.772 / 2.21500%

Low Price / Equivalent Yield

$114.641 / 2.24500%

Net Change (Price) $0.136

Int Payment Dates 12/15 & 6/15

Moody’s Investor Service

Fitch Rating

Baa2 Regency's liquidity is good, exemplified by a $600 million line of credit which typically has significant availability, an unencumbered portfolio representing 70% of assets and a reasonable FFO payout ratio of 76%. Leverage metrics are high (49% debt plus preferred over gross assets, 6.3x net debt/ EBITDA) and even higher when considering joint ventures (Regency's co-investment partnerships), though we expect these metrics to decline. Likewise, fixed charge coverage is 2.0x, and we expect this to improve. Moody's would expect to raise Regency's ratings should strong operational performance continue and fixed charge coverage (including joint ventures) tally consistently above 2.5x, coupled with effective leverage below 50% (including joint ventures), net debt to EBITDA below 6x, and development less than 20% of gross assets. Conversely, Moody's said that pressure to lower Regency's rating would likely result from effective leverage (including joint ventures) near 60% or net debt/EBITDA greater than 7x, coupled with development exposure over 20% of gross assets over several quarters. A decline in all-in fixed charge coverage (with joint ventures) below 2.0x would also negatively impact the rating.

1/13/2011

BBB REG has a manageable debt maturity schedule, with no year accounting for more than 21% of total maturing debt. This laddering enhances the company's liquidity profile. REG ‘s sources of liquidity exceed uses of liquidity by 1.2x. Under a scenario whereby 80 % of REG’s pro rata share secure debt is refinanced with new secured debt, liquidity coverage improves to 1.5x. The company has demonstrated strong access to the common equity, unsecured and secured debt and preferred stock market, mitigating near-term refinance risk In addition, the company has good contingent liquidity in the form of a sizeable unencumbered asset pool. Using an 8.0% capitalization rate, the implied value of unencumbered assets covered net unsecured debt by 2.3x, which is adequate for the 'BBB' rating, and the company's unsecured debt covenants do not restrict REG's financial flexibility.

4/12/2012

REAL1-GC 1095 Capital Markets 2

Jonathan Smith

SELL SIDE SEN

TIMEN

T PR

OFILE

Retail REIT market Sell Side Sentiment

There appears to be a positive fundamental outlook on the retail REIT sub-industry. Increased absorption of retail space should present retail landlords with more pricing power. Consumer spending and retail sales should continue to improve over the next year. There appears to be general consensus that same property revenue and net operating income will be positive across the sub-industry over the next 12 months. Results of retail REITs in the fourth quarter of 2012 suggest that business continues to improve. Occupancy levels generally improved on a year over year basis; re-leasing spreads were generally better. The shopping center products continue to lag behind regional malls.

Furthermore, there appears to be sharp drop-offs in development and transaction-oriented activities abating as the economy rebounds and concerns ease. Analysts expect tight credit conditions, though not as restrictive as they were at the height of the financial crisis in late 2008 and 2009, to continue to squeeze smaller, undercapitalized players from the market as larger retailers seek to do business with shopping center operators that can execute in a still tight and volatile credit environment. Consequently, the exit of smaller, undercapitalized players will help reduce prices for lesser-quality shopping center assets, analysts expect that demand for well-located, quality assets will remain firm. Publicly traded retail REITs generally own quality assets and this helped some that were not as well-capitalized to secure debt as well as equity financing to ride out the storm. Although REITs tend to be highly leveraged, most of this leverage is mortgage debt, which is secured by the underlying properties, and lenders have generally been refinancing this debt.

Current Income Capital Appreciation

The concerns sell-side analysts express about a retightening of the credit market is worrisome for the retail REIT sector; not because it will greatly restrict access to capital for institutional firms, but because the yields necessary to facilitate investment in retail property assets, without a strong consumer recovery, is reliant on cheap debt. Much of the gain in REIT total return has been attributable to capital appreciation. Just as

with any highly levered investment, a small change in debt cost can cause a sizable increase in volatility.


Jonathan Smith

HISTO

RIC

AL D

EBT ISSU

AN

CE A

NA

LYSIS US REIT Historical Debt Announcements

Annualized

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$M

illio

ns

Regency Centers Debt Maturity Probability of Default from Bond Term Structure Simulation

Issuing Company

Funding

Key Funding Type

Issue

Currency

Original Issue

Date Coupon/ Rate

Amount Out

($000) Maturity Date

Ratings

Moody's/S&P/Fitch

Regency Centers Corporation 148759 Senior Debt $ 4/1/2004 4.9500 150,000 4/15/2014 Baa2/BBB/BBB


Regency Centers Corporation 182182 $ 2/9/2007 Variable 90,800 9/5/2016 -/-/-

Regency Centers Corporation 443528 Credit Facility - Term Loan $ 11/17/2011 Variable 100,000 12/15/2016 -/-/-




Upcoming Maturities


50%

60%

70%

80%

90%

100%

Default Prob

Bond Maturity Date Price (out of $100) Coupon Yield Interp RfR Price of RfR Bond Monthly

1 4/15/2014 $104.04 4.950% 1.252% 0.162% 105.27 0.143%

2 8/1/2015 $108.96 5.250% 1.432% 0.292% 111.84 0.213%

3 6/15/2017 $114.64 5.875% 2.257% 0.637% 122.03 0.338%

4 6/15/2020 $115.71 6.000% 3.531% 1.304% 132.47 0.443%

5 4/15/2021 $110.71 4.800% 3.284% 1.492% 125.16 -0.549%

As displayed in the chart above, Historic Public Debt Announcements are decreasing on an annualized basis. This trend should continue if debt costs continue to rise and consumer fundamentals continue to lag asset price appreciation; thereby depressing yield.

