Project Pemberly — Investment Grade Bond Issuance
A 1.5-hour Debt Capital Markets / IG Issuance case study with a complete model answer
Modeled After
J.P. Morgan
The capital-markets financing exhibit archetype: a consolidated capitalization table ordered by seniority with ratings, coupon, floor, maturity, price, yield, yield-to-worst and next call date, charted against the advisor's own leveraged loan and high yield indices
Structure and exhibit set are modeled after J.P. Morgan. The company, the financials and every figure in this case are entirely our own.
The Situation
Pemberly Utilities Corporation
- Sector
- Rate-regulated electric and gas utility — transmission and distribution, gas distribution and two generating stations — operating under a state commission's general rate order with an authorized capital structure, an allowed return on equity and an authorized embedded cost of long-term debt
- Size
- Geography
- United States; a single rate-regulated operating utility headquartered in Cedar Rapids, Iowa, serving 1.42 million electric and 0.61 million gas customers
- Ownership
- Situation
The Prompt
You are staffed on a Debt Capital Markets / IG Issuance engagement for Pemberly Utilities Corporation. You have 90 minutes to work through the materials and produce an answer deck and an Excel model.
Supporting Materials
What you are handed at the start of the case, in the format a real process would use.
What You Have to Produce
The deliverables, in the order the committee will read them. The exercise runs 90 minutes.
PART 1
Consolidated capitalization and trading levels
PART 2
The issuer's own curve, and the two published index levels
PART 3
Book-building, pricing and proceeds
PART 4
New issue concession, and the screen
PART 5
Tenor alternatives against the three published constraints
PART 6
Use of proceeds and the make-whole redemption
PART 7
Credit metrics, the authorized capital structure and secured capacity
How to Approach It
The order a strong candidate works in, and why. This is the shape of the answer — the finished answer deck and Excel model are in the solution set below.
- 01
Get the price-to-yield arithmetic working before anything else
- 02
Build the curve by lien class, and keep the index out of it
- 03
Write the constraints down before you compute the options
- 04
Treat the concession and the move from initial price thoughts as different things
- 05
Run the agency methodology on every option, then ask what it decided
- 06
Finish outside the bond
Key Concepts
The ideas this case is built on. Know these cold and the case becomes a question of execution rather than knowledge.
Why an issuance case carries no valuation
A treasurer raising senior debt is not solving for what the business is worth. Every output in this case is a spread, a coupon, a price, a proceeds figure or a ratio of cash flow to debt, so a discounted cash flow, a cost of capital, a terminal value, a comparable companies analysis or a football field would answer a question nobody asked. The comparison set here is other issuers' NEW ISSUES, and it is used to price a concession rather than to value a company. Reaching for the valuation toolkit is an error in kind rather than in detail, and it is visible to a reader on the first page.
G-spread, option-adjusted spread and the spread to the on-the-run benchmark
A G-spread is an instrument's yield less the yield of the Treasury interpolated to the SAME remaining life. An option-adjusted spread strips the value of embedded optionality and is how broad indices are published. A spread to the on-the-run benchmark uses whichever Treasury is currently being auctioned rather than one matched to the bond. The three are close enough to be confused and far enough apart to change a pricing conversation, so a page that puts an issuer's own levels beside a published index has to say which basis each is quoted on.
New issue concession
The concession is the premium a new issue pays over where the issuer's existing paper already trades, measured at the same tenor and in the same lien class: launch spread less interpolated secondary spread. It is not the move from initial price thoughts, which is the record of demand during book-building, and it is not the spread to an index, which measures the issuer against other issuers rather than against itself. Conflating the concession with the move from initial price thoughts is the single most common error in a new issue post-mortem, and it always errs in the flattering direction.
The authorized embedded cost of long-term debt
A rate order fixes the embedded cost of long-term debt the utility is allowed to recover in rates. Embedded cost is the weighted average coupon on the debt actually outstanding, so every new issue at a coupon above the authorized level pulls the blended figure toward it. Cost above the authorized level is not recovered until the next general rate case, which makes the choice of tenor a regulatory decision as well as a treasury one, and a constraint an industrial issuer does not carry.
