BACKGROUND OF M MCCARTY
Appendix 2 - Page 1
CONFIDENTIAL
APPENDIX 1
Michiel C. McCarty Curriculum Vitae
MICHIEL C. MCCARTY Chief Executive Officer and Chairman
M.M. DILLON & CO., LLC
One Sound Shore Drive
Greenwich, CT 06830
Tel: (203) 569-6823
PROFESSIONAL EXPERIENCE
M.M. Dillon & Co., LLC 2009-Present
Chief Executive Officer, Chairman and Founding Partner
Founding Partner of the firm, which was spun out of CRT Capital, and serve as its CEO and
Chairman. M.M. Dillon operates as an independent investment banking firm for corporations.
M.M. Dillon provides financial advisory services related to mergers and acquisitions,
restructurings and financings. Head of the operating and compensation committees with
approximately 25% of time to supervisory activities.
CRT Capital Group LLC 2003-2008
Head of Investment Banking
One of the three partners involved in managing the overall business, which included an active
public issuing business with 44 public equity transactions and 13 debt transactions completed in
four years. Additionally, CRT Capital included a 52 person sales and trading operation, 18
research professionals and 20 administrative personnel all interacting with 1,800 institutional
clients trading fixed income and equities. Headed the commitment committee and oversaw all
corporate fund raising with approximately 25% of time devoted to supervisory activities.
Gleacher Partners LLC
(Gleacher Natwest Inc., Gleacher & Co.)
1996-2003
Managing Director
One of the senior partners managing Gleacher, a boutique investment bank involved in M&A,
private placements, restructurings and public fund raising. From January 1996 to February 1999,
Gleacher was also involved in equities and debt sales, research and trading. Headcount at
Gleacher varied between 50 and 450 people. Involved in the commitment process and the
oversight of placements and securities activities, with approximately 25% of time devoted to
supervisory activities.
BACKGROUND OF M MCCARTY
Appendix 2 - Page 2
CONFIDENTIAL
MICHIEL C. MCCARTY (continued)
SG Warburg & Co., Inc. 1991-1995
Managing Director, Head of U.S. & Latin America Investment Banking, Member of the Group
Management Committee and Member of the Group Executive Committee
Served as the head of the management committee of the U.S. subsidiary of this integrated UK
investment bank. The U.S. subsidiary had 500-750 people, with sales, trading, research and
investment banking activities involved in debt, equity and derivative markets. Ran the
commitment process for all fund raising and oversaw the placement activity for all fund raising,
including over 100 public offerings in four years with approximately 50% of time devoted to
supervisory activities. Head of U.S. and Latin America Investment Banking and on the Group
Management Committee and Group Executive Committee.
Dillon Read & Co. Inc. 1979-1991
Managing Director, Head of Equity and Debt Issuing Committee, Member of the Management Committee
Executive in charge of all equity and debt issuance by corporate clients and headed the screening
and commitment process for all new fund raising. Jointly oversaw the sales and placement
activity for equities and debt, which numbered over 70 public offerings over five years, with
approximately 25% of time devoted to supervisory activities. Responsible for International
Investment Banking and the Telecom and Technology sector.
Citicorp, NA 1975-1979
Vice President, Merchant Banking Group
Involved in the origination and placement of debt securities for corporate clients and the
execution of mergers and acquisitions and restructurings. I devoted approximately 10% of my
time to supervisory activities.
EDUCATION
The Wharton Graduate School of Business, University of Pennsylvania, M.B.A., 1975
Vanderbilt University, B.A. in physics with honors, 1973
PROFESSIONAL CERTIFICATIONS
FINRA series 7, 24, 63
BACKGROUND OF M MCCARTY
Appendix 3 - Page 1
CONFIDENTIAL
APPENDIX 2
Michiel C. McCarty Expert Witness Experience
Michiel C. McCarty Expert Witness Experience – Last Four Years
In MPM Silicones LLC et al
Case No. 14-22503 (RDD)
Adversary Proceeding
No. 14-08227 (RDD)
United States Bankruptcy Court
Southern District of New York
Testimony, Expert Report
In Duke Energy Corporation
2013
Case No. A-12-CA-009-SS
The United States District Court
For The Western District Of Texas
Austin Division
Deposition, Expert Report
In re Hillcrest IV, LLC
December 2012
Cause No. DC-11-13282
District Court Of Dallas County, Texas
162nd Judicial District
Expert Report
In re Verizon Communication, Inc.
October 15 – October 26, 2012
Case No. 3:10-CV-1842-G
United States Court for the Northern District of Texas – Dallas Division
FINRA hearings, three cases involving CRT Capital
2011-2012
- Expert witness regarding investment banking related topics
In re Molecular Insight Pharmaceuticals, Inc.
January 14, 2011 (trial), May 5, 2011 (trial)
Case No. 10-23355
United States Bankruptcy Court, Eastern District of Massachusetts –
Boston
Page 2 M.M. Dillon
M.M. Dillon- Selected Expert Witness Experience
Page 3 M.M. Dillon
Michiel Michiel McCarty Background. McCarty –
The Wharton School of
Finance and Commerce–
MBA, Finance , 1975
Vanderbilt University – BA
Physics with honors, 1973
University Lecturer
• Dartmouth
Tuck School
• University of
Pennsylvania Wharton
School
• Vanderbilt University
Owen School
• Vanderbilt University
School of Law
• University of Chicago
Booth School
Education Employment
2009 – Present
• M.M. Dillon & Co.
• Chairman & CEO
2003 – 2008
• CRT Capital Group
LLC
• Managing Director
• Head of Investment
Banking
1996 – 2003
• Gleacher & Co. LLC.
• Managing Director
• Head of Issuing
1991 – 1995
• SG Warburg & Co.
• Managing Director
• Head of North and
South America
Investment Banking
1979 – 1991
• Dillon Read & Co. Inc.
• Managing Director
• Head of Client
Financings
1975 – 1979
• Citicorp NA- Merchant
Banking Group
• Vice President
Selected Clients
Telecom
• ATT
• NYNEX
• Bell Atlantic
• MCI
• GTE/Sprint
• PacTel
• Deutsche Telekom
• Verizon
Technology
• AMD
• IBM
• Intel
• Ericsson
• Alcatel
• Wang Computers
• NCR
Other
• Fannie Mae
• Blue Green
• Westway
• Marriott
• Disney
Experience
Equity Offerings
Debt Offerings
Convertible Securities
High Yield Debt
Leveraged Finance
Distressed Securities
Mergers & Acquisitions
Fairness Opinions
Spin-offs
Investment Banking
Management
Due Diligence Committees
Expert Testimony
Principal Investing
Page 4 M.M. Dillon
M.M. Dillon- Expert Witness Experience M McCarty
In re MPM Silicones, LLC et al
August 2014
Case No. 14-22503 (RDD)
United States Bankruptcy Court
Southern District of New York
In re Duke Energy Corporation
March 2013
Case No. A-12-CA-009-SS
The United States District Court
For The Western District Of Texas- Austin Division
In re CBRE Hillcrest IV, LLC
December 2012
Cause No. DC-11-13282
District Court Of Dallas County, Texas- 162nd Judicial District
In re Verizon Communication, Inc.
October 15 – October 26, 2012
Case No. 3:10-CV-1842-G
United States Court for the Northern District of Texas – Dallas Division
FINRA hearings, three cases involving CRT Capital
2011-2012 New York based Arbitration Hearings
In re Molecular Insight Pharmaceuticals, Inc.
January 14, 2011 (trial), May 5, 2011 (trial)
Case No. 10-23355
United States Bankruptcy Court, Eastern District of Massachusetts – Boston
Page 5 M.M. Dillon
Michiel Randall Lambert Background. McCarty –
Kellogg Graduate School
of Management at
Northwestern University–
MBA, 1987
University of Michigan
Ross School of Business–
BA Business Administration
1979
Professional Qualifications
• Charter Financial
Analyst (CFA)
• Certified Public
Accountant (CPA)
• FINRA licenses- 7, 63
and 24
• Bankruptcy Liquidation
Trustee
• Bankruptcy Litigation
Trustee
Education Employment
2009 – Present
• M.M. Dillon & Co.
• Senior Managing
Director
• Head of Restructurings
2007- 2008
• CRT Capital Group
LLC
• Managing Director
• Head of Restructurings
2005 – 2006
• Saybrook Capital
• CEO
1997 – 2004
• Chanin Capital
Partners
• Managing Director
• Head of NY and
London offices
1988 – 1996
• BDS Securities.
• Managing Director
• Head of Trading
Selected Clients
Restructurings
• Delphi Corp
• Sinclair
Broadcasting
• Constar
• Primus
• TOUSA
• Federal Mogul
• Adelphia
• Refco
• Footstar
• Global Crossing
• Hayes Lemmerz
• Safety Kleen
• Comdisco
• Sunbeam
Testimony
• Intel
• Mirant
• Semi-Tech
• Grove
• Southmark
Experience
Debt Offerings
High Yield Debt
Leveraged Finance
Distressed Securities
Restructurings
Solvency Opinions
Spin-offs
Trade Credit
Due Diligence Committees
Expert Testimony
Principal Investing
Trading and Sales
Page 6 M.M. Dillon
M.M. Dillon- Expert Witness Experience R Lambert
Lambert Litigation Testimony
Intel
Primus Telecommunications Group, Inc.
Federal Mogul Corporation
Primus Telecommunications Group, Inc.
Mirant Litigation Trust
Adelphia Communications
Drypers
Grove Worldwide
Stellex
Paragon Trade Brands
Paul Harris Stores
Southmark
Year
2014
2009
2007
2007
2006/2007
2004
2001
2001
2000
1999/2003/2005
1992
1989
Page 7 M.M. Dillon
M.M. Dillon- Expert Witness Legal References
Counsel References
Ken Eckstein
Phil Anker
Ray Guy
Gerry Pecht
Matt Stammel
Jeff Sabin
James Weingarten
Hector Gonzalez
Nancy Delaney
Firm
Kramer Levin
Wilmer Cutler
Weil Gotshal
Fulbright (Norton Rose)
Vinson & Elkins
Bingham
Williams & Connolly
Dechert
Curtis
Page 8 M.M. Dillon
M.M. Dillon Selected Expert Witness Summaries
Credit Suisse v
Highland
Retained by Weil Gotshal, counsel for the Defendant Credit Suisse as an expert witness in the areas
of investment banking, capital markets and private equity related to the cases of financing several
luxury planned resort communities involving Highland Capital Management the Plaintiff. The
transactions in question had total value of over $7 billion with damage claims in excess of that number
Momentive
Performance Materials
Retained by Dechert for the Defendant The Bank of New York Mellon Trust Company for those who
hold the debt of Momentive Performance Materials, as an expert witness in the areas of investment
banking, capital markets and private equity in connection with the issuance by MPM of $1.1 billion of
Senior Secured Notes as part of the 2012 refinancing of the leveraged buyout of MPM by Apollo
Duke/
Crescent Resources
Retained by Fulbright counsel for the defendant Duke Energy Corporation as an expert witness in
the areas of investment banking, capital markets and private equity related to the spin off transaction
of Crescent Resources involving the Litigation Trust as the Plaintiff. The transaction in question had
aggregate value of over $4 billion with damage claims in excess of that number
Verizon/
IDEARC
Retained by Wilmer Cutler as counsel for Defendants Verizon Communications to provide expert
testimony in the areas of investment banking, capital markets and private equity related to the spin off
of IDEARC Media from Verizon involving U.S. Bank National Association as the Plaintiff. The
transaction in question had a total aggregate value of over $14 billion with claimed damages in excess
CBRE v
Highland
Retained by Vinson & Elkins as counsel for the defendant CBRE as an expert witness in the areas of
investment banking and capital markets related to the refinancing of the Lake Las Vegas real estate
project with Highland Capital as Plaintiff. The project in question had an aggregate value in excess of
$1.0 billion with damage claims exceeding $550 million
MIPI v
Secured Lenders
Retained by Kramer Levin counsel for the debtor in possession MIPI as an expert witness in
investment banking and restructurings and advisor to the company related to a dispute between the
debtor and it’s secured lenders during the bankruptcy process and a potential cram down of the
secured lenders by new equity holders
Intel v
Lehman
Retained by Williams & Connolly as counsel for Intel Corporation as an expert witness in
investment banking to testify related to litigation on the subject of Lehman’s cost of funding while
Lehman was in liquidation mode after filing bankruptcy. The amounts in question exceeded $1 billion
Page 9 M.M. Dillon
M.M. Dillon Broad Product Capability
M.M. Dillon can
provide truly
objective advice and
structure innovative
solutions for its
clients across all
traditional areas of
investment banking
We currently offer
this broad capability
of product offering
that is not available
to smaller more
narrowly focused
boutiques to a
diverse set of
corporate clients
Advisory
Private Equity
● Venture, Emerging Growth and
Recapitalizations
Private and Public Debt
● Investment Grade
● High Yield
● Convertible
● Mezzanine
Public Equity
● IPOs
● Follow-Ons and Secondary
Offerings
● PIPEs and RDs
Mergers & Acquisitions
● Buy-Side
● Sell-Side
● Joint Venture
● Shareholder Rights Plans
Restructuring
● Advisory
● Out-of-Court Services
● Stakeholder Representation
● Bankruptcy Services
Fairness / Solvency Opinions
General Advisory
Financings
Page 10 M.M. Dillon
M.M. Dillon Equity Capital Markets
Since 2004, M.M. Dillon and their senior
professionals have led or participated in
over 40 IPOs and secondary offerings,
representing approximately $30 billion in
gross proceeds with over 70% as lead or
co-lead manager
Seasoned bankers with deep domain
expertise advise clients on preparation,
positioning and marketing
Expertise in structuring, pricing and
execution of equity offerings
• Access to global small-, mid- and large-cap
investors
• Interaction with a large universe of Hedge
Funds
• Deep relationship with hundreds of Private
Equity Funds
M.M. Dillon’s senior
professionals bring
deep public market
expertise and sector
knowledge to its
corporate clients
Solazyme, Inc.
$227,182,500
Initial Public Offering
Selling Group Participant
Selected Transactions
Co-Manager
$102,637,500
Initial Public Offering
SemiLEDs Corporation
HCA Holdings, Inc.