Regency Centers has a large amount of it’s public debt coming due in the next 4 years. Due to strict debt covenants it will most likely issue new debt later than sooner where it can be expected that debt rates will be more expensive. Based on a simulation of company default constructed from Regency’s bond term structure, the greatest risk of default takes place near their 2020 bond maturity.

Jonathan Smith

Regency Bond Issuance Comps and T-Bond Spread Analysis

MA

RK

ET PR

ICIN

G A

NA

LYSIS Retail REIT Peer Group Current Bond Yield

Periodic Probability of Default

Cumulative Probability of Default

Annual Default Probability

.012% 5.85% 1.46%

Variable Value Common Method

Par (Dollars) $1,300,000 Market Value

Upfront Payment (bps) 17.25 Market Value

Spread (bps): 85.61 Market Value

Payment Frequency (x/year):

4 In contract

Recovery: 40% From KMV Model

Tenor (years): 4 In contract

Bond Issuance Coupon Current

Yield YTM

REG Spread….

CY YTM

US T-Bond

Regency Center 1.26%(1) 3.89%(2)

Weingarten Real

Equity One

Federal Realty 0.13

Average of Comps 0.02%

BBB Corp YTM Index

Risk Premium from CDS Spreads Simulation

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%COMMONWEALTH REIT 2007 6 1/4% 15/06/17 S - MARKET PRICE

US TREASURY 2007 4 1/2% 15/05/17 C-2017 - MARKET PRICE

REGENCY CENTERS LP. 2007 5 7/8% 15/06/17 S - MARKET PRICE

WEINGARTEN REAL. 2006 5.542% 15/12/16 S-A - DEFAULT PRICE

EQUITY ONE INCO. 2006 6% 15/09/16 S - DEFAULT PRICE

FEDERAL REALTY IT. 2006 5.4% 01/12/13 S - DEFAULT PRICE


4.50%

5.88%

5.54%

6%

5.40%

3.89%

5.12%

5.02%

5.30%

5.23%

0.70%

2.27%

2.92%

2.70%

4.56%

1.23% 1.56%

0.11%

-0.18%

-0.13%2.40%

-0.66%

-0.44%

-1.08%

-0.72%

(1) Current Yield Spread over Treasury at Issuance (2) Preferred Current Yield to REG bond YTM Spread

Regency Debt and Preferred Equity: Cumulative Bond Default Analysis


Jonathan Smith

CU

MU

LATIV

E BO

ND

DEFA

ULT A

NA

LYSIS Regency Company Internal Default Probability Analysis

Regency Centers Corp is a Retail REIT that operates, develops, and invests in shopping center product types on the US National level. Despite the recent severe correction in the US economy, Regency stands to be well positioned with respect to its secured and unsecured debt obligations. All current issues of senior unsecured debt obligations have industry standard debt covenants that Regency has done well to be more than respectful of.

As of year end 2012, Regency reported 50% total debt to total assets; approximately 75% of debt covenant allowance. Additionally, secured debt of partnerships and JV’s is only 10% of total assets. Furthermore, Regency maintains a high percentage of unencumbered assets with a reported 76% of wholly-owned real estate assets unencumbered. Moreover, the company, along with pro-rata share of partnerships recorded a 2.5 coverage ratio up from 2.3 in 2011.

Regency’s Credit Ratings are consistent with REIT sector companies. Moody’s and Fitch credit rating companies boast Regency’s high level of liquidity and good FFO payout.

Under current economic conditions, the quality of Regency’s balance sheet provides adequate protection to unsecured bond holders. With over $5.4 billion in first loss position over the analyzed debt issuance, it is highly unlikely that recovery of the initial investment would ever come to fruition.

The greatest risk to Regency margins is the sizable maturities coming due in the next four years, the uncertainty related to asset and consumer inflation in the economy, and the risk associated with future consumer fundamentals.

Regency Company Quantitative Bond Default Analysis

0%

20%

40%

60%

80%

100%

Regency Centers CorporationCapital Structure

Common Equity

Subsid Pfd Partnership Interest

REG Senior 10.5

REG Senior 10

Bond Issuance

REG Senior 05

REG Senior 04

Credit Facility


Upon analysis of the 2007 bond issuance, current yield spread over the 10 year Treasury with the same maturity was 1.25% . While comparing this spread against current competitors, Regency’s spread over Treasury was approximately equal on average at 0.02%.

Yield to maturity for Regency’s bond was 2.27% with a YTM spread of 1.56% over Treasury. When compared against competitors, Regency’s yield to maturity was -0.72% less on average. Furthermore, comparing Regency’s yield to maturity to the Thompson Reuters BBB 4 Year Corporate Bond YTM Index, Regency’s Issuance was -0.13% less than the index.

Based on these spreads and the comparable yields of sector competitors and similar corporate debt, the market appears to be pricing Regency’s bond issuance on par or slightly less risky than the market for similar debt. When comparing Regency’s current yield spread upon original debt offering in June of 2007 against the current spread in March 2013, the market appears to be pricing the debt equal or slightly less risky at -0.03%.

