Part of the task involved explaining to the lending community details of the company's three-year revitalization program, announced in early 2003. The program called for redesigns of many restaurants, a move that would require franchisees to secure more financing. The new financing strategy had to be done without guarantees, financing, liability or any other involvement of the company's balance sheet.

The first task focused on the existing $3 billion in franchisee debt, and making sure that financing continued to be available, preferably at rates below those offered to competitors. In the McDonald's model, the corporation typically owns the land and building and leases them to the franchisee. It is up to the individual franchisee, however, to obtain start-up financing for equipment, signs and furnishings. But that was threatened by growing concerns about the risks associated with general franchise lending in the restaurant industry, as default rates began to rise, and an ongoing consolidation in the financial services industry.

At the same time, McDonald's franchise finance team broke with tradition, coordinating an innovative plan to get longer-term financing, out to 20 years, for a select group of franchisees who own and operate new restaurants. This was done by helping key lenders access the commercial paper and long-term asset-backed securities markets to better match the term structure of franchisee loans. The move was done through two securitization vehicles and freed up nearly $1 billion in back-up lines of liquidity.

The franchise finance team could then go to work to get the banks to back the company's revitalization plans for the U.S. restaurants. Much time was spent educating lenders about details of the plan, corporate management's decisions on capital deployment and a new marketing campaign commitment. "It was critical for us to free up liquidity to finance [the plan], to identify new lenders and educate our existing lenders to the impact," says Robert Donovan, assistant treasurer.

The franchise finance team was able to add several new lenders to the McDonald's franchisee lender system. The company was also able to maintain a spread advantage of 50 basis points or more over tier one, or best pricing available to the restaurant industry.

CORPORATE FINANCE – Silver

Microsoft Corp.

In December 1999, Microsoft Corp.'s shares peaked at $60, and like most technology companies, it hasn't come close to touching that level since. With tens of thousands of employees left holding underwater stock options, the company was determined to rethink its approach to equity-based compensation, a key component of its employee retention efforts.

Four years after that peak, Microsoft has transformed that program, replacing option awards with stock awards and implementing an option transfer program the likes and scale of which are considered groundbreaking. Besides the windfall for employees, the program generated corporate tax saving of $76 million in 2003 via compensation expense tax deductions. Another $57 million in tax savings is expected in future years.

Microsoft's treasury team coordinated the ambitious transfer plan, with help from JPMorgan Chase & Co., which acted as advisor and counterparty. Those employees with options granted primarily between 1998 and 2000 and with grant prices of $33 or higher were given the choice to tender their options for cash. More than 36,000 employees were eligible for the program in locations around the world. "There had never been a transaction of this magnitude before in terms of transferable options," says Norman Lee, senior treasury manager at Microsoft. Among the complexities that had to be worked out were differences in tax treatments in more than 90 jurisdictions. The plan was also scrutinized by the Securities and Exchange Commission, which issued a no-action letter. Some 51% of eligible employees participated, and the company estimates that $382 million was transferred to employees.

CORPORATE FINANCE – Bronze

Cendant Corp.

It was a tough beginning of the 21st century for Cendant Corp. Just as it emerged from a corporate malfeasance scandal amid doubts about its complex capital structure, Cendant was slammed, like other travel services companies, by the 9/11 attacks. By late 2002, all three major credit rating agencies had issued negative outlooks on its investment grade ratings. Borrowing spreads had reached record levels and Cendant shares were down 45% from the start of the year. It was time for an "extreme makeover" of Cendant's balance sheet.

Cendant's finance team launched a 24-month plan, issuing $2.6 billion of conventional term debt. They used the proceeds, along with Cendant's strong cash flows, to retire high-cost debt. The hitch: just $600 million was repayable at the time. But when those bank borrowings were paid off, capacity under a revolving credit facility was freed and Cendant's liquidity profile improved. The team then repurchased various securities at different times. "We became more aggressive in deploying our cash flow to strengthen our balance sheet, and we reduced our debt," says David Wyshner, Cendant's executive vice president and treasurer. In total, $4.9 billion of debt was retired and 69 million shares of potential equity dilution was cut from the balance sheet.

As a result, Cendant's credit default swap spreads (CDS) narrowed sharply and its shares rebounded 113% in 2003.