Co-Manager
$3,786,000,000
Initial Public Offering
Kips Bay Medical, Inc.
$16,500,000
Initial Public Offering
Co-Manager
RDA Microelectronics, Inc.
Co-Manager
$77,625,000
Initial Public Offering
MakeMyTrip Limited
Selling Group Participant
$125,856,000
Secondary Offering
Co-Manager
$5,000,000,000
Series B Preferred Stock
Co-Manager
$18,140,100,000
Initial Public Offering
General Motors Company General Motors Company
Sole Manager
$53,562,654
Secondary Offering
Synthesis Energy Systems,
Inc.
Co-Manager
$91,547,730
Initial Public Offering
Alpha & Omega
Semiconductor, Ltd.
Co-Manager
$195,443,286
Initial Public Offering
Net Logic Microsystems Inc.
Book-Running Manager
$20,600,000
Secondary Offering
Primus Telecommunications
Group Inc.
Page 11 M.M. Dillon
Strong Private Placement, PIPE and Registered Direct Capability
• Traditional private equity for early-, mid- and
later-stage private companies
• Capital for expansion, acquisition or
recapitalization
• Access to multiple investor channels: venture
capital, private equity, hedge funds / crossover
and strategic
Traditional Private
Placements
PIPEs &
Registered Directs
SPACs &
Special Situations
• Privately-marketed transactions for public
companies
• Target investors include mutual funds and
hedge funds
• Special purpose investment vehicles to facilitate
an acquisition of an operating company or assets
• Reverse mergers with publicly-listed shell
companies, often with a simultaneous capital
raise
M.M. Dillon offers its
corporate clients the
full spectrum of
private capital
solutions involving:
Private Equity,
Hedge Funds,
Traditional Long
Only Managers and
High Net Worth
Individuals
Page 12 M.M. Dillon
Well-Established Middle Market Financial Advisory Franchise
• Exclusive sales
• Buy-side advisory
• Joint venture and licensing
• Takeover defense
Mergers & Acquisitions
Restructuring Advisory
• Debtor advisory
• Creditor advisory
• In-court and out-of-court services
• Solvency opinions
M.M. Dillon’s
financial advisory
capabilities
encompass M&A,
restructuring and
general advisory
engagements
We build long-term
relationships with
our clients by
providing truly
objective and expert
advice in all
assignments
We seek to serve as
our clients’ trusted
advisor and assist
them in building and
realizing shareholder
value
SelectedTransactions
National Patent
Development Corporation
QuantaSol Ltd.
Sale of QuantaSol to
JDS Uniphase
Financial Advisor
Molecular Insight
Pharmaceuticals, Inc.
Takata Corporation
New Penn Motor
Express, Inc.
Syntiron, LLC
Sinclair Broadcast
Group Inc.
Primus Telecommunications
Group Inc.
Shermen WSC Acquisition
Corp.
Constar International Inc. Arcadia Resources, Inc. Environmental Power
Corporation
Financial Advisor Financial Advisor
Sale of assets of its Home
Health Equipment business
Sale of its Industrial Staffing
business
Financial Advisor
Financial Advisor
Financial Advisor
Financial Advisor
Financial Advisor
Financial Advisor
Financial Advisor to Official
Committee of Unsecured
Creditors
Financial Advisor
Financial Advisor
Restructuring
Sale of its Five Star Products
division to The Merit Group
Licensing Advisory
Restructuring
$500,000,000
$200,000,000
Restructuring
$830,000,000
Acquired the Westway division
of ED&F Man
Restructuring
$575,000,000
Fairness & Valuation
• Fairness opinions
• Portfolio valuations
• Special committee advisory
Page 13 M.M. Dillon
M.M. Dillon Ranked Restructuring Advisory Practice
The following slides discuss the services that M.M. Dillon’s Restructuring Advisory Group
can provide to companies and investors to help maximize the value of their investments in
a difficult market environment
M.M. Dillon’s Restructuring Advisory Group professionals have over fifty years of
experience in financial restructuring and have completed more than $100 billion dollars in
transactions
M.M. Dillon's’ services include:
● Distressed capital raising
● Exchange offers
● Pre-packaged filings
● Debtor-side advisory
● Distressed asset sales
● Fairness and solvency opinions
Targeted clients include:
● Middle market companies
● Bankruptcy estates
● Noteholder committees
● Creditor committees
● Equity committees
M.M. Dillon’s
IB team of
professionals
competes
with all of the
major
restructuring
advisory
firms.
The group
has deep
experience
working for
debtors,
creditors and
equity
committees
Page 14 M.M. Dillon
M.M. Dillon Bankruptcy Related Services
DIP Financing Assess the need for, analyze the terms of, and procure debtor-in-possession
financing prior to or after a bankruptcy filing
Chapter 11 Plan of
Reorganization
Analyze, construct, negotiate and confirm consensual or contested plans of
reorganization
Sale or Purchase of Assets,
Claims or Entire Company
Analyze, structure, negotiate and close a sale or purchase of assets, claims,
corporate segments, or the entire company, pursuant to Section 363 or for a
tender offer or plan of reorganization
Litigation Support and
Expert Testimony
Provide financial analysis and advice in Chapter 11 litigation matters, such as
fraudulent conveyance, preference actions and contingent claims, and provide
expert testimony by senior professionals on these issues and the other matters
Post-Emergence Financing Arrange new post-reorganization financing through existing creditors or new
investors
Market Making and Research
of New Securities
Trade and make markets in post-reorganization securities
Raise New Equity and Debt
for Companies with Improving
Credit
Find lower cost financing through capital markets as a company’s credit quality
improves. Provide market-based exit strategies for holders of post-reorganization
securities
Page 15 M.M. Dillon
Sea Dragon Healthcare Partners, L.P. (“SDHP”) is based off the investment
track record of its Managing Partner Danny Frank, who has successfully
invested over $400 million in both private and public healthcare companies
over the past decade
Top decile performance
$400 million aggregate capital infused
9 portfolio investments
5 liquidity events
1 write-off
Right size fund / investments
Capital size enough to be able to match company needs and tied to key
milestones
Leverage skill base to investment needs (advisory / board seat / strategic /
regulatory)
Enough capital to help affect change if / as needed (public)
One-stop shopping for critical capital / advisory (Dillon)
Defined opportunities in the pipeline
Can lead investments / partner or co-invest
Quick turnarounds
Sound fundamental approach
Large market opportunities
Defined risks / capital needs / not crossing a huge technological hurdle / not
looking for “revolution” but rather high probability evolution
Working capital for expansion / growth
Managing Partner Track Record
As of 3/31/11 SDHP
Multiple on Invested Capital 1.9x
Substantially Realized Investments
IRR(1)
Gross IRR(1)
Total Return Target 2x – 3x
Cambridge Associates VC Benchmark
(2000-2009)
Healthcare/Biotech 8.4%
Healthcare Devices 4.8%
Pharmaceuticals 13.3%
(1) To be disclosed verbally
M.M. Dillon Private Equity- Healthcare
Page 16 M.M. Dillon
SDHP is part of Dillon and thus benefits from the Healthcare concentration of
the banking professionals focused in the target areas of investment
Investment Banking Healthcare Coverage
Medical Devices
Healthcare Services
Biotechnology
Specialty Pharmaceuticals
Benefits of integration with Dillon
Larger footprint of contacts
Capital markets and transaction knowledge base
Investment opportunity pipeline
M.M. Dillon Private Equity- Healthcare
Page 17 M.M. Dillon
Five Year History Integrated IB Success Inside of CRT
32
30
11
Financing
18
16
15
13
11
53
10
6
4
IB Revenue Product Focus
Geographic Focus Industry Focus
Total of 73 closed fee producing transactions
Spread between all three major products
IB total fees of over $130 million in five years
EBITDA of $40 mm with Comp of $85 mm divided
$45 Banking, $20 mm Floor & $20 mm Research
Floor and Research also paid for Trading Volume
Restructuring
Advisory
North America
South America
Asia
Europe Energy
Other
Technology,
Media, Telecom
Industrials
Healthcare
Page 18 M.M. Dillon
Five Year History Integrated IB Success Inside of CRT
13
11
6
5
3
$1,486
$577
$474
$362
$143
25
18
16
$3,140
$776
$220
Financing (# Deals by Type) Advisory (# Deals by Type)
Financing Transaction Value Advisory Transaction Value
Restructuring
Buy/Sell-Side
Advisory
General Advisory
Equity Private
Placements
Initial Public
Offerings
Follow-on/PIPEs
Convertible Debt
Offerings
Debt (excl.
Convertibles)
Equity Private
Placements
Initial Public
Offerings
Follow-on/PIPEs
Convertible Debt
Offerings
Debt (excl.
Convertibles)
Buy-Side
Advisory
Sell-Side
Advisory
General Advisory
Page 19 M.M. Dillon
M.M. Dillon Investment Banking Professionals
Heartland Industrial Partners
Morgan Lewis Githens & Ahn
Smith Barney Harris Upham
50 Years
Senior Managing Director at
Heartland Industrial Partners
Founder and Managing Director
at Morgan Lewis Githens & Ahn
CRT Capital Group LLC
UBS Warburg
PaineWebber
34 Years
Managing Director in M&A Group
at UBS Warburg
Head of M&A at PaineWebber
Royal Bank of Canada
Bank of America
Smith Barney
36 Years
Head of Energy Banking at RBC
Head of Energy Banking at
Bank of America
Head of Energy Banking at
Smith Barney
5 Gems Strategic Advisory
Aureon Labs
JC Decaux
13 Years
Co-Founder of Aureon Labs
Head of Strategy and Chief
Technology Officer of JC
Decaux
Chanin Capital
Duff & Phelps
15 Years
Vice President at
Chanin Capital Partners
Vice President at Duff & Phelps
Michiel McCarty Head of Banking
Gleacher Partners
SG Warburg
Dillon Read
39 Years
Managing Director at Gleacher
Head of U.S. & Latin America
Investment Banking at SG
Warburg
Houlihan Lokey
AXA Financial
JP Morgan
11 Years
Corporate Strategy Advisor at
AXA Financial
Associate, Energy Group at
Houlihan Lokey and JPMorgan
John Beneke Chief Financial Officer
Morgan Stanley
Merrill Lynch
25 Years
Managing Director in Morgan
Stanley Finance Division
Controller for Morgan Stanley
Global Investment Banking
Ducker Advisory
Thomas Weisel Partners
Morgan Stanley
25 Years
Head of Advisory at Ducker
Worldwide
Automotive Equity Research
Analyst at Thomas Weisel
Partners and Morgan Stanley
2 Years
Bridgewater Associates
CRT Capital
11 Years
Vice President
Bridgewater
Caris & Company
Life Science Partners
Credit Suisse, Goldman Sachs
22 Years
Managing Director of Life
Sciences at FBR Capital Markets
Biotechnology Equity Research
Analyst at Credit Suisse and
Goldman Sachs
Novartis Pharma
Workscape
IMS Healthcare
21 Years
Chief Financial Officer of Novartis
Pharma, Workscape and IMS
Healthcare
GE Financial Staff
Multiple Boards of Directors
CRT Capital Group LLC
Salomon Smith Barney
30 Years
Managing Director Salomon
Smith Barney High Yield and
Leverage Finance Capital
Markets
Doug Harvey Managing Director
Cerberus Capital Management
Fidelity Investments
32 Years
Managing Director at Cerberus
Capital Management
Founding Manager of Fidelity
Special Situations / Strategic
Value Fund
George Bickerstaff Managing Director
Doug Harvey Managing Director
Michael Espinal Senior Vice President
Carl Miller Senior Vice President
Ryan Fitzgerald Analyst
Chris Hepler Senior Vice President
Bob Hastings Advisory Director
Chad Weiss Advisory Director
Olivier Saidi Managing Director
Michiel McCarty Chief Executive Officer
John Beneke Chief Financial Officer
Scott Merlis Managing Director
Jeff R. Swarz, Ph.D. Managing Director
Daniel Frank Head of Asset Management
Perry Lewis Advisory Director
Randall Lambert Managing Director
CRT Capital Group
Saybrook Capital
Chanin Capital
35 Years
Head of Restructuring at CRT
Head of New York and London at
Chanin
Head of Sales & Trading at BSG
Page 20 M.M. Dillon
M.M. Dillon Selected Restructuring Experience
$50,000,000
Distressed Refinancing
Financial Advisor
December 2007
$200,000,000
Restructuring
Financial Advisor to the Company
February 2009
$80,000,000
Solvency Opinion
Financial Advisor to the Board of
Directors
July 2006
$20,000,000
Financial Advisory
Financial Advisor to the Board of
Directors
September 2007
Financial Advisory
Financial Advisor and agent in debt
repurchase program
December 2008
Financial Advisory
Financial Advisor
August 2007
$1,000,000,000
Financial Advisory
Financial Advisor to Underwriter
Counsel
August 2008
$57,200,000
Solvency Opinion
Financial Advisor to the Board of
Directors
February 2007
$35,000,000
Financial Advisory
Financial Advisor to the Shareholder
Counsel
June 2008
$20,000,000,000
Restructuring
Financial Advisor to the Official
Committee of Equity Holders
January 2007
$130,000,000
Debt Exchange
Financial Advisor to the Company
May 2008
$16,800,000,000
Restructuring
Financial Advisor to the Ad Hoc
Committee of Equity Holders
December 2006
$2,000,000,000
Financial Advisory
Financial Advisor to the Majority Equity
Holder
February 2008
Restructuring
Financial Advisor
September 2011
Healthcare Services
Company
Restructuring
Financial Advisor to the Debtors
July 2010
$830,000,000
Restructuring
Financial Advisor to the Company
November 2009
$600,000,000
Restructuring
Financial Advisor to the Debtors
July 2009
$500,000,000
Restructuring
Financial Advisor to Official Committee
of Unsecured Creditors
May 2009
$27,000,000
Debt Restructuring
Financial Advisor to the Company
March 2009
Restructuring
Financial Advisor to the Acquirer of
Distressed Assets
February 2010
Financial Advisory
Financial Advisor
November 2007
Financial Advisory
Financial Advisor
February 2007
$2,700,000,000
Financial Advisory
Financial Advisor to the Asbestos
Insurers
June 2007
Financial Advisory
Financial Advisor
July 2006
Page 21 M.M. Dillon
M.M. Dillon Selected Financing Transactions
$8,273,078 $227,182,500 $125,856,000 $5,200,000 $5,000,000 $4,353,900,000
Series A Preferred Stock Initial Public Offering Follow On Offering PIPE Series A Preferred Stock Initial Public Offering
Placement Agent Selling Group Participant Selling Group Participant U.S. Placement Agent Placement Agent Co-Manager
Sep 2011 May 2011 May 2011 March 2011 March 2011 March 2011
$16,500,000 $102,637,500 $77,625,000 $18,140,100,000 $5,000,000,000 $10,000,000
Initial Public Offering Initial Public Offering Initial Public Offering Initial Public Offering Series B Preferred Stock Series B Preferred Stock
Co-Manager Co-Manager Co-Manager Underwriter Underwriter Sole Placement Agent
February 2011 December 2010 November 2010 November 2010 November 2010 October 2010
Undisclosed $345,000,000 $19,200,000 $91,547,730 $195,443,286 $43,000,000
Senior Credit Facility &
Private Placement Convertible Senior Notes Registered Direct Initial Public Offering Follow On Offering Preferred Stock
Placement Agent U.S. Placement Agent Financial Advisor Co-Manager Selling Group Participant Sole Placement Agent
August 2010 May 2010 May 2010 April 2010 March 2010 February 2010
$13,200,000 $2,300,000 $5,500,000 $30,000,000 $115,000,000 £32,000,000
Private Placement Convertible Debt PIPE Registered Direct Revolving Factoring Line Convertible Debt PIPE Equity Private Placement
Joint Lead Manager Lead Placement Agent Co-placement Agent Sole Placement Agent Co-Placement Agent Sole Placement Agent
December 2009 August 2009 March 2009 July 2008 July 2008 June 2008
Page 22 M.M. Dillon
M.M. Dillon Selected Advisory Transactions
National Patent
Development Corporation
Financial AdvisoryHas been acquired by JDS
UniphaseRestructuring Financial Advisory Financial Advisory The Merit Group
Financial Advisor Financial Advisor to Quantasol Financial Advisor Financial Advisor to Takata Financial Advisor to New Penn Financial Advisor
Pending July 2011 May 2011 January 2010 December 2009 December 2009
$149,000,000 $830,000,000 $600,000,000 has acquired Westway division of $500,000,000 sold its Industrial Staffing
division to
Licensing Advisory Restructuring Restructuring Restructuring
Financial Advisor
Financial Advisor Financial Advisor to Company Financial Advisor to Debtors Financial Advisor to Sherman to the Official Committee Financial Advisor to Arcadia
of Unsecured Creditors
December 2009 November 2009 July 2009 June 2009 July 2009 May 2009
sold assets of its Home Health sold assets of its Home Health $600,000,000 $200,000,000 Financial Advisory $1,000,000,000
Equipment division to Equipment division to
Restructuring Restructuring Financial Advisory
Financial Advisor and agent
Financial Advisor to Arcadia Financial Advisor to Arcadia Financial Advisor to Arcadia Financial Advisor to EMP in debt repurchase program Financial Advisor to
Underwriter Counsel
May 2009 May 2009 March 2009 February 2009 December 2008 August 2008
completed a $35,000,000 $130,000,000 $2,000,000,000 has acquired
consent solicitation S.A. Leão e Irmãos Açúcare Álcool
Financial Advisory Financial Advisory Debt Exchange Warrant Exchange Offer Financial Advisory
Financial Advisor to EMS Financial Advisor to Financial Advisor to Primus Dealer Manager to ATS Financial Advisor to Financial Advisor to
Shareholder Counsel Majority Equity Holder Brazil Ethanol
July 2008 June 2008 May 2008 May 2008 February 2008 January 2008
Page 23 M.M. Dillon
Contact Information
M.M. Dillon & Co.