In order to determine what portion of the current market pricing is a result of default risk associated with Regency’s creditworthiness or a premium for liquidity risk, default risk simulations were performed. The first simulation was a Structural Model built to simulate technical default of debt covenants due to fluctuations in market capitalization. The results of the simulation determined that the risk of technical default of Regency’s debt covenants was no more than .75% on an annual basis. Furthermore, the CDS risk simulation based on Regency’s 4 year credit default swap spreads indicated an annual risk premium of 1.46% and a cumulative risk premium of 5.85%. While an additional reduced form model based on the bond tenure of all outstanding unsecured senior debt calculated an annual individual bond risk premium of 1.5% and a cumulative risk premium of 4.06%.

Based on Regency’s technical default risk of 0.75% determined by the structural model, there appears to be a liquidity premium of between 0.75% and 0.50% as determined by the reduced form models and the current yield spread.

In conclusion, given the investor’s strategy to hold the bonds to maturity, the current market spreads, and the risk model results, the investor should not accept a yield to maturity on Regency’s bonds less than 3.49%, thereby paying no more than 109.4041 for this bond issuance.

Regency Debt and Preferred Equity: Treasury Spread & Yield Analysis


Jonathan Smith

TREA

SUR

Y SPR

EAD

AN

D YIELD

AN

ALYSIS


100 100 100 6% 100 100 100

5/15/2017 6/15/2017 3.49% 6/15/2017 6/15/2017 6/15/2017

4.50% 0.70% 5.88% 2.27% 5.54% 2.92% 6% 2.70% 5.40% 3.34%

$4.50 $2.25 5.875 2.9375 5.542 2.771 6 3 5.4 2.7

Market YTM Market Curnt Yld Market Curnt Yld Market Curnt Yld Market Curnt Yld Market Curnt Yld Market Curnt Yld

6/1/2007 5.877 378.21 96.4688 4.66% 99.207 5.92% 97.1551 5.70% 98.9169 6.07% 97.1523 5.56%

6/4/2007 5.898 378.688 96.6719 4.65% 99.3532 5.91% 97.3004 5.70% 99.0607 6.06% 97.2866 5.55%

6/5/2007 5.938 378.028 96.3125 4.67% 99.0571 5.93% 97.0194 5.71% 98.7847 6.07% 97.0269 5.57%

6/6/2007 5.961 378.427 96.3594 4.67% 99.0578 5.93% 97.023 5.71% 98.787 6.07% 97.1091 5.56%

6/7/2007 5.982 376.955 95.3906 4.72% 97.9562 6.00% 96.1138 5.77% 97.8938 6.13% 96.4876 5.60%

6/8/2007 6.017 376.848 95.2344 4.73% 97.8114 6.01% 95.9766 5.77% 97.759 6.14% 96.4646 5.60%

1/23/2013 2.385 583.1 116.5156 3.86% 115.3403 5.09% 110.62 5.01% 113.32 5.29% 103.67 5.21%

1/24/2013 2.425 583.046 116.4688 3.86% 115.3017 5.10% 110.59 5.01% 113.29 5.30% 103.67 5.21%

1/25/2013 2.404 582.06 116.0781 3.88% 114.8971 5.11% 110.39 5.02% 113.1 5.31% 103.66 5.21%

1/28/2013 2.44 581.791 115.9688 3.88% 114.7634 5.12% 110.31 5.02% 113.02 5.31% 103.64 5.21%

1/29/2013 2.436 581.867 115.9688 3.88% 114.8602 5.11% 110.36 5.02% 113.07 5.31% 103.69 5.21%

1/30/2013 2.475 581.705 115.9688 3.88% 114.8475 5.12% 110.38 5.02% 113.08 5.31% 103.66 5.21%

1/31/2013 2.469 581.705 116 3.88% 114.8372 5.12% 110.5 5.02% 113.18 5.30% 103.61 5.21%

2/1/2013 2.483 581.736 116 3.88% 114.8274 5.12% 110.51 5.01% 113.19 5.30% 103.56 5.21%

2/4/2013 2.468 582.149 116.125 3.88% 114.9646 5.11% 110.56 5.01% 113.24 5.30% 103.59 5.21%

2/5/2013 2.472 581.665 116 3.88% 114.8234 5.12% 110.49 5.02% 113.17 5.30% 103.54 5.22%

2/6/2013 2.476 582.277 116.1406 3.87% 114.9268 5.11% 110.58 5.01% 113.25 5.30% 103.51 5.22%

2/7/2013 2.466 582.51 116.1719 3.87% 114.976 5.11% 110.45 5.02% 113.38 5.29% 103.5 5.22%

2/8/2013 2.468 582.518 116.125 3.88% 114.8179 5.12% 110.42 5.02% 113.35 5.29% 103.49 5.22%

2/11/2013 2.466 582.595 116.0781 3.88% 114.9879 5.11% 110.37 5.02% 113.3 5.30% 103.48 5.22%

2/12/2013 2.492 582.26 115.9375 3.88% 114.7876 5.12% 110.32 5.02% 113.25 5.30% 103.43 5.22%

2/13/2013 2.512 581.822 115.8125 3.89% 114.6196 5.13% 110.23 5.03% 113.15 5.30% 103.39 5.22%

2/14/2013 2.449 582.576 115.9688 3.88% 114.8447 5.12% 110.29 5.02% 113.2 5.30% 103.42 5.22%

2/15/2013 2.424 582.549 115.9063 3.88% 114.7908 5.12% 110.28 5.03% 113.19 5.30% 103.37 5.22%

2/18/2013 2.433 582.763 115.9063 3.88% 114.7908 5.12% 110.28 5.03% 113.19 5.30% 103.37 5.22%

2/19/2013 2.433 582.64 115.8281 3.89% 114.7229 5.12% 110.42 5.02% 113.25 5.30% 103.4 5.22%

