Debt Analysts' Views of Debt-Equity Conflicts of Interest

APPENDIX 2
Examples of text extracted around conflict-event keywords from debt analysts’ reports
Example of a Negative classification of an M&A discussion
Text excerpt from Banc One, May 30, 2003 on May Department Stores: “While May has been an
aggressive purchaser of its own stock in past years, share repurchases were minimal in 2002 and
we expect them to be negligible this year as well. Therefore, free cash flow should still be
sufficient to reduce debt if so desired. The bigger risk with May is the potential for further
acquisitions. The company has increased its presence in the bridal and formalwear segment
through acquisitions although the total dollar amount has not been that meaningful. If top-line
growth continues to be elusive for May, as we believe, management may be inclined to boost
revenue through a purchase. This could be in the form of another department store or a specialty
concept such as bridal. In either case, the impact on bondholders would probably be negative.
We still feel that the department store model is viable and the best operators should be around for
years to come.”
Example of a Positive classification of an M&A discussion
Text excerpt from Merrill Lynch, May 14, 2003 on Sears, Roebuck and Co.: “While Sears faces a
significant challenge in revitalizing its merchandising strategy and improving the productivity
and profitability of its retail stores, we view the acquisition as an important step in bolstering the
retailer’s indistinctive softline offerings. Lands’ End represents a worthy addition to a stable of
successful proprietary brand names including Kenmore, Craftsman and Die Hard. Broadening
the higher - end apparel offering at Sears, the acquisition also gives Lands End access to an
expanded customer base (in full - line stores and with access to Sears credit card customer file )
and could allow for brand line extensions in several hard-line categories (sporting and camping
gear).”
Example of a Neutral classification of an M&A discussion
Text excerpt from Bear Stearns, February 24, 2003 on Mediacom: “Management continues to
view its business plan as being more than adequately funded, and it expects to become free cash
flow positive in mid - 2003, as its plant rebuild nears completion. Debt maturities continue to
remain fairly moderate, aggregating only about $50 million through 2005. No significant
acquisitions are expected over the near - term; management actually may see a better payoff in
potentially repurchasing company stock (although its current focus appears to be on generating
free cash flow). As of December 31, Mediacom’s digital - cable service was available to
approximately 1,540,000 digital - ready basic subscribers, or 97% of its entire basic subscriber
base, and the company was marketing cable - modem service to roughly 2,320,00 data - ready
homes, or 85% of its total homes passed. As of the same date, approximately 96% of its cable
network was upgraded to 550MHz870MHz bandwidth capacity, and 91% of its homes passed
were activated with two - way communications capability. By mid - 2003, these figures both are
expected to approximate 98%, with almost 95% of its subscribers served by only 50 of its
remaining 176 master head - ends (which have decreased by over 55% during the course of
2002).”
(Continued)
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