One Sound Shore Drive
Greenwich, CT 06830
Tel: (203) 569-6800
www.mmdillon.com
M.M. Dillon & Co.
This presentation has been prepared by M.M. Dillon & Co. (“M.M. Dillon”) for the exclusive use of the party to whom M.M. Dillon delivers this presentation (the “Company”)
using information provided by the Company and other publicly available information. Distribution of this presentation to any person other than the Company and those
persons retained to advise the Company, who agree to maintain the confidentiality of this material and be bound by the limitations outlined herein, is unauthorized. This
material must not be copied, reproduced, distributed or passed to others at any time, in whole or in part, without the prior written consent of M.M. Dillon.
© 2014 M.M. Dillon. All rights reserved. M.M. Dillon specifically prohibits the redistribution of this material.
IN THE UNITED STATES DISTRICT COURTFOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
U.S. BANK NATIONAL ( No. 3:10-CV-1842-GASSOCIATION, Litigation Trustee (of the Idearc, Inc., et al. (Litigation Trust, (
Plaintiff, ((
vs. ((
VERIZON COMMUNICATIONS, INC, (VERIZON FINANCIAL SERVICES, LLC, (GTE CORPORATION and JOHN DIERCKSEN (
Defendants. ( October 26, 2012
__________________________________________________________
Volume 9BTranscript of Trial
Before the Honorable A. Joe Fish
__________________________________________________________
A P P E A R A N C E S:
For the Plaintiff: WERNER A. POWERS DAVID TAUBENFELDHAYNES & BOONE LLP 2323 Victory Avenue, Suite 700 Dallas, TX 75219 Phone: 214/651-5581 Email: [email protected]
NICHOLAS A. FOLEY DOUGLAS BUNCHERJOHN GAITHERNELIGAN FOLEY LLP Republic Center 325 N. St. Paul, Suite 3600 Dallas, TX 75201 Phone: 214/840-5330 Email: [email protected]
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
1
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
18:00
18:00
For the Defendants Verizon and GTE:
T. RAY GUY WEIL GOTSHAL & MANGES LLP 200 Crescent Court, Suite 300 Dallas, TX 75201 Phone: 214/746-7872 Email: [email protected]
REID M. FIGEL SCOTT H. ANGSTREICH KELLOGG, HUBER, HANSEN, TODD,EVANS & FIGEL, P.L.L.C. 1615 M Street, N.W., Suite 400 Washington, D.C. 20036Email: [email protected]: [email protected] Telephone: (202) 326-7900
PHILIP D. ANKERWILMER CUTLER PICKERING HALE AND DORR LLP 7 World Trade Center 250 Greenwich StreetNew York, New York [email protected] Telephone: (212) 230-8800
For the Defendant John Diercksen:
E. LEON CARTER J. ROBERT ARNETT, II CARTER STAFFORD ARNETT HAMADA & MOCKLER, PLLC 8150 N. Central Expressway, Suite 1950 Dallas, Texas 75206 Telephone: (214) [email protected]@carterstafford.com
Reported by: Cassidi L. Casey1100 Commerce Street, Rm 15D6LDallas, Texas 75242214-354-3139Email: [email protected]
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
2
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
18:00
18:00
MICHAEL MCCARTY
DIRECT EXAMINATION
BY MR. ANKER:
Q Good afternoon, Mr. McCarty.
A Good afternoon, Mr. Anker.
Q Have you been retained by the defendants to have
provide expert testimony in this case?
A Yes, I have.
Q Mr. McCarty, I want to ask you some questions
about your educational and employment background. Have
you created a demonstrative to help with that background?
A Yes, I have.
Q And DD 6.1. First
provide your educational back
A Starting in the lef
educational background, I rec
in physics with honors from i
that with a masters of busine
Wharton School of Finance, Un
1975.
Q Mr. McCarty, what d
A I'm an investment b
Q How long have you b
A My entire career, t
Q Without accounting
CASSIDI L. CASEY,UNITED STATES
MCCARTY - DIRECT - ANKER 7
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
13:35
13:36
o
g
t
e
n
s
i
o
a
e
h
b
CD
f all, can you briefly
round?
-hand column which is my
ived an undergraduate degree
Nashville and then followed
s administration from the
versity of Pennsylvania in
you do for a living?
nker, Mr. Anker.
en an investment banker?
irty-seven and a half years.
low by blow what you have
SR, 214-354-3139ISTRICT COURT
1
Michiel C. McCarty – Personal Background
The Wharton School of Finance and Commerce– MBA, 1975
Vanderbilt University – BA Physics with honors, 1973
University Lecturer
• Dartmouth Tuck School
• University of Pennsylvania Wharton School
• Vanderbilt University Owen School
• Vanderbilt University School of Law
• University of Chicago Booth School
Education Employment
2009 – Present
• M.M. Dillon & Co.
• Chairman & CEO
2003 – 2008
• CRT Capital Group LLC
• Managing Director
• Head of Investment Banking
1996 – 2003
• Gleacher & Co. LLC.
• Managing Director
• Head of Telecom and Technology
1991 – 1995
• SG Warburg & Co.
• Managing Director
• Head of North and South America Investment Banking
1979 – 1991
• Dillon Read & Co. Inc.
• Managing Director
• Head of Telecom and Technology
1975 – 1979
• Citicorp NA- Merchant Banking Group
• Vice President
Clients
Telecom
• ATT
• NYNEX
• Bell Atlantic
• MCI
• GTE/Sprint
• PacTel
• Deutsche Telekom
• British Telecom
• Level 3
Technology
• AMD
• IBM
• Intel
• Ericsson
• Alcatel
• Wang Computers
• NCR
• Great Nordic
• NetTest
• Monolithic Memories
Other
• Fannie Mae
Experience
Equity Offerings
Debt Offerings
Convertible Securities
High Yield Debt
Leveraged Finance
Distressed Securities
Mergers & Acquisitions
Fairness Opinions
Spin-offs
Investment Banking Management
Due Diligence Committees
Expert Testimony
Principal Investing
Defendants’ Demonstrative
DD 6.11U.S. Bank v. Verizon
3:10-CV-1842-G
done for thirty-seven and a half years? Can you briefly
recount your history?
A In the second column I have the full list. I
won't take the time of the Court to go through everything.
But my first investment banking job was with Citi Corp,
coming out of Wharton in 1975. Citi Corp at the time was
the largest financial institution in the world. During
that period, I had my first expert testimony and my first
telecommunications transaction. --
I left Citi Corp in 1979 to join Dillon Read
which was a major bracket investment bank which was
designated as one of the top ten investment banks in order
to be able to do a focus on telecom and technology
companies where I set up one of the first telecom media
technology groups in the early 1980's and headed it
throughout.
I left Dillon Read in 1981 to join SG Warburg,
the largest investment bank headquartered outside the
United States to take over their North and South American
operations and also head their TMT practice worldwide.
I left Warburg to join Gleacher Partners in 1996
also heading the telecom media and technology sector and
being one of the managing partners.
My present employment comes out of a firm that I
left Gleacher to go to, CRT Capital Group, which the
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 8
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
13:37
13:37
initials stand for credit research and trading. And that
firm specialized in trading debt securities with
institutions such as head funds and private equity groups.
I took over their investment banking practice and became
one of the managing partners.
I spun my investment banking practice out of CRT
Capital in 1970. I presently have that business. I'm
Chairman and CEO of what I have now renamed M.M. Dillon
and Company
Q I think you said you spun the practice out in
1979. Did you mean that?
A I misspoke. 2009.
Q Over the course of your thirty-seven years have
you had experience working with companies in the
directories space?
A Yes, my first experience was in 1981. I was
hired by Pacific Telecom, better known as Pactel. It was
one of the seven regional Bell operating companies.
Nicknamed the Baby Bells. The Pactel business was the
only one of the R box that was not wholly owned by AT&T.
This was pre-divestiture AT&T. And I was hired to
negotiate the minority purchase by AT&T of Pactel,
approximately 10 per cent of the common equity and 20
percent of the preferred equity. As part of that, I
valued the directories business of Pactel which covered
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 9
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
13:38
13:39
the West Coast of the United States, as part of the
overall valuation of Pactel in that purchase.
Q Do you have other experience with the
directories business?
A I do. As my third column, which I skipped in my
background, I have dealt with I believe six of the seven
regional Bell operating companies, all of whom have
directories businesses. In addition to that, I have dealt
with independents such as Sprint which is a twenty-year
client of mine which has a directory business they have
now sold. And several foreign operations: British
Telecom, Deutsche Telecom, France Telecom, all of whom
have directories businesses I have worked on.
Q Mr. McCarty, there has been a lot of testimony
in this case about the financing for the spin, which
aspect is high yield bonds. Have you had experience
dealing with high yield note or bond offerings?
A I have. I established the high yield business
while I was at Gleacher, and while I was at Dillon Read,
both of which included the origination of high-yield note
offerings and the sales, trading and research of those. I
have also overseen operations at Warburg and CRT Capital
in those areas.
Q Do you have experience with respect to high
yield note offerings from the lender's perspective as
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 10
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
13:40
13:41
distinguished from the borrower's perspective?
A I do. I have worked inside of three money
center banks -- Citi Corp and UBS which was the purchaser
of Warburg and RBS which was ultimately was the purchaser
of Gleacher. Inside each of those three money center
banks I have worked from a lender's and investor's
standpoint on both leveraged finance and high-yield notes.
Q Are you familiar with the term "leveraged loan"?
A I am.
Q And there has been testimony in this case about
the secured credit facility, Term Loan A and Term Loan B
revolver. In your parlance, do you describe them as
leveraged loan?
A The Term Loans A and B would fall into the
leveraged category for me.
Q An do you have experience from a borrower's,
issuer's and lender's perspective dealing with those
loans?
A I do. Three telecom experiences. I helped
Sprint, MFS -- which stands for Metropolitan Fiber
Systems -- and Level 3 Communications, another fiber
network company, raise tens of billions of dollars of
leveraged loans for the build out of their three networks.
Q Have you had experience working on credit
committees at banks considering whether to approve
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 11
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
13:42
13:42
participation in leveraged loan or high-yield debt
offerings?
A I have. I have been on commitment committees
since I made partner at Dillon Read in 1985. So for
twenty-seven years I have been part of the commitment
process with both high-yield and leveraged loans and other
transactions. The majority of those committees I have
headed.