2/20/2013 2.413 582.952 115.8594 3.88% 114.7982 5.12% 110.42 5.02% 113.24 5.30% 103.37 5.22%

2/21/2013 2.391 583.452 115.9844 3.88% 114.935 5.11% 110.49 5.02% 113.31 5.30% 103.36 5.22%

2/22/2013 2.406 583.741 115.9688 3.88% 114.9546 5.11% 110.49 5.02% 113.3 5.30% 103.35 5.22%

2/25/2013 2.399 584.81 116.1719 3.87% 115.1487 5.10% 110.64 5.01% 113.44 5.29% 103.34 5.23%

2/26/2013 2.367 584.85 116.2188 3.87% 115.1651 5.10% 110.62 5.01% 113.42 5.29% 103.34 5.23%

2/27/2013 2.344 584.852 116.2031 3.87% 115.1369 5.10% 110.62 5.01% 113.41 5.29% 103.35 5.22%

2/28/2013 2.328 585.436 116.2344 3.87% 115.23 5.10% 110.67 5.01% 113.45 5.29% 103.3 5.23%

3/1/2013 2.334 585.74 116.2813 3.87% 115.264 5.10% 110.69 5.01% 113.46 5.29% 103.25 5.23%

3/4/2013 2.314 585.59 116.2188 3.87% 115.2405 5.10% 110.68 5.01% 113.45 5.29% 103.25 5.23%

3/5/2013 2.342 585.669 116.1406 3.87% 115.1727 5.10% 110.61 5.01% 113.38 5.29% 103.28 5.23%

3/6/2013 2.335 585.242 116 3.88% 114.9548 5.11% 110.58 5.01% 113.34 5.29% 103.25 5.23%

3/7/2013 2.363 584.715 115.8281 3.89% 114.8293 5.12% 110.53 5.01% 113.29 5.30% 103.24 5.23%

3/8/2013 2.40% 2.396 584.28 115.6406 3.89% 114.6444 5.12% 110.43 5.02% 113.2 5.30% 108.11 4.99% 103.23 <---Actual

3/11/2013 2.389 584.565 115.625 3.89% 114.635 5.12% 110.48 5.02% 113.25 5.30% 103.26 5.23% <---Adjusted for remaining years

REG Current Yield Spread over Treasury: 1.23%

REG YTM Spread over US Treasury: 1.56%

REG Current Yield Spread over WeinGarten: 0.11%

REG Current Yield Spread over Equity One: -0.18%

REG Current Yield Spread over Federal Realty: 0.13%

REG Average Current Yield of Competitors: 0.02%

REG YTM Spreaad over BBB Corp: -0.13%

REG YTM Spread over WeinGarten: -0.66%

REG YTM Spread over Equity One: -0.44%

REG YTM Spread over Federal Realty: -1.08%

REG Average YTM of Competitors: -0.72%

REG Current Bond Price 114.6444

REG Current YTM 2.27%

REG Required Bond Price 109.4041

REG Required YTM 3.49%

WEINGARTEN REAL.

2006 5.542% 15/12/16

S-A - DEFAULT PRICE

EQUITY ONE INCO.

2006 6% 15/09/16 S -

DEFAULT PRICE

FEDERAL REALTY

IT. 2006 5.4%

01/12/13 S -

DEFAULT PRICE

TR US CORP BMK

BBB 4Y YIELD(U$) -

RED. YIELD

BOFA ML US CORP

BBB 3-5Y - TOT

RETURN IND

US TREASURY 2007

4 1/2% 15/05/17 C-

2017 - MARKET

PRICE

REGENCY CENTERS

LP. 2007 5 7/8%

15/06/17 S -

MARKET PRICE

Regency Debt and Preferred Equity: Probabil ity of Default from CDS Spreads Simulation


Jonathan Smith

PR

OB

AB

ILITY OF D

EFAU

LT FRO

M C

DS SP

REA

DS SIM

ULA

TION


Probability of Default from CDS Spreads

Inputs: CDS Market Data

Variable Value Common Calculation Method Periodic PD 0.12%

Par (Dollars) $1,300,000.00 Market Value Cumulative Probability of Default 5.85%

Upfront Payment (bps): 17.25 Market Value Periodic PD 0.12% Annual Default Probability 1.46%

Spread (bps): 85.61 Market Value Cumulative Probability of Default 5.85%

Payment Frequency (x/year): 4 In contract, generally quarterly Annual Default Probability 1.46%

Recovery: 40% Assumption

Tenor (years): 4 In contract

Fixed Leg Value- No Credit Event (numerator) Contingent Leg (Assumes Constant Default Probability) Value- Credit Event (denominator)

33,566 25,911,878

Month Risk Free Rate Discount Factor Fixed Leg Payment Fixed Leg PV Contingent Leg Payment PV of Contingent Leg Net PV of Contingent Leg

