JANUARY - APRIL 2006
Syllabus
TEACHING FACULTY
Prof. David Linnan (University of South Carolina)
COVERAGE
Corporate finance has several different faces. In the business school setting, corporate finance is that part of financial economics dealing with the financial decisions corporations make, and the tools and analyses used to make those decisions. In the business practitioner setting, corporate finance is largely about securing money in financial markets for business activities, employing quantitative tools and analyses based on theoretical approaches developed as part of financial economics. In the legal practitioner setting, corporate finance largely divides on the one hand into the buying and selling of business enterprises (mergers & acquisitions work), or on the other hand into working in the financial sector as regulated industry. The financial sector work involves, in the alternative, designing and implementing financial products on behalf of financial intermediaries, or helping companies implement strategies to raise funds in differing markets, or addressing enterprise risk through financial products in a variety of markets. From the lawyer's perspective, mergers & acquisitions work is largely an exercise in business enterprise and securities law involving rights of equity holders, while financial products work more often than not involves debt or derivative securities alternatively in the capital, banking, money, or insurance markets. Thus such financial products work is best understood as general financial sector work carried out within overlapping markets for regulated (financial) industries domestically and internationally. To do his own job the lawyer needs to understand enough of the business side of finance to make sense of what the client is doing buying and selling companies, or raising funds. The lawyer's stock in trade includes working these financial products and strategies under differing regulatory structures in a financial sector progressively deregulating and internationalizing since the late 1970s.
Following a general introduction, our corporate finance course concentrates on project finance as a vehicle to explore general problems of domestic and international corporate finance in the context of a specific infrastructure finance strategy. Project finance refers to the financing of long-term infrastructure, industrial projects and public services based upon a non-recourse or limited recourse financial structure where project debt and equity used to finance the project are paid back from the cash-flow generated by the project (for example, borrowing to finance construction of an electricity generating plant and then repaying said loan from the proceeds of the sale of electricity generated by the facility). The course will be taught with an introduction to the client's side of corporate finance, before treating the lawyer's side through structuring, documentation and negotiation work. In a practical sense, our goal is to give you some insight into how lawyers deal with complex contracting and concepts like debt and equity in a sophisticated business practice.
MEETING TIMES & PLACES
The class meets Mondays 13:00-14:00 Columbia time in Room 338 and Wednesdays 08:00-10:10 Columbia time in the Law Library Videoconferencing Room (starting mid-January, until then we shall meet all the time in 338). When joined in late January by Indonesian students, they will participate Wednesdays from the UI-Salemba Videoconferencing Facility. Jakarta time (GMT+7 always) is, depending upon the time of year, 11-12 hours ahead of Columbia time (GMT-5 on regular time, GMT-4 on daylight savings time; Columbia time changes from regular time to daylight savings on the first Sunday in April). The Monday meetings in Columbia will normally be in the nature of a lab to discuss matters like document drafting or negotiation assignments. Separate arrangements will be made for these purposes with Indonesian students.
COURSE MATERIALS AND CONCEPT
The initial text is William Klein & John Coffee, Business Organization and Finance: Legal and Economic Principles (9 th ed, Foundation 2004). Otherwise, instructional materials will be posted on the course website ( http://www.lfip.org/laws602/index.htm) accessed via the Law & Finance Institutional Partnership or LFIP website ( http://www.lfip.org). We shall spend the first few weeks on Klein & Coffee to develop a general framework for thinking about the overlap between law and business issues in corporate finance. Thereafter we spend a few weeks on the business school version of modern finance theory before moving directly into project finance. At that point in time we shift in part to a clinical mindset in working on some documentation. To the maximum extent possible, the course will be taught by the problem method, under which you are required to read class preparation materials posted as part of course materials, view some streaming video materials in advance, and then prepare problems or assignments posted on the class website for class discussion. We shall also import a few project finance practitioners via videoconferencing as guest lecturers.
We have a course LISTSERV (laws-602@listserv.sc.edu) to keep in touch generally. You must join the listserv to fully participate in this class, since teaching faculty will use it like a bulletin board for announcements about reading assignments, etc. while students and faculty should use it to ask questions and carry on discussions outside our videoconferenced classes. For those of you unfamiliar with the LISTSERV concept, a LISTSERV is simply a system in which e-mail communications are sent to a single address and then distributed to all LISTSERV subscribers. Please consult the LISTSERV information page at http://www.sc.edu/ars/listserv.html for general directions, and click on the course webpage class administration page for directions about how to subscribe.
You are encouraged generally to read the newspapers/websites with an eye toward questions of corporate finance and are invited to bring them up in class for discussion. By course's end, you should understand the basic issues and legal framework applicable in the broad corporate finance area.
ACCESSMENT
The primary contributor to your grade will be performance on several deal structuring, documentation and negotiating exercises in the form of group work (in groups of 3-4). You will also have a few simple assignments of this kind individually. Your group work will also include for certain exercises presentations of individual problems for class (including powerpoint presentation and fielding questions). Your group projects will incorporate an element of self-grading business-school style, to make sure that all group members invest the required effort in their work. The point of self-grading in that sense is not to evaluate who had the best ideas within the group, but rather to ensure that all group members do their fair share of the work. Incidentally, practicing lawyers largely work in groups when doing corporate finance work.
PREPARING FOR CLASS
To prepare each class you need to read the printed sources, watch any related streaming video material in advance, then work the assigned problems or exercises. Note that the course website (http://www.lfip.org/laws602spring06/index.htm) contains extensive link and quick reference pages including streaming video. Some of the streaming video will be assigned as class preparation, but if you have trouble understanding certain topics take the time to look at more of the third-party streaming video material to develop understanding independently.