The authorized capital structure, and why the equity is a solve
A regulated utility earns its allowed return on the capital structure the commission authorized, not on the one it happens to have. Debt raised above the authorized layer is financed at the company's own cost of money and earns nothing in the revenue requirement, so a debt raise implies an equity raise, and the size of it falls out of arithmetic rather than out of a plan. That is why an announced financing plan and the plan the authorized structure actually requires can differ, and why checking them against each other belongs in the same exercise as the bond.
Funds from operations to debt, and the agency's adjusted debt
The published methodology for regulated utilities runs on funds from operations to debt rather than on a turn of EBITDA, and the debt in the denominator is not the balance sheet's. Capitalized operating leases and unfunded pension and other post-employment obligations are added; a portion of hybrid securities is credited as equity. Quoting a leverage multiple to a utility rating committee is quoting a measure it does not use, and running the ratio off reported debt understates it by the whole adjustment stack.
Make-whole redemption is a floor at par
A make-whole provision lets the issuer redeem at the GREATER of par and the present value of the remaining payments discounted at a matched Treasury plus a small spread. When rates have fallen since issue that present value is above par and the make-whole is expensive; when rates have risen it is below par and the floor governs, so the issuer simply pays par. Candidates routinely assume the provision is costly in every state of the world, which is the wrong way round half the time, and the direction is decided by what rates have done since the bonds were sold.
Two different limits on secured debt
The mortgage indenture governs how many first mortgage bonds may be ISSUED, as an advance rate against net bondable property additions. The rating agency's notching approach governs how many may be OUTSTANDING before the senior unsecured is marked down a notch for the subordination the lien creates, as a share of net utility plant. They are different tests with different denominators and they do not bind at the same level. Checking one and stopping is the standard failure, and which one is looser is a fact about this balance sheet rather than a general rule.
Maturity concentration and the shape of the ladder
A treasury policy that caps any single maturity year as a share of total debt is a refinancing-risk policy rather than a covenant, and it is the reason the most intuitive answer to a long-lived asset base — one large liquid long tranche — can be unavailable. The companion question is the shape of the rest of the ladder: a gap of several years is a period in which nothing rolls off and the years around it carry the load. A new issue that adds rungs where the ladder is empty is doing something a coupon table cannot show.
What Makes It Hard
The specific traps in this case — the places candidates lose the assessment without noticing.
Check Your Answer
Type the figures you produced and find out how many are right before you open the worked answer. You get a verdict and, where you are off, a pointer to the part of the build to re-check — never the number itself. Everything you type stays on this device.
How to type a figure. Digits, with an optional unit: 1,234.5, $1,234.5, 2.6x, 21.4%. For a negative use (20.0) or -20.0. Enter as many decimals as you carried — precision is never penalised.
What the Case Asked For
The arithmetic is only half of it. Tick off what you actually produced — this half is yours to score, because nothing can grade a written recommendation from a checkbox.
The Model Answer
The worked answer in full: answer deck and Excel model, built the way a banker would actually build them. It is a reference, not a submission — a strong answer under the clock is far shorter.
What the Solution Covers
- —Consolidated capitalization and trading levels
- —Tenor and maturity ladder design
- —Ratings agency methodology and FFO-to-debt
- —Secondary trading levels versus index
- —New issue concession and pricing
- —Use of proceeds and pro-forma leverage
Answer Deck
Full model answer, banker-formatted
Upgrade to Diamond
Sign up and upgrade to Diamond to unlock the answer deck, the Excel model and the audio walkthrough.
Get StartedThe Excel Model
The model is linked and tied out end to end — every schedule, every formula and every check, in the file itself.
Downloads are available to Diamond members
Excel Model and PowerPoint Deck and Answer Deck (PDF) — yours to open, edit and rebuild
Walkthrough
A conversational walkthrough of how to approach the case under time pressure — where to start, what to cut, and how the recommendation gets defended.