0 0.09 1.000 2,242.50 2,242.50

1 0.10 0.993 - - 780000 774418.5154 772,176.02

2 0.10 0.985 - - 780000 768583.7852 766,341.29

3 0.10 0.978 2,782.33 2,719.91 780000 762503.4754 760,260.98

4 0.10 0.970 - - 780000 756471.2673 751,508.85

5 0.10 0.962 - - 780000 750486.7803 745,524.37

6 0.11 0.955 2,782.33 2,655.87 780000 744549.637 739,587.22

7 0.11 0.946 - - 780000 738102.6105 730,484.33

8 0.12 0.938 - - 780000 731711.4085 724,093.12

9 0.13 0.929 2,782.33 2,585.54 780000 724833.6125 717,215.33

10 0.14 0.920 - - 780000 717488.7914 707,284.97

11 0.15 0.910 - - 780000 709697.1316 699,493.31

12 0.15 0.899 2,782.33 2,502.24 780000 701479.3592 691,275.53

13 0.16 0.889 - - 780000 693356.7426 680,650.68

14 0.17 0.878 - - 780000 684833.8904 672,127.83

15 0.18 0.867 2,782.33 2,411.11 780000 675932.1271 663,226.07

16 0.19 0.855 - - 780000 666673.0844 651,555.92

17 0.20 0.842 - - 780000 657078.6279 641,961.46

18 0.21 0.830 2,782.33 2,308.51 780000 647170.7859 632,053.62

19 0.22 0.817 - - 780000 636971.6795 619,546.00

20 0.23 0.803 - - 780000 626503.4559 609,077.78

21 0.24 0.789 2,782.33 2,196.57 780000 615788.2225 598,362.54

22 0.25 0.775 - - 780000 604847.9847 585,225.74

23 0.26 0.761 - - 780000 593704.5859 574,082.34

24 0.27 0.747 2,782.33 2,077.40 780000 582379.6505 562,757.40

25 0.28 0.732 - - 780000 570894.5294 549,194.89

26 0.30 0.717 - - 780000 559270.2491 537,570.60

27 0.31 0.702 2,782.33 1,951.82 780000 547175.241 525,475.60

28 0.32 0.686 - - 780000 535000.059 511,348.60

29 0.33 0.670 - - 780000 522764.3971 499,112.93

30 0.34 0.654 2,782.33 1,820.95 780000 510487.4059 486,835.94

31 0.36 0.639 - - 780000 498187.6597 472,715.24

32 0.37 0.623 - - 780000 485584.397 460,111.98

33 0.39 0.606 2,782.33 1,687.27 780000 473011.1113 447,538.70

34 0.40 0.590 - - 780000 460207.2357 433,047.55

35 0.41 0.574 - - 780000 447482.5522 420,322.87

36 0.42 0.558 2,782.33 1,551.15 780000 434851.7081 407,692.02

37 0.44 0.541 - - 780000 422328.5924 393,617.76

38 0.46 0.525 - - 780000 409688.3464 380,977.51

39 0.48 0.509 2,782.33 1,416.02 780000 396969.8647 368,259.03

40 0.50 0.493 - - 780000 384210.3528 354,083.49

41 0.52 0.476 - - 780000 371445.235 341,318.37

42 0.54 0.460 2,782.33 1,279.54 780000 358708.0798 328,581.22

43 0.56 0.444 - - 780000 346030.5415 314,624.14

44 0.58 0.427 - - 780000 333442.3176 302,035.91

45 0.60 0.412 2,782.33 1,144.93 780000 320971.1207 289,564.72

46 0.62 0.396 - - 780000 308642.6648 276,091.33

47 0.64 0.380 - - 780000 296480.6646 263,929.33

48 0.66 0.365 2,782.33 1,014.86 780000 284506.8462 251,955.51

Regency Debt and Preferred Equity: Merton Risk Model


Jonathan Smith

REG

ENC

Y DEB

T AN

D PR

EFERR

ED EQ

UITY: M

ERTO

N R

ISK MO

DEL

Iterate to Solve for

Asset Values


'Merton' Model - Historical Data for Calculations

Balance Sheet Information Results

% ST Liabilities in Barrier 100% Firm Asset Vol 21.18%

Date ST Liabilities LT Liabilities Shares Outstanding % LT Liabilities in Barrier 189% Firm Asset Value 6,939,394,604

9/30/2006 23,672,000 1,984,303,000 69,614,538 Costs at Default + Impaired Assets $119,816,000 Firm Liability Value 2,159,610,000

9/30/2007 23,672,000 1,984,303,000 69,614,538 Sum of Squared Errors 2.74E+19

12/31/2007 23,672,000 1,984,303,000 69,614,538 Drift Zero Asset Drift (Annual) 0.00%

3/31/2008 62,909,000 2,072,662,000 70,002,161 Zero 0.00% Barrier 3,856,774,500

6/30/2008 62,909,000 2,072,662,000 70,002,161 Annual Risk Free Rate 0.15% Distance to Default 2.667659986

9/30/2008 62,909,000 2,072,662,000 70,002,161 Historical Annual Asset Return 94.06% 1-year Default Probability 0.75%

12/31/2008 62,909,000 2,072,662,000 70,002,161 CAPM Returns (5% mrkt premium) 3.01% Current Liabilities $2,159,610,000

3/31/2009 173,970,000 1,712,410,000 80,315,597 Estimated Recovery 173%

6/30/2009 173,970,000 1,712,410,000 80,315,597

9/30/2009 173,970,000 1,712,410,000 80,315,597

12/31/2009 173,970,000 1,712,410,000 80,315,597

3/31/2010 194,313,000 1,900,156,000 81,888,361

6/30/2010 194,313,000 1,900,156,000 81,888,361

9/30/2010 194,313,000 1,900,156,000 81,888,361

12/31/2010 194,313,000 1,900,156,000 81,888,361

3/31/2011 199,375,000 1,783,065,000 89,914,839

6/30/2011 199,375,000 1,783,065,000 89,914,839

9/30/2011 199,375,000 1,783,065,000 89,914,839

12/31/2011 199,375,000 1,783,065,000 89,914,839

3/31/2012 241,910,000 1,917,700,000 90,388,236

6/30/2012 241,910,000 1,917,700,000 90,388,236

9/30/2012 241,910,000 1,917,700,000 90,388,236

12/31/2012 241,910,000 1,917,700,000 90,388,236

3/31/2013 241,910,000 1,917,700,000 90,388,236

Market Info Trading Days 1623

21.18% 57.1398%

Date Stock Price Risk Free Rate (annualized) Benchmark (only for CAPM Drift) Stock MV of Equity Est. Book Liabilities Est Default Barrier Naïve Asset Value Guess step i-1 ln(return) step i market returns