Q Are you familiar with the term a "deal captain"?
A I am. It's traditionally in our business a
managing director in an investment bank who has primary
responsibility for a transaction.
Q Have you ever served as a deal captain?
A Pretty much every transaction since 1984 I have
been a deal captain.
Q Can you give the Court an aggregate amount of
money raised in those transactions?
A It would be in the hundreds of billions of
dollars.
Q Have you had any experience in your career
dealing with spin-offs?
A I have. In my business, every transaction or
potential transaction involves an unsolicited offer, a
spin-off transaction is analyzed as an alternative or
enhancement of value, and I have done dozens of
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 12
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
13:43
13:44
assignments for clients in that. And I have also looked
at spins in very much as a common everyday occurrence.
Q The left-hand column of DD 6.1 indicates
university lecturer. Can you briefly recount your
experience in teaching?
I have a continuing lecturing opportunity at both of my
alma maters. At Wharton School I have been a case
presenter which in case method is what they call the
person running through the case. I have been a lecturer
in capital markets, investment banking, restructuring
distressed markets and other issues. And at Vanderbilt I
have been a lecturer at the Owen School which is the
business school and the school of law on various subjects.
Beyond my alma mater, I have been a lecturer at Tuck
School of business and the Booth School of Business of
University of Chicago.
Q Have you ever testified with regard to matters
of investment banking?
A I have.
Q How many times?
A It's not a majority of my career. The majority
of my career by far is doing transactions, but I would
guess more than a dozen times.
Q Have you ever been excluded by a court from
providing expert testimony?
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 13
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
13:44
13:46
A No I have not.
MR. ANKER: Your Honor, we would move
Mr. McCarty as an expert in investment banking, lender and
due diligence and spin-off transactions.
THE COURT: Counsel for the plaintiff want to be
heard on that?
MR. KEATING: Your Honor, as with earlier times
that they have asked for this certification, we still
don't believe it's necessary under the rule. I do not
believe that he has identified any subject area that is
really the proper area of expert testimony. It's a fact
about what actual lenders did as due diligence. Your
Honor has heard investment bankers who were involved in
the spin-off come in and say this is what we did in due
diligence.
With all respect to Mr. McCarty, he wasn't
involved in the spin-off. So this is just a means of
bringing in a retained witness to speculate about what
lenders did rather than presenting those lender's
testimony or the documents from the lender's files that
document whether they did due diligence or not to the
Court.
THE COURT: I don't know what testimony
Mr. McCarty will be giving in this case is. So that
remains to be seen. And I'll evaluate it when I hear it.
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 14
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
13:46
13:47
But based on what I have heard so far, I will recognize
Mr. McCarty as an expert in the area of investment
banking.
BY MR. ANKER:
Q Mr. McCarty, did you prepare an expert report in
this matter?
A I did.
Q And did you opine on certain subjects?
A I did. I had three principal subjects that I
addressed in my report.
Q Did you bring a demonstrative that outlines in
the most high level those three subjects?
A I do have a summary of my conclusions which
includes those three subjects.
Q Why don't you identify this summary for your
personal opinions.
A These are very high level summaries of the three
conclusions I came to. First area that I was asked to
look at was for the participants in the transaction, their
degree of sophistication, and what I became aware of is
these are the lead banks and hedge funds in the world
almost all of who did I deal with on a daily basis. So by
definition they truly are sophisticated.
The second area I dealt with is their
familiarity with the structures of the types of securities
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 15
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
13:47
13:48
and the sector that we're talking about here, and the
types of securities are very, very large marketplace which
my desk trades in and every other desk in the Wall Street
trades in. So by definition everyone is very familiar
with them. Spin-offs are very common and the sector is
one which -- The directory sector has been around for over
a hundred years of which I have known it for thirty years.
It's very well known.
The final conclusion I was asked to look at was
the lenders and their due diligence and was it appropriate
given the transaction and could I draw any conclusions
from that transaction, and I did. I think I looked at
278,000 pages of production including due diligence from
all the lenders, and I concluded that the lenders in the
transaction would have had to have determined that Idearc
was worth more than its amount of debt. And in my report
I refer to it as a significant equity cushion.
MR. KEATING: Your Honor, if I may now interject
my objection. I will leave it to the Court to decide
whether Points 1 or 2 are of use or assistance to the
Court. But Point Number 3 is what I was referring to when
I made my objection before. I do not believe this is the
appropriate area for expert testimony. I don't believe
the foundation has been laid to render such opinions
anyway, and it's just speculation.
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 16
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
13:49
13:50
THE COURT: Well, I understand your objection,
but I will overrule it and hear the testimony
MR. ANKER: Mr. McCarty, I probably should have
done this before getting into the substance. I apologize
for getting into a housekeeping matter.
BY MR. ANKER:
Q How are you being compensated in this matter?
A As a normal expert, on an hourly rate.
Q Is your compensation at all dependent upon the
substance of the opinions you give?
A No, it does not.
Q Does it at all turn on the outcome of this
matter?
A No, it does not.
Q How many hours have you and your team devoted to
this matter?
A My firm in total has approximately--
Q Do you have a sense of your total billings in
this matter?
A Including an estimate for the trial here, it's
about 1.9 million dollars.
Q And have you attended throughout the trial?
A I have with the exception of Thursday
afternoon's session last week and Friday. I missed those
for a client engagement.
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 17
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
13:50
13:51
Q Mr. McCarty, we're going through these
conclusions. But before we go into the substance of them,
can you outline for the Court what steps you took, what
work you and your team did to prepare your report?
A First I need to describe my team. When asked to
do the assignment and after deciding I had the skills and
the interest to do this, I had to put together a team of
people. I took five people from my organization who are
experienced investment bankers, one a managing director
like myself who has spent a majority of time --
twenty-five years -- in the restructuring space; a senior
vice president experienced banker; a vice president who's
a twelve-year experience banker; an associate; and an
analyst. So those five people along with me came into the
case. I assigned various tasks, and we started examining
the documents.
Q Other than examining the documents, did you do
any other work as part of your own due diligence?
A We did. Any time I go back and look at a
transaction that's occurred in the past, I have to be
sure -- Even though I was in the capital markets in 2006,
I have to make sure that we put ourselves back in the
frame of mind of 2006. So I took myself and my team back
and examined 2006 in detail on transactions, capital
markets and all the issues associated with it.
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 18
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
13:51
13:52
Q Did you review any deposition testimony?
A I did. I reviewed all the deposition testimony
from all of the bankers who were deposed, all of whom I
know from the telecom sector. I know their bosses. And
then I reviewed selected other depositions.
Q Among the documents in this case are documents
from various lenders. Have you and your team reviewed all
of those documents?
A We have. We have reviewed every document we
could identify as being produced from lenders, and the
number is like 278,000 pages of documents.
Q Who wrote your report, Mr. McCarty?
A I wrote the report.
Q Let's take a look at the document production.
Did you prepare a demonstrative that shows the production
or summarizes the production by the lenders in this case?
A I did.
Q DD 6.3, can you explain this demonstrative
chart?
A This is an attempt on my part to put on one page
the production and relevant statistics associated with
that production for the lenders we could identify in the
case. And we have done it alphabetically here. And so
you have 16 parties listed on the left in bold and then
next to it the number of pages they produced. Not
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 19
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
13:53
13:54
3
Idearc Investors Producing Documents
Notes:(1) Carlyle valuation dated 1/10/07(2) Wachovia documents produced by Wells Fargo(3) Percentage of lenders (based on dollars invested) producing documents that also provided evidence of independent valuation analyses
Allocation
Investor Pages Produced Valuation ($ millions) Revolver ($ millions) TL/A ($ millions) TL/B ($ millions) Notes ($ millions)
Barclays 3,593 17,441 15.9 96.1 0.0 36.0
Blackrock 124 14,465 0.0 0.0 85.0 90.0
Blackstone 2,788 12,500 0.0 0.0 60.0 0.0
Carlyle1 3,566 13,476 0.0 0.0 70.0 4.0
Citibank 4,900 14,391 15.9 96.1 30.0 0.0
Credit Suisse 12,707 12,479 10.2 61.8 107.0 4.5
Golden Tree 14,028 12,765 0.0 0.0 20.0 0.0
Goldman Sachs 12,505 12,500 13.7 83.3 15.0 25.0
Halcyon 570 20,620 0.0 0.0 20.0 0.0
JP Morgan 194,015 12,480 17.8 108.2 5.0 8.0
Loomis Sayles 381 14,115 0.0 0.0 25.0 15.0
Morgan Stanley 7,380 12,500 10.2 61.8 79.0 25.0
RBS 4,381 14,500-16,000 10.2 61.8 0.0 0.0
UBS 24,435 12,500 10.2 61.8 125.0 97.0
Wachovia n/a2 14,820 10.2 61.8 5.0 38.0
Wells Fargo 326 12,615 0.0 0.0 20.0 2.0
% of Total $ Allocation Represented 45.7% 45.7% 14.0% 11.7%
% of Investors Producing Valuations3 100.0% 100.0% 71.2% 75.2%
Mean Valuation 14,057
Valuation Range 12,479-20,620
Defendants’ Demonstrative
DD 6.31U.S. Bank v. Verizon
3:10-CV-1842-G
surprisingly, J.P. Morgan is the lead left as producing
the most. If you totaled it -- I don't think we totaled
it here. That's the 278,000 pages that I referred to.
The columns on the right are the dollar amounts that they
actually invested. We have the word "allocation" here.
This is allocated out due to the oversubscription for each
of the institutions by the different tranches, revolver,
Term Loan A and Term Loan B and notes.
Q Mr. McCarty, there is a column, also the second
column, "Valuation." Can you explain that column?
A In going through the documents and the different
memos, this is the valuation that we found as determined
by each of the institutions and included in their internal
documents, and so we have taken and highlighted those.
Since I thought we would be discussing them for each of
the institutions there are actual numbers, and these are
in the millions. So that's 17.4 billion to start, and it
goes all the way down. We have then taken those numbers,
and this is one institution that produced a range RVS, and
we took that mid-point and produced a range for those
institutions.
MR. KEATING: Objection. Move to strike.
Hearsay, lack of foundation. Rule 701 and 702,
undisclosed expert opinions.
THE COURT: Overruled.
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 20
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
13:55
13:56
BY MR. ANKER:
Q What was the mean of the valuation for all of
these creditors?
A Among these 16 institutions, these 16
institutions provided a little less than half the Term
Loan A. So this is a fairly good sample of the providers
of the Term Loan A. The mean valuation was over 14
billion dollars in their own internal documents.
Q And the valuation range for Idearc of these
lenders was from what to what?
A On the low end, the lowest institution valued at
12.479 billion. And at the high end, 20.6 billion
dollars.
THE COURT: This figure valuation, are we talk
about the enterprise value?
THE WITNESS: Yes, I should have been clearer.
This is the total enterprise value.
MR. ANKER: My apologies, your Honor. I should
have been clearer in my question as well.
BY MR. ANKER:
Q Mr. McCarty, there has been a fair amount of
testimony about the structuring of the financing. Did you
prepare a demonstrative?
A I did.
Q DD 6.4. Mr. McCarty, very briefly take us
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 21
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
13:56
13:57
4
Idearc Initial Capitalization
Pro Forma Capitalization
($ in millions)
Tranches Maturity Interest Rate AmountFundedAmount
x LTM 09/30/06Adj. EBITDA(1)
Revolver 5 years LIBOR + 1.5% $250 $0 0.0x
Tranche A term loan 7 years LIBOR + 1.5% $1,515 $1,515 1.0x
Tranche B term loan 8 years LIBOR + 2.0% $4,750 $4,750 3.0x
Total senior secured debt $6,515 $6,265 4.0x
High yield notes 10 years 8.00% $2,850 $2,850 1.8x
Total debt $9,365 $9,115 5.8x
Notes:(1) LTM Adjusted EBITDA as of 09/30/06 was $1.576 billion. EBITDA adjusted to reflect impact of the sale of Hawaii operations in May 2005 and commercial printing operations that werediscontinued in March 2006 and employee related costs associated with the voluntary separation program offered in the fourth quarter of 2003. Pro forma to reflect transfer of pension assets on a fully funded basis.
Source: Idearc Inc. Form 10 dated 11/01/06.
Defendants’ Demonstrative
DD 6.41U.S. Bank v. Verizon
3:10-CV-1842-G
through this chart?
A I'll be very brief because I think your Honor
has a good understanding of the components here. This is
just breaking it out so that when I later talk about the
pieces I'm using the same terminology. So the revolver,
what I call the Tranche A term loan and the Tranche B term
loan. And it has the rate and maturity. This is
different than Ms. Kearns said which was tenor. We refer
to it maturity on the banking side. That's the ultimate
maturity.
On the far right, I don't think anyone did go
through this piece by piece. This is a very typical
structure for a leveraged loan that I have see. The first
Tranche A which we call pro rata because it goes to the
commercial banks is one times EBITDA, and that's fairly
normal. You take one turn of leverage to the banks.
The next tranche, Term B, is three turns of
leverage, three times on its own, and that's very normal
for the Term B institutional portion which is the nonbank
portion. That's four turns of leverage to the secured
loans, and that's very normal. Almost standard in our
industry.
The high-yield notes are 1.8 here.
So the total leverage of 5.8 is consistent of
those parts, and I'll talk to those parts.
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 22
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
13:57
13:58
THE COURT: Could I interrupt and ask another
background question. We have already covered it, but I
would like to go back. You used the term "leveraged
loans." I thought that reflected debt. So leverage alone
almost sounds like a redundancy. Can you explain that to
me?
THE WITNESS: It does seem to an outside party
as redundant. But when you refer to leveraged loans, you
are talking about loans below investment group. So if you
are talking about an investment bank loan where the
borrower is rated in the triple or above level, then they
just call those loans, commercial loans, or bank loans.
So the shorthand in our industry if you are talking about
the leveraged finance industry here, including high yield
and leveraged loans, it's because the rating is below
investment grade.
BY MR. ANKER:
Q Mr. McCarty, there has been a fair amount of
testimony about the oversubscription. Have you created a
demonstrative with respect to the oversubscription of the
financing?