Audio Walkthrough
How to approach Project Pemberly — Investment Grade Bond Issuance
60-second preview — upgrade to Diamond for the full walkthrough
Frequently Asked Questions
What is a debt capital markets case study, and how is it different from an LBO?
A DCM case asks how an already-investment-grade issuer should raise senior debt: how much, at what tenor, at what spread, and what it does to the credit and to the capital structure. There is no buyer, no seller, no equity return and no valuation, because nothing is changing hands. An LBO case solves for a price and a return; this one solves for a coupon, a maturity profile and the equity that has to be raised alongside the bonds. The toolkits barely overlap, and importing the buyout kit into a financing is the clearest single tell of the wrong approach.
How do you size a new issue concession?
Take the launch spread and subtract the issuer's own secondary spread interpolated to the same tenor, in the same lien class. Both halves matter: the same tenor, because a credit curve slopes; and the same lien class, because secured and unsecured paper from the same issuer trade at materially different levels. Then size-weight the tranches for an aggregate figure. What you must not do is quote the move from initial price thoughts, which measures book-building rather than cost, or the spread to an index, which measures the issuer against other issuers rather than against itself.
Why does the tenor decision matter so much for a regulated utility?
Because a regulated issuer carries two limits that an industrial issuer does not. The commission fixes an authorized embedded cost of long-term debt, so every new coupon above that level pulls the blended figure toward a level that is not recovered in rates until the next case; and the authorized capital structure fixes how much debt the balance sheet may carry at all. On top of those a board-approved treasury policy usually caps concentration in any single maturity year. Tenor is therefore a regulatory decision as much as a treasury one, and the answer that matches the asset life may not be available.
Is a make-whole call expensive?
It depends entirely on what rates have done since the bonds were sold, and that is the point of the provision. The redemption price is the greater of par and the present value of the remaining payments discounted at a matched Treasury plus a small spread. If rates have fallen, that present value is above par and the issuer pays a real premium. If rates have risen, the present value is below par and the floor governs, so the issuer pays par and the provision costs nothing. Assuming it is expensive in every state of the world is a common and avoidable error.
What is the difference between an indenture basket and a ratings notching test?
The mortgage indenture is a contract with bondholders and governs how much secured debt may be ISSUED — typically as an advance rate against net bondable property additions. The notching test is a rating agency convention and governs how much may be OUTSTANDING before the senior unsecured is marked down a notch for the subordination the lien creates, usually as a share of net utility plant. They have different denominators and different levels, so one of them binds first, and which one is a fact about the specific balance sheet rather than a rule. A candidate who checks only the indenture has checked whichever of the two the case chose to make looser.
How should you spend the ninety minutes?
Get the price-to-yield arithmetic on the capitalization page working first, because every spread downstream reads off it. Build both secondary curves and interpolate them next, since that single block yields the concession, the value of the lien and the pricing conversation at once. Only then go to the tenor options, and go with the three constraints already written down. Leave real time for the capital structure solve at the end: it is the smallest piece of arithmetic in the exercise and the easiest to run out of clock before reaching, which is the failure the case is built to produce. Then say what the analysis is not — no valuation, no cost of capital, no comparable companies — and why none of it answers the question.
About This Debt Capital Markets / IG Issuance Case Study
Debt Capital Markets / IG Issuance case study for investment banking interviews. 90-minute format covering consolidated capitalization and trading levels, tenor and maturity ladder design, ratings agency methodology and ffo-to-debt. Includes the full prompt, a model answer deck, a tied-out Excel model and an audio walkthrough.
This case study sits in Investment Banking, under Debt Capital Markets. Every case ships with the full prompt, the supporting materials, a complete model answer and an audio walkthrough of the judgment behind the recommendation.
90-Minute Format
The time limit a real assessment would give you
Answer Deck
Included in the model answer
Excel Model
Included in the model answer
Audio Walkthrough
How to approach the case under time pressure
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