12/29/2006 78.17 5.00% 12,729,100 69,614,538 5,441,768,435 2,007,975,000 3,764,083,155 7,449,743,435 7,360,709,514 7,353,038,751.60

1/1/2007 78.17 5.00% 12,729,100 69,614,538 5,441,768,435 2,007,975,000 3,764,083,155 7,449,743,435 7,360,709,514 0.000000 7,353,038,751.60 0.0000%

1/2/2007 78.17 5.00% 12,729,100 69,614,538 5,441,768,435 2,007,975,000 3,764,083,155 7,449,743,435 7,360,709,514 0.000000 7,353,038,751.60 0.0000%

1/3/2007 78.64 4.98% 12,711,850 69,614,538 5,474,487,268 2,007,975,000 3,764,083,155 7,482,462,268 7,393,403,015 0.004432 7,386,057,546.62 -0.1356%

1/4/2007 78.51 4.95% 12,734,820 69,614,538 5,465,437,378 2,007,975,000 3,764,083,155 7,473,412,378 7,385,065,105 -0.001128 7,377,608,424.65 0.1805%

1/5/2007 77.28 4.98% 12,657,300 69,614,538 5,379,811,497 2,007,975,000 3,764,083,155 7,387,786,497 7,300,010,004 -0.011584 7,291,645,727.15 -0.6106%

1/8/2007 76.25 5.01% 12,685,460 69,614,538 5,308,108,523 2,007,975,000 3,764,083,155 7,316,083,523 7,228,800,224 -0.009803 7,219,601,848.17 0.2222%

1/9/2007 77.75 5.02% 12,678,910 69,614,538 5,412,530,330 2,007,975,000 3,764,083,155 7,420,505,330 7,331,467,905 0.014103 7,323,496,523.65 -0.0516%

1/10/2007 78.92 5.02% 12,709,320 69,614,538 5,493,979,339 2,007,975,000 3,764,083,155 7,501,954,339 7,411,857,868 0.010905 7,404,731,841.58 0.2396%

1/11/2007 79.56 5.05% 12,790,470 69,614,538 5,538,532,643 2,007,975,000 3,764,083,155 7,546,507,643 7,455,288,591 0.005843 7,448,606,375.17 0.6365%

1/12/2007 79.95 5.06% 12,852,530 69,614,538 5,565,682,313 2,007,975,000 3,764,083,155 7,573,657,313 7,481,935,671 0.003568 7,475,506,567.45 0.4840%

1/15/2007 79.95 5.06% 12,852,530 69,614,538 5,565,682,313 2,007,975,000 3,764,083,155 7,573,657,313 7,481,935,671 0.000000 7,475,506,567.45 0.0000%

1/16/2007 81.52 5.06% 12,863,040 69,614,538 5,674,977,138 2,007,975,000 3,764,083,155 7,682,952,138 7,590,119,752 0.014356 7,584,602,029.78 0.0817%

1/17/2007 81.93 5.08% 12,851,500 69,614,538 5,703,519,098 2,007,975,000 3,764,083,155 7,711,494,098 7,618,006,643 0.003667 7,612,715,659.78 -0.0898%

1/18/2007 81.18 5.07% 12,813,320 69,614,538 5,651,308,195 2,007,975,000 3,764,083,155 7,659,283,195 7,566,479,475 -0.006787 7,560,780,424.11 -0.2975%

1/19/2007 81.82 5.09% 12,850,470 69,614,538 5,695,861,499 2,007,975,000 3,764,083,155 7,703,836,499 7,610,221,505 0.005764 7,604,877,970.29 0.2895%

1/22/2007 81.32 5.09% 12,782,660 69,614,538 5,661,054,230 2,007,975,000 3,764,083,155 7,669,029,230 7,575,737,927 -0.004542 7,570,126,336.27 -0.5291%

1/23/2007 81.83 5.10% 12,827,880 69,614,538 5,696,557,645 2,007,975,000 3,764,083,155 7,704,532,645 7,610,714,763 0.004606 7,605,381,278.99 0.3531%

1/24/2007 83.06 5.09% 12,936,960 69,614,538 5,782,183,526 2,007,975,000 3,764,083,155 7,790,158,526 7,695,808,906 0.011119 7,691,078,972.32 0.8467%

1/25/2007 84.63 5.11% 12,791,180 69,614,538 5,891,478,351 2,007,975,000 3,764,083,155 7,899,453,351 7,803,908,032 0.013949 7,799,867,174.87 -1.1332%

1/26/2007 85.04 5.12% 12,775,720 69,614,538 5,920,020,312 2,007,975,000 3,764,083,155 7,927,995,312 7,832,065,635 0.003602 7,828,190,136.06 -0.1209%

1/29/2007 85.46 5.12% 12,761,690 69,614,538 5,949,258,417 2,007,975,000 3,764,083,155 7,957,233,417 7,861,118,147 0.003703 7,857,401,738.09 -0.1099%

1/30/2007 86.3 5.11% 12,835,330 69,614,538 6,007,734,629 2,007,975,000 3,764,083,155 8,015,709,629 7,919,441,159 0.007392 7,916,021,115.79 0.5754%