A I did. And I have some detail on this because I
did hear the testimony reference, but I don't think any of
it was fully complete, and I consider oversubscription
from my business standpoint to be the best indicator of
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 23
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
13:59
14:00
market acceptance.
Q DD 6.5. Explain this chart to the Court?
A I created this because I did think there was
some confusion from the testimony. Let me define
oversubscription so there is no confusion. The blue bars
in each of these segments consist of the amount that
Idearc was offering to the public. So in the case of the
first column, that's 1.765 billion that was offered. The
green bar next to it has a dark portion with the dotted
line. That would be if the demand in the marketplace
equals exactly the amount offered. The lighter green
above it is the amount that the market had as demand
beyond what was being offered. So in this case 1.165
billion of demand beyond it. I boxed down to bottom
because this is how we in shorthand on the street use it.
That's really the demand factor, if you will, 1.66 times.
That means there is a 66 percent interest in buying the
security beyond what is being offered. So for the Term
Loan A -- and I put the revolver in it because they are
sold as a package -- there was a demand for 66 percent
beyond what was offered. B was 37 percent beyond what was
offered.
The third set of columns may be the most
important. It's one that I thought didn't get a lot of
good description from the last few witnesses. This is the
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 24
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:00
14:01
5
Revolver (1) and Tranche A Term Loan
Tranche B Term Loan High Yield Notes TOTAL
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
MarketDemand
$1,765
$2,930
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
MarketDemand
$4,750
$6,508
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
MarketDemand
$2,850
$9,975
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
MarketDemand
$9,365
$19,412
1.66X 1.37X 3.50X 2.07X
Final Amount
Final Amount
Final Amount
Final Amount
Market Demand for Idearc Debt – “Oversubscription”
(1) Revolver was undrawn at closing.Source: “Guterman email” to Cliff Wilson dated 12/07/06 (JPMIDEARCTR-00148515).
$1,165
$1,758
$7,125$10,047
Defendants’ Demonstrative
DD 6.51U.S. Bank v. Verizon
3:10-CV-1842-G
high-yield notes, and the high-yield notes -- just to put
them in perspective -- are the most junior in capital
structure, the closest to equity And they are highest risk
No security. Very, very difficult to collect. And the
people here I think indicate the most interest. Here,
three and a half times oversubscription is a very dramatic
oversubscription for any deal in high yield. The idea of
the 250 percent beyond the amount offered to me is
indicative of what the market thought. So overall two
times the high-yield note to me is the most significant.
Q What conclusion did you draw from this
oversubscription?
A My conclusion is the market accepted this deal
enthusiastically. They understood it. Otherwise, they
wouldn't have done it. The pricing was appropriate, and
the structure was appropriate.
Q You talked about putting yourself back in 2006.
In 2006, were these loans unusual in their structure?
A No, these are very, very common place.
Q Did you prepare a demonstrative about the state
of the loan market or credit markets for high-yield debt
and leveraged loans in 2006?
A I did, and personally because I thought there
was confusion about whether this was a short-term market
or a market that had peaked.
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 25
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:02
14:02
Q DD 6.6. Mr. McCarty, before you explain this,
let me just ask you when you look at the bottom bar, "U.S.
Leverage Loan and High-yield Issuance," what percentage of
the loans there are for investment grade companies?
A Zero.
Q So this is all below investment grade. Can you
explain this chart?
A Again, I put this together because I thought
there was some confusion from the different experts and
testimony. The dark bar is the leveraged loan side. The
lighter tan bar is the high-yield side. We generally
think of it as combined. It shows from 2002 to 2007, a
year after the deal, there was a very steady progression
in the size of the market. In 2007, it had gotten quite
large. If we take 2006 and take a quick look at it, I
think Idearc would have been about 1.2 percent of the
leveraged loan and high-yield market. So you asked the
question was this very common. There was 98.8 percent
larger amounts raised by other parties in the marketplace.
Q Just so we get the figures in the record, I see
this is in billions. So what was the total amount of
leveraged loans in 2006?
A 2006 for the leveraged loans, 612 billion. And
142 billion for the high-yield piece.
Q What was the level of default? Back in 2006,
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 26
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:03
14:04
6
U.S. Leveraged Markets 2002 - 2011
Source: Bloomberg; Fitch Ratings; Thomson Reuters.
*As determined by underwriting volume(1) All listed institutions participated in Idearc transactionSource: Bloomberg.
$265
$329
$480 $501
$612
$689
$294$239
$376
$566
$121$173 $182
$153 $142 $144
$52
$156
$282
$220
$0
$100
$200
$300
$400
$500
$600
$700
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
($ in
billio
ns)
Leveraged Loans
High Yield Bonds
Rank Underwriter Mkt Share (%) Amount ($mm) # Issues
1) JP Morgan 19.5 $118,023 359
2) Bank of America 14.4 $87,407 421
3) Citi 10.2 $61,998 141
4) Credit Suisse 6.7 $40,655 164
5) Wachovia Corp 6.6 $40,142 191
6) Goldman Sachs 5.8 $35,317 146
7) Deutsche Bank AG 5.0 $30,530 102
8) Lehman Brothers 3.6 $22,091 73
9) Morgan Stanley 3.5 $21,468 67
10) Merrill Lynch 3.5 $21,289 100
Rank Underwriter Mkt Share (%) Amount ($mm) # Issues
1) JP Morgan 14.6 $21,653 115
2) Citi 12.9 $19,199 92
3) Credit Suisse 10.6 $15,795 82
4) Merrill Lynch 9.8 $14,608 67
5) Deutsche Bank AG 9.1 $13,582 79
6) Bank of America 8.2 $12,210 83
7) Morgan Stanley 6.2 $9,222 42
8) Lehman Brothers 6.2 $9,204 61
9) Goldman Sachs 5.4 $8,070 46
10) UBS 4.9 $7,318 40
U.S. Leveraged Loan and High Yield Issuance
Banks Most Active in the 2006 U.S. Leveraged Loan Market(1) Banks Most Active in the 2006 U.S. High Yield Loan Market(1)
Defendants’ Demonstrative
DD 6.61U.S. Bank v. Verizon
3:10-CV-1842-G
what was the level of default on the loans that had been
issued in the prior years in 2006?
A Well, again, it's a really key number. It's one
that we look at all the time on a daily basis to try to
get the feeling of the market and how they view things.
Here, in 2006, the default rate approached what I called
zero. It was 0.4 percent default rate. The historical
average was around 4.8 percent. So more than ten times
larger was the average, and just going to the end of chart
in 2009 the default rate got to 108.8 percent. So this
was a very low default rate historically and obviously
versus what happened in 2008 very low.
Q Were you in court when Ms. Taylor testified?
A I was.
Q And when you were in court when she testified
that spin-offs were unusual?
A Yes. The way I remember she testified is they
weren't illegal, unethical, but they were uncommon.
Q Let's focus on uncommon part. Is that opinion
in your experience as a banker for thirty-seven years
accurate?
A No, I agree with the first two. The third one
is they are very common. I use them on a daily basis.
The market uses a lot of them. They understand them.
It's a standard corporate finance tool to try to manage
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 27
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:05
14:06
shareholder value.
Q Did you create a demonstrative for the Court to
try to capture the level of spins?
A I did.
Q And go to DD 6.7. Explain this to the Court?
A Again, this is taking a complex subject like
spin-offs and trying to put it on one page. I have taken
a period of time from 2001 to 2006 and looked at all the
spin-off transactions that were publicly announced and
completed. And there were 424 of them which fits my
definition there were of a lot of them. And the 270
billion dollars equity value. So again here using the
equity value of Idearc in thirty days post-trading which
is how I usually measure equity value on new issues,
again, it's very small. Below 2 percent of total value.
Q Mr. McCarty, just to be clear, Judge Fish asked
you a few moments ago about whether the valuations were of
enterprise value. Here you are not capturing enterprise
value but rather the much smaller equity value. That is
the value of the debt, correct?
A That's correct. There are some spin-offs that
have different types of capital structure depending on
their business. So to look at spin-offs you need to look
at equity value which is what we did here, both in the
categories on the left and the sum total up at the top.
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 28
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:06
14:07
7
Spin Off Transactions
Most Active Advisors on US Spin-offs 2001-2006Advisor Mkt Share (%) Equity Value ($mm) # Deals
1 Morgan Stanley 45.9 123,740 222 Goldman Sachs & Co 36.8 99,108 133 JP Morgan 34.0 91,632 154 Lazard Ltd. 20.9 56,451 45 Citi 18.9 50,990 96 Bank of America 15.6 42,131 157 Evercore Partners Inc. 12.6 34,028 38 Lehman Brothers 9.9 26,560 69 Houlihan Lokey 2.3 6,104 5
10 Credit Suisse 1.0 2,581 511 UBS 0.9 2,325 412 CIBC 0.5 1,307 113 Deutsche Bank AG 0.4 984 114 IBI Corporate Finance Ltd 0.4 984 115 Merrion Stockbrokers Ltd 0.4 984 116 Peter J Solomon Co 0.2 635 1
Note: Participants in Idearc debt highlighted in yellow
2001-2006 U.S. Spin-Off Volume by Deal SizeDeal Size (Equity Value) # Deals Equity Value ($ billions)
> $10.0 billion 6 119.6
$5.0 billion – $10.0 billion 11 76.1
$1.0 billion – $5.0 billion 21 51.2
$500 million – $1.0 billion 16 12.1
< $500 million 370 10.6
Total 424 269.6
424 spin-off transactions were completed from 2001 to 2006, representing nearly $270 billion in aggregate equity value
9 of the top 16 spin-off advisors participated in the Idearc transaction
30 spin-offs with equity values greater than $100 million were completed in 2005 and 2006, all of which had tax-sharing agreements
It was common for spin-off transactions to include both secured and unsecured debt in financing packages
Source: BloombergDefendants’ Demonstrative
DD 6.71U.S. Bank v. Verizon
3:10-CV-1842-G
One of the other things I might want to point out here
since its colorful is I highlighted in yellow the
institutions in the right portion that were involved in
the Idearc spin. So Number 1 through 13 have all yellows.
There are four that don't have yellows; they are white.
And those are lead advisors that are active in the spin
business. It might be helpful for the Court to know that
none of those have debt desks. So they don't do sales,
trading or research of debt. So they wouldn't be able to
participate in the Idearc deal or the last three either.
They don't have debt desks. So of the top advisors and
spins, all of them were involved in Idearc.
Q When you say involved, involved in what way?
A In this case they were involved in the
transaction putting up money, investing in Idearc.
Q They were lenders to Idearc?
A They were.
Q Mr. McCarty, are you aware that one of the
issues the plaintiff has raised is about tax sharing
agreements?
A Yes, I listened to the testimony and read all
the complaints.
Q Did you do any analysis to see whether Tax
Sharing Agreements were common in connection with
spin-offs?
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 29
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:08
14:09
A I did.
Q And have you prepared a demonstrative on that?
A I have.
Q And DD 6.8. Can you explain this to the Court?
A I tried to create a comparable group here. The
previous slide was about all spins. Some were quite small
or have other rationale. Here, I took all spin-offs in
the two years that this transaction was gestating, 2005
and 2006, and looked at all announced and completed spins
in those two years who had more than 100 million dollars
of value. So this resulted in the 30 names which are on
here.
Q I see the Idearc transaction appears about the
middle. Am I reading that right, Mr. McCarty?
A Yes, if you look under the shaded one in the
middle above Broadridge and below Fidelity, you will have
Idearc which is again -- I switched back. This is equity
value. So 3.9 billion dollars of equity value puts it
pretty much in the middle of the thirty in terms of
ranking. So it's not down towards the bottom and not up
towards the top. There are some very big ones.
Q Of these 30, how many of the spins involve Tax
Sharing Agreement between the parent entity and its
subsidiary being spun off?
A 100 percent of them. I knew the answer before
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 30
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:09
14:10
8
U.S. Spin-Off Transactions 2005-2006
U.S. Spin-Offs Over $100 Million – 2005-2006
Spinco ParentEquity Value
($ in millions)Tax Sharing Agreement
Viacom Inc CBS Corp $31,689 YESCovidien PLC Tyco International Ltd $21,360 YESTyco Electronics Ltd Tyco International Ltd $19,009 YESSpectra Energy Corp Duke Energy Corp $17,260 YESWestern Union Co. First Data Corp $16,799 YESDiscover Financial Services Morgan Stanley $15,785 YESAmeriprise Financial Inc American Express Co $8,885 YESWyndham Worldwide Corp Cendant Corporation $6,561 YESEmbarq Corp Sprint Nextel Corp $6,417 YESRealogy Corp Cendant Corporation $6,106 YESTim Hortons Inc Wendy’s International Inc $4,114 YESDiscovery Holdings Co Liberty Media Co $4,0331 YESFidelity National Title Group, Inc. Fidelity National Financial Inc $3,942 YESIdearc Inc Verizon Communications Inc $3,912 YESBroadridge Financial Solutions Automatic Data Processing Inc $2,897 YESMueller Water Products Inc Walter Energy Inc $2,194 YESHanesbrands Inc Sara Lee Corp $1,819 YESAssisted Living Concepts Inc Extendicare Real Estate Investment $1,307 YESMariner Energy Inc Forest Oil Corp $1,068 YESTreeHouse Foods Inc Dean Foods Co $906 YESVerigy Ltd Agilent Technologies Inc $858 YESACCO Brands Corp Beam Inc $857 YESLive Nation Entertainment Inc Clear Channel Communications $759 YESFidelity National Title Group, Inc. Fidelity National Financial Inc. $745 YESSally Beauty Holdings Inc Alberto-Culver Co $678 YESTronox Inc Kerr-McGee Corp $421 YESAtlas America Inc Resource America Inc $371 YESTravelCenters of America LLC Hospitality Properties Trust $287 YESdELiA*s Inc Alloy Inc $181 YESOmega Flex Inc Mestek Inc $104 YES
(1) Data from ThomsonOne.
Source: Bloomberg; SEC filings.
Note: Includes spin-off transactions announced in 2005 and 2006 with equity size greater than $100 million. Hospitality Properties Trust spin-off of Travel Centers of America LLC was conducted as a taxable distribution to Hospitality Properties Trust shareholders.
