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March 5: Host Team Wins Tepper School's 16th Annual Corporate Finance Case Competition


Geof Becker                           

Host Team Wins Tepper School's 16th Annual
Corporate Finance Case Competition

Case Involved Disruption in Market for Auction-Rate Securities

PITTSBURGH — Solving a case involving auction-rate bonds, a team from Carnegie Mellon University's Tepper School of Business won the school's 16th annual Corporate Finance Case Competition, Feb. 23-24.  Team members, who are all students in the Tepper School's full-time MBA program, are Curtis Stratman, Guy Levit, Uri Halfon, Jeff Strine and Sheridan Hodson.

Second place went to Rodolfo Espinosa-Casaubon, Richard Ferrance, Min Li, Shiv Pathak and Krishna Vallabhaneni of Duke University's Fuqua School of Business. Other competitors included teams from Cornell University's Johnson School, New York University's Stern School and the Tepper School's FlexTime program, which is designed for professionals who want to complete their MBA part-time while continuing with their careers.

The case, involving a failure in the market for auction-rate bonds, was written by Professor Bryan Routledge, associate professor of finance at the Tepper School.  Auction-rate bonds are long-term municipal bonds that mimic the short-term features of commercial paper.  The variable rate on the bonds is set in regular, usually weekly auctions. Auctions for auction-rate bonds have been operated smoothly for some 20 years.  However, in early February auctions failed to set a rate and the interest rate on the debt jumped to a very high 15 to 20 percent.

The case asked teams to act as if it had been hired by UPMC, a large Pittsburgh-based not-for-profit provider of health care and health insurance that had $6.3 billion in revenue in 2007.  Teams were asked to provide guidance on what the health care giant should do in both the immediate and near-term about the rising interest rates on its bonds.

"To approach the case, the students needed to sort out the benefits and risks associated with UPMC's capital structure.  These are standard corporate finance issues.  However, the not-for-profit setting is something the students have not considered before," Routledge said.  "The new setting forces the students to carefully use and adapt the tools they have developed in their finance classes.  In the six hours the students have to analyze the case, that is doable, but far from easy." 

The student presentations were questioned and judged by a panel that included Duke Professor Ron Kaniel, Tepper School Professor Shimon Kogan and Tepper School alumnus Mike Pisarczyk (MSIA, 1998) from the treasury group at Dow Chemical, one of the competition's sponsoring companies. Also representing Dow Chemical were Tepper School alumni Rob Sparling (MSIA, 1995) and Kevin Low (MBA, 1995).  Interestingly, the treasurer at UPMC, C. Talbot Heppenstall, also graduated from the Tepper School (MSIA, 1995).

Alcoa also was a corporate sponsor for the 2008 competition.

The Tepper School's Corporate Finance Case Competition is a long-running competition that attracts students from the leading business schools.  Previous competitions have covered valuation, M&A, bankruptcy, dividend policy and capital budgeting.  Companies in past cases have included Airbus, PepsiCo, Finova, Williams and Aluminum Bahrain.