1/31/2007 87.1 5.09% 12,919,990 69,614,538 6,063,426,260 2,007,975,000 3,764,083,155 8,071,401,260 7,975,217,049 0.007018 7,972,054,850.48 0.6574%

2/1/2007 88.45 5.09% 12,984,280 69,614,538 6,157,405,886 2,007,975,000 3,764,083,155 8,165,380,886 8,068,736,317 0.011658 8,065,976,549.29 0.4964%

2/2/2007 88.57 5.08% 13,011,380 69,614,538 6,165,759,631 2,007,975,000 3,764,083,155 8,173,734,631 8,077,246,112 0.001054 8,074,516,911.71 0.2085%

2/5/2007 88.51 5.08% 12,998,780 69,614,538 6,161,582,758 2,007,975,000 3,764,083,155 8,169,557,758 8,073,088,132 -0.000515 8,070,342,323.71 -0.0969%

2/6/2007 89.82 5.07% 13,007,850 69,614,538 6,252,777,803 2,007,975,000 3,764,083,155 8,260,752,803 8,164,090,094 0.011209 8,161,683,216.04 0.0698%

2/7/2007 92.79 5.06% 13,025,990 69,614,538 6,459,532,981 2,007,975,000 3,764,083,155 8,467,507,981 8,370,334,829 0.024949 8,368,555,375.22 0.1394%

2/8/2007 91.63 5.06% 13,010,630 69,614,538 6,378,780,117 2,007,975,000 3,764,083,155 8,386,755,117 8,289,831,151 -0.009664 8,287,827,456.32 -0.1180%

2/9/2007 90.73 5.08% 12,918,590 69,614,538 6,316,127,033 2,007,975,000 3,764,083,155 8,324,102,033 8,227,006,697 -0.007607 8,224,814,851.00 -0.7099%

2/12/2007 88.34 5.10% 12,863,280 69,614,538 6,149,748,287 2,007,975,000 3,764,083,155 8,157,723,287 8,060,919,887 -0.020395 8,058,132,033.68 -0.4291%

2/13/2007 89.54 5.10% 12,961,010 69,614,538 6,233,285,733 2,007,975,000 3,764,083,155 8,241,260,733 8,144,095,406 0.010265 8,141,626,616.70 0.7569%

2/14/2007 88.01 5.06% 13,060,070 69,614,538 6,126,775,489 2,007,975,000 3,764,083,155 8,134,750,489 8,038,831,222 -0.013009 8,035,937,467.72 0.7614%

2/15/2007 88.52 5.04% 13,075,340 69,614,538 6,162,278,904 2,007,975,000 3,764,083,155 8,170,253,904 8,074,557,069 0.004434 8,071,803,099.53 0.1169%

2/16/2007 88.25 5.05% 13,063,900 69,614,538 6,143,482,979 2,007,975,000 3,764,083,155 8,151,457,979 8,055,653,768 -0.002344 8,052,826,466.84 -0.0875%

2/19/2007 88.25 5.05% 13,063,900 69,614,538 6,143,482,979 2,007,975,000 3,764,083,155 8,151,457,979 8,055,653,768 0.000000 8,052,826,466.84 0.0000%

2/20/2007 89.01 5.04% 13,101,120 69,614,538 6,196,390,027 2,007,975,000 3,764,083,155 8,204,365,027 8,108,516,917 0.006541 8,105,896,107.50 0.2845%

2/21/2007 88.75 5.05% 13,082,660 69,614,538 6,178,290,248 2,007,975,000 3,764,083,155 8,186,265,248 8,090,302,487 -0.002249 8,087,614,496.85 -0.1410%

2/22/2007 88.63 5.07% 13,072,100 69,614,538 6,169,936,503 2,007,975,000 3,764,083,155 8,177,911,503 8,081,598,133 -0.001076 8,078,882,739.00 -0.0808%

2/23/2007 87.18 5.05% 13,025,540 69,614,538 6,068,995,423 2,007,975,000 3,764,083,155 8,076,970,423 7,981,534,614 -0.012459 7,978,385,477.20 -0.3568%

2/26/2007 87.02 5.05% 13,009,220 69,614,538 6,057,857,097 2,007,975,000 3,764,083,155 8,065,832,097 7,970,454,991 -0.001389 7,967,254,803.98 -0.1254%

2/27/2007 84.05 4.93% 12,557,440 69,614,538 5,851,101,919 2,007,975,000 3,764,083,155 7,859,076,919 7,767,335,880 -0.025814 7,762,982,822.54 -3.5345%

2/28/2007 85.74 4.96% 12,627,250 69,614,538 5,968,750,488 2,007,975,000 3,764,083,155 7,976,725,488 7,883,610,207 0.014859 7,879,940,633.52 0.5544%


Asset Values

Regency Debt and Preferred Equity: Probabil ity of Default from Bond Term Structure Simulation