Defendants’ Demonstrative
DD 6.81U.S. Bank v. Verizon
3:10-CV-1842-G
you asked the question. I have done a bunch of spin-offs.
I have never done a major spin-off without a tax sharing
agreement. And I guess parenthetically, I have never done
a deal where I have had a tax sharing agreement on a
transaction and not failed to get around to do a deal. I
have always been able to do a transaction without
limitation. So as a banker, it means absolutely nothing
to me in terms of having a tax sharing agreement. It
doesn't limit me or my client.
Q When you say your client, are you referring to
the spun-off entity subsequent to the spin being able to
engage in merger and acquisition transactions?
A Yes, both the spin as in all three boxes. They
all show them. And also my previous client, the parent --
I even had one for Ninex which is one of the predecessors
of Verizon, and I think Ivan Seidenberg is one of its
first CEO's was that year and the second year. We spun
off its cable businesses and within two years we merged it
with another cable business with no tax. I'm not a tax
expert, but the tax lawyers found a way to complete the
transaction without any issue.
Q Let's change subjects a moment. Have you
studied and examined the identities of the lenders in the
transaction?
A I have.
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 31
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:10
14:11
Q And have you done so separately for the Term
Loan A from the Term Loan B to the high-yield notes?
A I did. I thought it would be logical to break
them into the constituent parts. The revolver in the
Tranche Term Loan A I combined together because they were
single buyers, but I have broken them by components.
Q Have you brought a demonstrative with respect to
the lenders.
A I have.
Q And can you turn to 6.9. Can you identify this
document for the Court?
A This is the totality of the buyers of the
combined revolver and Term Loan A. It's 28 institutions
who bought the entire amount, 1.765 billion.
Q Mr. McCarty, over your career, have you worked
with any of these institutions?
A I have. You look at the list I have worked at
Number 5, Citibank; Number 9, UBS; and Number 11, Royal
Bank of Scotland.
Q Have you with respect to other institutions on
this page dealt with them in transactions?
A I have. I went back and looked through it. The
bottom two, State Bank of India and Calyon, I haven't done
transactions with. I thought I hadn't done one with
Mizuho. But as I looked into it, Mizuho was the product
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 32
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:12
14:13
of three Japanese banks that were merged. The largest was
Industrial Bank of Japan which I have done deals with. So
technically, I have only not done business with two.
Q Let's put the two aside. Are you familiar with
the credit possibilities of the other 26 banks?
A Obviously the three I worked for I have sat on
committees. I have presented to the committees, and I
have gotten approval. Let's take those three out and
leave the other 23. Those other 23, I have participated
in transactions with. I have sold transactions,
structures to them and have been involved directly with
their credit committees.
Q Are you familiar with the term "a money center
bank"?
A Yes.
Q And what is a money center bank?
A It's a designation of a major institution that's
usually based on a regulatory basis. But it defines the
major sophisticated banks in the world.
Q Of the banks listed, let's put Calyon and State
Bank of India aside. Of the other 26, how many are money
center banks?
A They would all be.
Q Based on your experience dealing with these
institutions, do you have a view as to their financial
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 33
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:13
14:14
sophistication?
A Yes, as commercial banks go, these are the most
sophisticated in the banks. They are dominate in the
banking market, and they have existed for a long period of
time. So they are very sophisticated.
Q Let's look at the chart with respect to the Term
Loan B investors. 6.10. And I think Mr. McCarty, does
this list go over to Page 6.11?
A Yes, we couldn't have the print be acceptable
and have it on one page. So the 206 purchasers of the
Tranche B term loans have been broken into two pages.
Q Mr. McCarty, what experience do you have with
these institutions or what familiarity do you have?
A I have done business with 85, 90 percent of
them. If you take the top 50, I have probably done
business with all of them. My tradings desk has traded
with all of them. My trading desk trades with 1,650
funds. All of these are on that trading list. I think I
mentioned at Gleacher I set up a direct loan purchasing
vehicle. I had three partners that I hired to do that at
Gleacher. The three of them now manage at Number 75
Orhill; Number 68, GLG Partners; and Number 40, Greenwich
Capital. So anecdotally I know those three people. They
used to work for me.
Q Were you finished with your answer?
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 34
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:14
14:15
A The 206 people are people that I deal with every
day.
Q Do you have familiarity with their credit
approval processes?
A I do. These are somewhat different. Commercial
banks are very formalized because they are regulated, and
so the bank regulators examine the commitment process of
commercial banks. These are not commercial banks. These
are funds set up to buy these types of loans. But even
though they are not as formalized as a commercial bank, I
tend to think they take it much more seriously because the
people who own these funds are the partners that make the
investment decisions. And they are only paid if they have
returns above the threshold level. So I find these much
more serious in terms of evaluating risk versus return.
Q And do you have an opinion as to their level of
sophistication based upon your experience in dealing with
them?
A These are the best of the best. These are
absolutely the top tier.
Q And you will see, for example, the 9th entry is
BlackRock Group of funds. Where does BlackRock range in
asset managers in the world of debt?
A Well, I did range these by the amount they
bought. So Pemco and Eaton Vance which are the first two
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 35
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:16
14:17
are the highest. Here you have BlackRock at Number 9 at
85. BlackRock is the world's largest buyer of fixed
income securities. So used to be PIMCO which on this page
is Pacific Investment Management Company but I'll call it,
but PIMCO is now Number 2 and BlackRock is Number 1.
Q Can we take a look at -- Did you also prepare a
demonstrative with respect to -- Did you take a look at
these institutions in terms of -- Can we go to 612 to 613.
And can you describe these charts to the Court?
A These are the high-yield note investors, and
again, I had to break it on two pages. There is 239 of
them. There is about a 40 percent overlap. So you will
see people like Eaton Vance will be on both pages. You
will notice a lot of names. They may change the way they
were reported. Like Number 9 is PIMCO. It's Pacific
Investments. So there is about a 40 percent overlap
between Term B and Term A investors. BlackRock would be
in both.
Q Have you dealt with a substantial number of
these institutions who purchased the high-yield notes?
A Probably the same thing. 85, 90 percent of
these I have dealt with personally, and my desk has dealt
with 100 of them.
Q Do you have familiarity with their credit
approval process?
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 36
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:17
14:18
A Very much.
Q Based on your experience, are they financially
sophisticated?
A Again, I think I heard Ms. Nason use the word
QIB's. By definition these are QIB's. They manage more
than 100 million dollars in a fund. They are not
individuals. These are very -- I think Andrew Decker used
the best term that we use on the street. These are big
boys. So when we refer to big boys, sophisticated large
scale investors in the marketplace, these are the biggest
of the big boys.
Q Let's try to provide some sense of how big they
are. Did you take a look to see where these institutions
ranged among global asset managers?
A Yes, I did.
Q And did you prepare a demonstrative with respect
to that issue.
A I did.
Q And can we turn to DD 6.15. Can you explain
this chart to the Court?
A This chart and the next chart, we tried to put
some perspective on the biggest ranked by either asset
size or revenue investors in the world. And here the top
50 measured by assets in the world in 2006 at the time of
issue starting with UBS, my old employer, is the largest,
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 37
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:19
14:20
15
Top 50 Global Asset Managers at YE2006
Manager Market Total AssetsIdearc
Investor
1 UBS Switzerland $2,452,475 X
2 Barclays Global Investors U.K. $1,813,820 X
3 State Street Global U.S. $1,748,690 X
4 AXA Group France $1,740,000 X
5 Allianz Group Germany $1,707,665 X
6 Fidelity Investments U.S. $1,635,128 X
7 Capital Group U.S. $1,403,854 X
8 Deutsche Bank Germany $1,273,500 X
9 Vanguard Group U.S. $1,167,414
10 BlackRock U.S. $1,124,627 X
11 Credit Suisse Switzerland $1,092,906 X
12 JPMorgan Chase U.S. $1,013,729 X
13 Mellon Financial U.S. $995,237 X
14 Legg Mason U.S. $957,558
15 BNP Paribas France $817,482 X
16 ING Group Netherlands $792,162 X
17 Natixis France $769,981
18 AIG Global Investment U.S. $730,920 X
19 Credit Agricole France $704,367 X
20 Aviva U.K. $700,789 X
21 Northern Trust Global U.S. $697,166 X
22 Goldman Sachs Group U.S. $693,049 X
23 Prudential Financial U.S. $616,047 X
24 Morgan Stanley U.S. $606,476 X
25 HSBC Holdings U.K. $595,000 X
Manager Market Total AssetsIdearc
Investor
26 Wellington Management U.S. $575,492 X
27 Societe Generale France $556,890
28 Fortis Group Belgium $556,200 X
29 Franklin Templeton U.S. $552,905 X
30 Bank of America U.S. $542,977 X
31 MetLife U.S. $527,700 X
32 Generali Group Italy $523,726
33 Aegon Group Netherlands $477,611 X
34 Prudential U.K. $477,000 X
35 Old Mutual South Africa $468,232
36 INVESCO U.K. $462,600 X
37 Legal & General Group U.K. $455,955
38 MassMutual Financial U.S. $455,723 X
39 Nippon Life Insurance Japan $439,671
40 TIAA-CREF U.S. $405,647
41 Ameriprise Financial U.S. $397,000
42 Rabobank Group Netherlands $378,125 X
43 Sun Life Financial Canada $374,535
44 Zenkyoren Japan $364,776
45 Manulife Financial Canada $355,256
46 Mitsubishi UFJ Financial Japan $351,189 X
47 T. Rowe Price U.S. $334,698 X
48 Unicredito Italiano Italy $328,043
49 Hartford Financial U.S. $327,500 X
50 Zurich Financial Services Switzerland $310,003
Source: Watson Worldwide Global 500 Ranking 2006; “Guterman email” including attachment to Cliff Wilson on 12/07/006 (JPMIDEARCTR_00148515). Note: Included as an Idearc investor if investment was direct through the asset manager or an affiliated entity. BNP involvement through post-transaction acquisition of Fortis.
($ in millions)
Defendants’ Demonstrative
DD 6.151U.S. Bank v. Verizon
3:10-CV-1842-G
based in Switzerland, and we listed them by asset size
down to the 50th which is Zurich Financial.
Q And what is the significance of the "X" in the
right-hand column on the two sets of charts?
A The "X" denotes that they were investors in the
Idearc deal. So if I look at it right, 34 of 50 largest
global asset managers in the world were investors in
Idearc.
Q Let's look at another chart. DD 6.6 for a
moment. Mr. McCarty, one thing I don't think we talked
about were the two charts at the top. Can you explain
those to the Court?
A I can. And I broke it up between leveraged
loans and noninvestment grade loans. On the left, the top
10 arrangers in the marketplace. Arrangers are the people
who actually manage the placement of the securities. And
on the right, the top 10 high-yield arrangers. And there
is some difference between the two. Usually based on
balance-sheet size.
Q Can you explain how many of the lenders or the
underwriters on the chart on the left with respect to
leveraged loans participated in the Idearc transaction?
A All 10. 100 percent.
Q Of the ones on the right of the chart in the
high-yield loan market, what percent of those participated
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 38
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:20
14:21
6
U.S. Leveraged Markets 2002 - 2011
Source: Bloomberg; Fitch Ratings; Thomson Reuters.
*As determined by underwriting volume(1) All listed institutions participated in Idearc transactionSource: Bloomberg.
$265
$329
$480 $501
$612
$689
$294$239
$376
$566
$121$173 $182
$153 $142 $144
$52
$156
$282
$220
$0
$100
$200
$300
$400
$500
$600
$700
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
($ in
billio
ns)
Leveraged Loans
High Yield Bonds
Rank Underwriter Mkt Share (%) Amount ($mm) # Issues
1) JP Morgan 19.5 $118,023 359
2) Bank of America 14.4 $87,407 421
3) Citi 10.2 $61,998 141
4) Credit Suisse 6.7 $40,655 164
5) Wachovia Corp 6.6 $40,142 191
6) Goldman Sachs 5.8 $35,317 146
7) Deutsche Bank AG 5.0 $30,530 102
8) Lehman Brothers 3.6 $22,091 73
9) Morgan Stanley 3.5 $21,468 67
10) Merrill Lynch 3.5 $21,289 100
Rank Underwriter Mkt Share (%) Amount ($mm) # Issues
1) JP Morgan 14.6 $21,653 115
2) Citi 12.9 $19,199 92
3) Credit Suisse 10.6 $15,795 82
4) Merrill Lynch 9.8 $14,608 67
5) Deutsche Bank AG 9.1 $13,582 79
6) Bank of America 8.2 $12,210 83
7) Morgan Stanley 6.2 $9,222 42
8) Lehman Brothers 6.2 $9,204 61
9) Goldman Sachs 5.4 $8,070 46
10) UBS 4.9 $7,318 40
U.S. Leveraged Loan and High Yield Issuance
Banks Most Active in the 2006 U.S. Leveraged Loan Market(1) Banks Most Active in the 2006 U.S. High Yield Loan Market(1)
Defendants’ Demonstrative
DD 6.61U.S. Bank v. Verizon
3:10-CV-1842-G
in the Idearc transaction?
A 100 percent.
Q Let's look at one other chart. DD 6.16. Can
you explain this chart to the Court.
A Again, we try to take a different cut here.
Instead of assets ranging by their investment banking and
corporate banking revenue, these are the rankings in 2005
and 2006 of the top people by revenue. Goldman Sachs was
the largest. I think I heard Ms. Kearns say that J.P.
Morgan is the largest. Every bank wants to be the largest
in something. But J.P. Morgan is not the largest in terms
of revenue. Goldman Sachs was. So these are the top 30
institutions in the world by revenue.
Q Some are shaded yellow and some are not. What
is the significance of the yellow?
A Here the yellow denotes people who participated
in the Idearc transaction. So I think it would be
accurate to say 21 of the top 30 people ranged by revenue
participated in the Idearc deal.
Q Let's change subjects for a moment and walk
through the credit approval process. Can you describe an
overview for the Court of the general approval process for
a bank, these money center banks that are participating in
a Term Loan A and revolver facility as of 2006?
A It's a very serious process. It's one that came
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 39
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:22
14:22
16
Financial Institution Ranking by Corporate and Investment Banking Revenue 2005-2006
Shown is a table of the top 30 financial Institutions ranked by corporate and Investment banking revenues in 2006.
These financial Institutions accounted for approximately $460 billion in combined revenues in 2006.
This represented a 21% increase over 2005.
Rank Financial Institutions 2005 ($ in millions) 2006 ($ in millions) ‘05-‘06 % Change
1 Goldman Sachs 1 $22,282 $33,371 502 JP Morgan Chase 23,640 28,186 193 Citigroup 23,863 27,187 14 4 GE Commercial Finance 20,646 23,792 15 5 Deutsche Bank 19,830 23,506 196 Bank of America 20,600 22,691 107 UBS2 18,143 21,607 198 Morgan Stanley 15,673 21,562 389 Royal Bank of Scotland (RBS) 15,949 18,944 19
10 Merrill Lynch 13,844 18,917 3711 Mitsubishi UFJ Financial Group 18,091 18,806 412 Credit Suisse 12,506 16,346 3113 Barclays3 12,133 15,964 3214 Lehman Brothers 12,701 15,166 1915 ICBC Bank 14,150 14,796 516 HSBC 11,511 13,637 1817 China Construction Bank 11,293 13,374 1818 Bank of China 9,456 11,489 2219 Société Générale4 8,206 10,369 2620 UniCredit5 9,404 10,104 721 BNP Paribas6 7,998 9,873 2322 Shinhan Financial 7,179 9,177 2823 Bear Stearns 6,751 8,398 2424 Kookmin Bank 6,473 7,989 2325 Lloyds TSB 7,088 7,763 1026 ABN Amro7 6,779 7,663 1327 Bank of Communications8 5,692 7,505 3228 ING 6,733 7,291 829 Wells Fargo 6,149 7,234 1830 Crédit Agricole9 5,549 6,854 24
TOTAL $380,366 $459,561 21%
*Investors in Idearc credit highlighted in yellowSource: McKinsey Global CIB 50Report, August 2007.
Notes: (1) Includes securities services revenues from Asset Management and Securities Services division; excludes pretax profits, which cannot be split out from asset management profits. (2) Includes Investment Bank and Business Banking Switzerland; excludes corporate banking revenues from Global Wealth Management and Business Banking segment. (3) Includes Barclays Capital and Barclay's UK Business Banking divisions. (4) Includes results from Securities Services and Online Savings, as most of the revenues in this division stem from securities services. (5) Excludes securities services revenues from Global Business Services, which cannot be split out. (6) Involved through post-transaction acquisition of Fortis. (7) 2006 data is revenue estimate reported in an investor presentation. (8) Reported gross revenues. (9) Revenues from Specialized Financial Services are excluded because the division also includes revenues from retail and small-to-midsize enterprises.
Defendants’ Demonstrative
DD 6.161U.S. Bank v. Verizon
3:10-CV-1842-G
out of the regulatory side. It involves an independent
group within the bank that has no connection to the
borrower. So an independent credit analysis group with no
connection to the bankers who cover the borrower, have to
provide an independent credit report where they look
through the credit aspects of the company, the securities
being offered, the covenants and collateral in the
industry sector, and they have to prepare an analysis that
is then distributed to at least four, if not five,
sections of the bank. And then they call a meeting of the
senior parties in the bank. It's a process that is very
daunting for a first time banker to ever go through. It's
very critical. They take it very seriously, and it's
reviewed by regulators. So if a bank makes a major loan
and doesn't have something like this, they are in deep
trouble.
Q You have worked at three such banks and had
experience with others. In your experience, do banks in
making Term Loan A's and participating in revolvers
analyze and reach a judgment as to whether the borrower is
solvent?
A Well, you can see from one of my first charts,
every one of the banks representing 47 percent or 46
percent of Term Loan B's were people who produced
documents. Every one of those valued the business. And
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 40
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:23
14:24
part of your credit approval process, you value the
business. You can't take or assume the credit looks good.
You have to go through of your own independent valuations.
You don't accept outside valuation. And by doing that
valuation, it has to show the value you feel as an
independent credit analysis of the company exceeds the
assets substantially with a real equity cushion. So if
you go back to the demonstrative, that was 14 billion of
average valuation by those banks, that's very common.
They have to have that in the document. I don't know that
any transaction on a new issue that I have seen that a
commercial bank made a loan where they thought the
valuation was not in excess of the debt.
Q Mr. McCarty, were you referencing your chart
6.3?
A I was. And so you know, if you talk to
Barclay's, which is one of the bigger fixed income buyers
in the United States, they looked at it and said in their
internal credit memo the business of Idearc was worth
17.44 billion dollars on their own independent basis
versus the debt of 9.1 billion. Again, I have never seen
a bank document where they have asked for approval without
that type of analysis.
Q I think in your answer a moment ago you talked
about the banks doing an analysis and concluding the value
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 41
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:25
14:25
of the business was greater than its assets?
A Sorry. The debt.
Q Mr. McCarty, let's turn to Term Loan B lenders
which we established were not banks but financial
institutions. Can you describe briefly the credit
approval process in those institutions?
A Again, not as formalize. They don't have a
regulatory requirement to produce the documents. But in
my experience they are more rigorous. They have internal
analysts. We called them buy-side analysts as opposed to
the sell-side which is from the investment banking side.
The internal analyst prepares a document recommending or
not recommending the purchase of the security, and it
involves their own internal forecast, their own internal
valuation and their recommendation to purchase usually two
pieces. To purchase a new issue at an institution that
would buy a Term Loan B, they may recommend that they have
buy in the after-market also, and the same is true on high
yield. So it's very demanding. Not as quite formalized.
You don't produce as much paper, but I find it rigorous.
Q Over your career, have you ever seen a lender
fund a Term Loan B facility when the lender believed the
borrower was insolvent?
A No, never.
Q Have you ever seen a lender make a Term Loan B
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 42
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:26
14:27
without assessing whether the value of the company's
assets exceeded its liabilities?
A No, never.
Q Let's talk briefly about the high-yield notes.
Can you describe the credit approval process for a typical
high-yield note purchasers?
A There is about a 40 percent overlap to the Term
Loan B's. But the ones that just buy high yield, similar
in that they are owned by the partners who their
compensation is totally at risk of whether they make money
or not. So they spend a lot of time at it. Here, the
analysis extends really beyond the typical loan analysis.
Because they are the most junior, most at risk. They have
no security interest in the assets. So they really look
to the total value of the cash flow as opposed to the
value of the assets. In the banking side in Term Loan B,
you have security. Here, they have no security. So they
tend to be much more projection-oriented, much more
future-value oriented, and risk assessment is usually much
more critical in the high-yield group.
Q In your experience have you ever known a person
with experience in the high-yield notes to purchase those
notes at par without making the determination that the
borrower would be solvent?
A The at-par in a new issue, I have never seen
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 43
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:27
14:28
anybody do that. Obviously, there are people who play in
the distressed marketplace who buy things off of par in
distress, but that's a different situation in Idearc. New
issues I haven't, no.
Q Let's make that clear. Sometimes after a bond
is issued, the company will experience distress, and the
price of the note may be much less than 100 cents on the
dollar, right?
A In some cases, pennies on the dollar, yes.
Q And so it's possible that someone would buy a
note at 2 cents on the dollar, even though the institution
thought the borrower was insolvent if they thought the
ultimate recovery might be for example might be 4 cents on
the dollar?
A All the time, yes.
Q But when you are buying at 100 cents on the
dollar at original issue, have you ever seen a high-yield
purchaser who made such an acquisition without first
determining that the borrower was solvent?
A I have absolutely not.
Q Mr. McCarty, have you prepared a demonstrative
that shows the typical documents and review process by
investors in the sorts of leveraged loans and high-yield
note offerings we have discussed?
A I have.
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 44
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:29
14:29
Q And DD 6.17. Can you briefly describe this
document to the Court?
A This is my summary of documents I typically see
for a leveraged high-yield loan. It's ranged down from
the SEC Form 10 which we had a huge amount of testimony
about, the offering memorandum for the notes, the
confidential information memorandum or what we call the
CIM for the lenders. There is a difference. The 10 is
prepared by the company with oversight from their counsel
and some participation of the banks. The CIM is prepared
by the banks and their lawyers principally with oversight
from the company and their lawyers. So there is a mix.
The supplemental information is the private-side
forecasts, and the road shows presentations we have
seen -- We haven't seen a lot of industry reports. We
talked about here the industry reports. This sector has a
lot of outside industry reports I have looked at for many,
many years -- Simba, there is Kelsey, several others.
These are people who spend their full time looking at
directories who know a lot more about directories than I
do, and I suppose know a lot more about directories than
even people who own them like Verizon. And we typically
see those in the package.
Q Would those industry reports obviously available
for a fee available to any lender who wanted to acquire
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 45
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:30
14:31
17
Materials Typically Reviewed for Credit Approval
SEC Form 10
‒ Required when a public company issues a new class of stock through a spin-off.‒ Provides detailed information about the spin-off, and principal risk factors facing the company and the outlook for
the company’s industry Offering Memorandum
‒ A type of prospectus for a bond or other security when the offering is not required to be registered with the Securities and Exchange Commission.
Confidential Information Memorandum for Potential Public Side Lenders in Credit Facility
‒ Summary of the industry and opportunities within the market;‒ Detailed description of the business and its operations;
‒ Financial information including analysis of historical results
Supplemental Confidential Information Memorandum for Potential Private Side Lenders in Credit Facility
‒ Projections of estimates of future financial performance are provided to trading-restricted “private side” investors
Roadshow Presentations
‒ Presentations made by one or more members of the issuer’s management (with the assistance of the underwriters and lead lenders) which typically includes a discussion of the issuer, its business, its management and the securities being offered.
‒ Investors have the opportunity to ask questions and to assess the company, potential investment and management
Analyst Reports, Industry Reports
Corporate/Commercial Agreements
Defendants’ Demonstrative
DD 6.171U.S. Bank v. Verizon
3:10-CV-1842-G
them?
A They were. They are commonly bought by anybody
who buys media companies.
Q You used the term "CIM." Can you describe what
a CIM is?
A Just abbreviation of the confidential
information memorandum.
Q Mr. McCarty, in your career have you worked on
the preparation of offering memoranda and confidential
information memoranda in SEC filings?
A Hundreds of times.
Q Did you look at the Form 10 in this case?
A I did.
Q And did you look at the confidential offering
memoranda in this case?
A I did.
Q And did you look at the confidential memorandum
in this case, the public side and private side?
A I did.
Q And you understand there is an allegation in
this case that they omitted material information. Based
on your experience, how extensive were the risk factors
and other disclosures in the SEC Form 10 offering
memorandum and confidential information memoranda for the
Idearc transaction as compared to your experience in any
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 46
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:32
14:32
other transaction?
A I have done hundreds of these. So it's a big
group. If I can compare it to even the most complex, I
privatized Fannie Mae when it was originally a
quasi-government organization. It was the largest one
ever filed in the late eighties. I lead managed that. I
was lead left running the transaction. And compared to
that, which is the most sophisticated I have ever done in
my career, this is that type of level. At the very high
end of disclosure, risk analysis, completeness. And it
doesn't surprise me here. And I have done transactions
with J.P. Morgan being lead left and when J.P. Morgan has
been right and me being left, and typically, every time
J.P. Morgan when I have done transactions with them is
what I will call belts and suspenders. Everything is
there.
Q Mr. McCarty, did you as part of your analysis --
You testified you looked at all the credit files of all
the lenders of these documents.
A I did.
Q I don't want to take you through all of them.
We want to the try to get done today. I'm sure the Court
appreciates that. Do you have any that you can provide by
way of examples and generally describe them?
A I gave some thought to it, and there are three I
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 47
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:33
14:34
thought might be helpful to the Court. You have heard an
awful lot about J.P. Morgan and Bear Stearns which merged
with J.P. Morgan. You have heard from Goldman Sachs and
Morgan Stanley. I decided to go down the tiers. If you
take the Term Loan A, the first tier of the managers, J.P.
Morgan and Bear. And the second tier, what they call are
the arrangers, Barclays and Citibank and B of A. And I
went down to third tier which is not a minor
participation, but below the 100 million dollar range. I
picked out two there that I thought were representative,
Credit Suisse and UBS.
And then I went to the Term Loan B and the
high-yield side and tried to pick out somebody that I
thought would be representative and that would be
BlackRock. So those three are the ones I think would be
helpful
Q What did you find in Credit Suisse's files?
A As expected from the commercial banking side, it
was very, very complete. I think the total number of
pages they produced was almost 13,000 pages. 12,700 in
the production. It had very detailed credit reports and
forecasts and evaluations. But I saw other things in
there that I thought were interesting. They had actually
been doing due diligence and examination of this business
for nine months before they participated. Their
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 48
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:34
14:35
documented meeting was January 2006. So even though they
were a mid-tier participant, they had been going through
meetings and exploration material for nine months which I
found significant.
Q Did Credit Suisse's files include any documents
concerning a potential private equity investment?
A It did. There was kind of a quick reference to
it. I forget who was giving the testimony. There was a
thing called Project Flare which did catch my attention,
and there were quite a few documents about.
Q DX 816. You may remember there was testimony
about this document as an expression of interest by Apollo
Management, Madison Dearborn and Pacific Group. Are you
with those private equity firms?
A Three of the six largest private equity firms in
the world. And I have done transactions with each of
them.
Q Did Credit Suisse make a presentation to each of
these three institutions?
A They did. It was the reference I made to
Project Flare.
Q Do you view this expression of interest by these
entities as significant with respect to the issue before
the Court of valuation?
A Absolutely. I think it's very important.
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 49
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:36
14:36
Q Why?
MR. KEATING: Your Honor, I object. He was not
designated on the issue of valuation. It's outside the
area in which he has been designated as an expert.
THE COURT: Overruled. You may answer.
A These are the most sophisticated institutions in
the world. More sophisticated than banks. More
sophisticated than investment banks. So as they go
through and do things, I take them very seriously. I'm
working on two transactions right now with these people.
So when they prepare something like the offer letter they
made to Verizon, I take it as very serious.