Jonathan Smith

PR

OB

AB

ILITY OF D

EFAU

LT FRO

M B

ON

D TER

M STR

UC

TUR

E SIMU

LATIO

N


Asset Values


Asset Values


Probability of Default from Bond Term Structure

Bond Maturity Date Price (out of $100) Coupon Yield Interp RfR

Price of

RfR Bond

Default

Prob

Monthly

1 4/15/2014 $104.04 4.950% 1.252% 0.162% 105.27 0.143%

2 8/1/2015 $108.96 5.250% 1.432% 0.292% 111.84 0.213%

3 6/15/2017 $114.64 5.875% 2.257% 0.637% 122.03 0.338%

4 6/15/2020 $115.71 6.000% 3.531% 1.304% 132.47 0.443%

5 4/15/2021 $110.71 4.800% 3.284% 1.492% 125.16 -0.549%

Inputs: Other Date

Next

Maturing

Bond

PV Recovery

Bond 1

Default

Probabi l i ty

PV Recovery

Bond 2

Default

Probabi l i ty

PV Recovery

Bond 3

Default

Probabi l i ty

PV Recovery

Bond 4

Default

Probabi l i ty

PV Recovery

Bond 5

Default

Probabi l i ty

surviva l

probabi l i ty

Bond Coupon Frequency (x/yr) 2 8-Mar-13 100%

Recovery Rate 40% 8-Apr-13 1 40.00 0.14% 40.00 0.14% 40.00 0.14% 40.00 0.14% 40.00 0.14% 100%

Settlement Date 8-Mar-13 8-May-13 1 42.47 0.14% 39.99 0.14% 39.99 0.14% 39.99 0.14% 42.39 0.14% 100%

8-Jun-13 1 42.47 0.14% 39.99 0.14% 39.99 0.14% 39.99 0.14% 42.39 0.14% 100%

Inputs: Term Risk Free Bonds 8-Jul-13 1 42.46 0.14% 39.99 0.14% 42.93 0.14% 42.99 0.14% 42.39 0.14% 99%

Tenor (Years) Dates Rates 8-Aug-13 1 42.46 0.14% 42.61 0.14% 42.92 0.14% 42.98 0.14% 42.38 0.14% 99%

0.083333333 8-Apr-13 0.08% 8-Sep-13 1 42.45 0.14% 42.60 0.14% 42.91 0.14% 42.98 0.14% 42.38 0.14% 99%

0.25 8-Jun-13 0.07% 8-Oct-13 1 42.45 0.14% 42.60 0.14% 42.91 0.14% 42.97 0.14% 42.37 0.14% 99%

0.5 8-Sep-13 0.11% 8-Nov-13 1 44.91 0.14% 42.59 0.14% 42.90 0.14% 42.97 0.14% 44.76 0.14% 99%

2 8-Mar-15 0.24% 8-Dec-13 1 44.91 0.14% 42.58 0.14% 42.90 0.14% 42.96 0.14% 44.76 0.14% 99%

3 8-Mar-16 0.37% 8-Jan-14 1 44.90 0.14% 42.58 0.14% 45.83 0.14% 45.95 0.14% 44.75 0.14% 99%

5 8-Mar-18 0.79% 8-Feb-14 1 44.89 0.14% 45.19 0.14% 45.82 0.14% 45.94 0.14% 44.74 0.14% 98%

10 8-Mar-23 1.92% 8-Mar-14 1 44.89 0.14% 45.18 0.14% 45.81 0.14% 45.94 0.14% 44.74 0.14% 98%

8-Apr-14 1 44.88 0.14% 45.18 0.14% 45.80 0.14% 45.93 0.14% 44.73 0.14% 98%

8-May-14 1 44.87 0.14% 45.17 0.14% 45.79 0.14% 45.92 0.14% 47.12 0.14% 98%

8-Jun-14 2 45.16 0.21% 45.78 0.21% 45.91 0.21% 47.11 0.21% 98%

8-Jul-14 2 45.15 0.21% 48.71 0.21% 48.89 0.21% 47.10 0.21% 98%

8-Aug-14 2 47.76 0.21% 48.70 0.21% 48.88 0.21% 47.09 0.21% 97%

8-Sep-14 2 47.75 0.21% 48.68 0.21% 48.87 0.21% 47.08 0.21% 97%

8-Oct-14 2 47.73 0.21% 48.67 0.21% 48.86 0.21% 47.06 0.21% 97%

8-Nov-14 2 47.72 0.21% 48.66 0.21% 48.85 0.21% 49.45 0.21% 97%

8-Dec-14 2 47.71 0.21% 48.65 0.21% 48.84 0.21% 49.43 0.21% 97%

8-Jan-15 2 47.70 0.21% 51.56 0.21% 51.81 0.21% 49.42 0.21% 96%

8-Feb-15 2 50.30 0.21% 51.55 0.21% 51.80 0.21% 49.41 0.21% 96%

8-Mar-15 2 50.29 0.21% 51.54 0.21% 51.79 0.21% 49.39 0.21% 96%

8-Apr-15 2 50.27 0.21% 51.52 0.21% 51.77 0.21% 49.38 0.21% 96%

8-May-15 2 50.25 0.21% 51.50 0.21% 51.75 0.21% 51.75 0.21% 95%

8-Jun-15 2 50.23 0.21% 51.48 0.21% 51.73 0.21% 51.73 0.21% 95%

8-Jul-15 2 50.21 0.21% 54.38 0.21% 54.70 0.21% 51.71 0.21% 95%

8-Aug-15 2 50.19 0.21% 54.36 0.21% 54.68 0.21% 51.69 0.21% 95%

8-Sep-15 3 54.34 0.34% 54.66 0.34% 51.67 0.34% 94%

8-Oct-15 3 54.32 0.34% 54.63 0.34% 51.65 0.34% 94%

8-Nov-15 3 54.30 0.34% 54.61 0.34% 54.01 0.34% 94%

8-Dec-15 3 54.28 0.34% 54.59 0.34% 53.98 0.34% 93%

8-Jan-16 3 57.17 0.34% 57.54 0.34% 53.96 0.34% 93%

50%

70%

90%

survival probability

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