Q Mr. McCarty, why do you say that? When I look
at this, it says at the beginning it's a nonbinding
indication of interest to purchase 45 percent of the
directories business?
A Well, in my business these people are in the
business of having to show the transactions. And if they
started showing indications of interest and not pursuing
them, they wouldn't be taken seriously. They would stop
seeing transactions. It's my experience they don't write
letters like this unless they want to try to pursue it.
Now, Verizon declined it, and I understand the reasons
they did. But TPG, Madison Dearborn and Apollo would
never have written this letter unless they wanted to do
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 50
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:37
14:38
this transaction under these terms.
Q As you understand this transaction, what value
did they imply for the directories business?
A Their offer here is what's called a sponsor spin
where the sponsor of a private equity group comes in and
buys a minority, usually very near 50 percent of the
business, and the parent keeps the majority or nearly 50
percent. And their offering here on that basis, the 12.5
billion dollar valuation for Idearc, they are also
proposing to put 10.1 billion dollars in debt, another
turn of debt than what Idearc did. And significant in my
appreciation of this, they are willing to risk more than a
billion dollars of their own equity. Not other people's
market equity but their own equity.
Q Page 3 of 13. And can you show the Court where
that is evident? First bullet. I'm a page off.
A This describes the structure of what they are
talking about. And they are looking -- They think they
can support 6.5 turns of leverage or 10.1 billion dollars
of debt. And that enhanced leverage would allow Verizon
to increase it's delevering by a billion dollars more than
they were before. So Verizon could take out more money.
And taking into account the sponsor's equity investment
equaling 1.1 billion dollars, I just remember it was more
than a billion dollars. So what they are saying to
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 51
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:38
14:39
Verizon is we're willing to risk a 1.1 billion of our
equity. We think you can get more cash out than the
spin-off you are doing. That's all very well and good
from their side. Verizon had to look at it from a tax
standpoint and see if it was the right thing to do. To
me, this was a serious offer that had serious money behind
it from serious people.
Q As you understand it, when they are proposing to
put in a 1.1 billion of their equity, would that be senior
in right of repayment or junior in right of repayment to
the 10.1 billion dollars in debt they were proposing to
put on Idearc?
A Junior. It was below the 10.1 billion dollars.
Q Did you take a look as well at the credit memo
prepared by Credit Suisse?
A I did. One more thing I would like to say about
this in terms of seriousness. They hired advisors here.
Lehman Brothers and Credit Suisse. And they hired
Wachtell Lipton. They were ready to move. If Mr.
Diercksen said let's go do this transaction, they would
have done it.
MR. KEATING: Your Honor, I object as
nonresponsive. There was no question posed.
THE COURT: Overruled.
BY MR. ANKER:
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 52
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:40
14:41
Q One quick look at the credit memo, PX 745. And
I just note or just ask you, Mr. McCarty if we can go to
the bottom of the page. First, you will see it's
submitted by different parts of the bank. Is that common
in connection with the credit approval process?
A It does. It fits what I talked about. These
are the people who submitted it. There is also a group of
four or five different groups who would have approved it.
These are the submitting people, the industry group, media
telecom, the type I run, and leveraged loans which is what
Ms. Nason runs at J.P. Morgan and corporate banking which
is the normal coverage area.
Q And look at the bottom of this page. You will
see that the document is 41 pages. Is that typical for
the length and analysis of a bank for making an investment
in Term Loan A?
A Very much. 30 to 50 pages would be very normal.
Q Let's take a look at UBS. You mentioned you
reviewed their file. What did their file show generally?
A Number one, the deal captain was a guy that
worked for me six years at Dillon Read, Davis Terry, who
runs the media telecom group. And they went through a
full analysis with full downside cases, full valuation and
analysis of the credit both pros and cons. And it was
very, very thorough.
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 53
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:41
14:42
Q Can we take a quick look at their credit memo,
DX 552, which is admitted in evidence. And you said
typically these memos will be 30 to 50 pages. Am I right,
Mr. McCarty this memorandum analyzing this credit was 71
pages long?
A Yes, I guess my old firm does it longer than
most.
Q And finally, you mentioned that you looked at
BlackRock. Why did you choose BlackRock to look at?
A One, I wanted a party that was both in the A and
high yield. I said there was about a 40 percent overlap.
They are a sophisticated group. Largest buyer in the
fixed income market. So I thought they would be
reasonably representative.
Q And what did you find when you looked at
BlackRock's file?
A Very typical analysis by a nonbank buyer. They
had a single buy-side analyst, Mr. Schwartzman, who were
wrote the document and had looked through all the
different pros and cons of the investments. Looked
through the collateral and all the issues associated with
a B and made a recommendation to buy. In a fund that buys
Term Loan B or high yield, the person -- it isn't the same
as the bank where they agree to fund out of the bank.
There is now another decision process by the portfolio
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 54
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:43
14:44
managers inside the fund who will take that
recommendation -- They can't buy unless they get a
recommendation to buy. But once they get buy, maybe half
a dozen different portfolio managers at BlackRock may buy
the securities.
Q Mr. McCarty, a couple of concluding questions.
Based on your experience, do you have an opinion -- and
based on your review of the files -- as to whether the
lenders of Term Loan A and the lenders of the Term Loan B
and the purchasers of the high-yield notes formed a
judgment as to whether Idearc was worth more than its debt
as of November 17, 2006?
MR. KEATING: Your Honor, lack of foundation.
He said he only reviewed productions from 16 of the
lenders.
THE COURT: Overruled. You may answer.
A Yes I have formed an opinion.
BY MR. ANKER:
Q And what is that opinion?
A That opinion is that the participants in all the
different tranches and securities viewed the overall
enterprise value of Idearc to be substantially above the
value of its debt by a very large equity cushion.
Q Mr. McCarty, you have been in court, and you
have heard the allegation made that Verizon pulled the
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - DIRECT - ANKER 55
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:44
14:45
wool over all of these lenders' eyes. You have been in
this business 37 and a half years. Do you have an opinion
as to whether that's plausible?
A That's one of questions I asked when first
approached to try to take on this assignment. One, the
market is extraordinarily large with a very divers group
of buyers and sellers. And nothing against my ultimate
client, Verizon, but they don't know as much about the
market as the market participants by a very large margin.
They don't know that anybody inside Verizon ever issued
any leveraged loans or issued any debt. It's not
something that Bell operating companies had any experience
with. I view it as totally implausible that Verizon could
have pulled the wool over the eyes of a very efficient,
very large market that I traded in every day.
MR. ANKER: Pass the witness, your Honor.
THE COURT: Counsel for Mr. Diercksen have
questions for Mr. McCarty?
MR. CARTER: No, sir, thank you.
THE COURT: Counsel for the plaintiff?
MR. KEATING: Yes, your Honor. Thank you.
CROSS EXAMINATION
BY MR. KEATING:
Q Mr. McCarty, you were talking about this letter
that Verizon received from a consortium of three parties.
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - CROSS - KEATING 56
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:46
14:46
First, you said you viewed this as a serious offer. Is
that right?
A Yes, that's correct.
Q It's not an offer at all?
A Yes, it is.
Q Doesn't it say right here in the first paragraph
that it is a "nonbinding indication of interest"?
A In my business it's an offer.
Q Does it say it's a "nonbinding indication of
interest"?
A That's what it says there, yes.
Q And at the time this letter was written, August
10, 2006, the three parties who sent the letter to
Mr. Diercksen only had access at that point to publicly
available information about Verizon's directory business,
right?
A That plus their industry sources and the
availability of what they as private equity people had
which is beyond the normal public availability.
Q They had not yet received access to the data
room that Verizon set up that later lenders went and
looked at. Is that right?
A Correct.
Q They had not yet had an opportunity to meet with
management of Verizon's directory business and ask
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - CROSS - KEATING 57
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:48
14:48
questions about the business. Is that right?
A That's correct.
Q I have seen you in the courtroom. I think you
said you were here all the days, except for last Thursday
and Friday?
A Yes, I think Thursday afternoon and Friday.
Q Were you here last week when Ms. Nason from J.P.
Morgan testified?
A I sure was.
Q And you were here this morning when Ms. Kearns
completed her testimony?
A I sure was.
Q Were you here when Mr. Decker who had been with
Bear Stearns testified?
A I sure was. I know all three of them.
Q And you mentioned that Bear Stearns is now part
of J.P. Morgan?
A Yes.
Q And you heard Ms. Nason and Ms. Kearns testify
about how J.P. Morgan has ongoing business with Verizon,
didn't you?
A Yes.
Q Were you here for Mr. Smith of Goldman Sachs
when he testified?
A Yes.
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - CROSS - KEATING 58
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:49
14:50
Q And did he hear him say Goldman Sachs has
ongoing business relationships with Verizon?
A I sure did.
Q So Goldman Sachs representatives and Bear
Stearns representatives came and testified about due
diligence their firms did, correct?
A Yes.
Q And you are here to testify about what the other
lenders who don't have a business relationship with
Verizon did?
A No. In my knowledge base in operating with Bell
operating companies, they have commercial relationships
with almost every commercial bank on the planet.
Q I think you said you have been paid 1.9 million
for your work on case.
A That's an estimate.
Q Let's talk about information that would have
been available to the lenders who participated in the
spin-off. There is basically -- Would you agree there are
two sources of information they can get? Publicly
available information and information that Verizon
provides to them?
A I would probably say there is a third category
which is private information available at institutions
because of their involvement in the industry or sector.
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - CROSS - KEATING 59
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:50
14:51
Q If Verizon keeps information confidential,
within the confines of its company, there is no way for
those lenders to know that?
A Unless they could suppose it from their
knowledge of the industry, no.
Q Do you agree it's wrong for a borrower to make
misrepresentations to lenders?
A Yes, I agree with that.
Q And in fact, Verizon's contract with J.P. Morgan
and Bear Stearns required Verizon to disclose all material
facts to them, didn't it?
A Yes, it did.
Q You weren't personally involved in the Spin-off,
were you?
A No, I wasn't.
Q So you have no personal knowledge about what due
diligence the spin-off participants did?
A Other than my experience in dealing with Verizon
and its predecessors which I have a very strong impression
about how they do due diligence and disclosure.
Q You didn't witness any of the lenders doing due
diligence on the spin-off?
A I did not.
Q In fact, you were not able to confirm that all
the lenders in the spin-off did due diligence, were you?
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - CROSS - KEATING 60
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:51
14:52
A No, this was not production from every one.
Q How many participated in the spin-off through
the three categories?
A There are 28 banks. 206 in the Term Loan B, and
235 in the high-yield. There is about a 40 percent
overlap between the parties. So you could estimate maybe
as high as 250 or 400 institutions.
Q And you showed us a chart that had a list of the
lenders' who production you reviewed, right?
A Right.
Q And that was 16 lenders?
A That's correct.
Q Out of the more than 350 lenders who did
participated in the spin-off?
A That's correct.
Q So for the other 334 plus lenders, you have not
reviewed any of their internal due diligence documents, if
any exist?
A That's correct.
Q And the documents that you do have are those
that Verizon made available to you?
A I'm not sure if Verizon made them available.
They were on the Kroll System. So I think they were
subject to production in the case.
Q It was Verizon or Verizon's counsel made it
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - CROSS - KEATING 61
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:52
14:53
available to you?
A They were in the Kroll System. I don't know who
did that.
Q Either in your demonstrative or report, it
looked like you listed the names of the lenders, and you
had numbers next to each of lenders' name. It looked like
those corresponded to what's attached to your report. I
would like to ask you about a couple of those. I'm
looking at your senior notes investors.
A Would this be the revolver and Tranche A term
loan investors?
Q The title says "Senior Notes Investors." It was
an appendix to your report starting at Page 77?
A I think it's the same as Demonstrative 6.9.
Q So we have a list here of senior notes investors
--
A I'm sorry. These are the high-yield investors I
believe, the senior notes.
Q So we have a record here, your report is marked
as Plaintiff's Exhibit 1912, and I have on the screen a
page from the appendix of your report at Page 77 of the
appendix. At least in that appendix it has senior
investors on it?
A I'm on the same page now.
Q So we have 239 lenders on the senior notes?
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - CROSS - KEATING 62
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:54
14:55
A That's correct.
Q Let's go down to look at Number 31. If you
could enlarge that for me, please. That's the Teacher's
Insurance, institutional investor, right?
A Right.
Q And that's a pension fund?
A No, it's not. It's an insurance company
actually. It is the investment arm of Teacher's Insurance
which I think is the 8th or 9th largest investor in the
company.
Q You identified a subcategory, didn't you?
A Yes.
Q And it says pension fund next to it, right?
A That's what it says, yes. They invest for
pension funds. It's an investment vehicle of the Teachers
Fund.
THE COURT: Is that the same as TIAA Cref?
THE WITNESS: Yes, that's the same.
BY MR. KEATING:
Q Let's look at Page 61 here. Now, in your
testimony, you talked about a lot of large banks. Here on
166, we have Texas Teachers Pension Fund, right?
A Yes.
Q Who at Texas Teachers performed due diligence?
A Texas Teachers has a fixed income group, and
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
MCCARTY - CROSS - KEATING 63
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:55
14:56
it's about six people for the public side, buyers, and
they have a group that does due diligence on them. So as
in Teachers, which is a bigger investor, Texas has a group
that is in charge of that. They do both public and
private. They have a public and private group.
Q What exactly did Texas Teachers Pension Fund do
in due diligence in Verizon's spin-off?
A I don't have documentation. So I don't know.
Q Lender 97, ABP Investment Pension Fund. What
did that pension fund do exactly in due diligence, if any,
during the spin-off?
A Again, I don't have documentation. I'm not
sure.
Q Going up to Number 86 on the same page. GIC
Pension Fund. You don't know what that pension fund did
as far as due diligence in the spin-off, right?
A No.
Q There are other pension funds that are listed on
these other pages of 350 plus investors, right?
A Yes, very typical investors.
Q And you don't know what, if anything, those
investors did in due diligence?
A Other than having sold them a lot of deals in
the past and having experience with that.
MR. KEATING: Pass the witness.
CASSIDI L. CASEY, CSR, 214-354-3139UNITED STATES DISTRICT COURT
64
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14:57
14:58