Managing Global Treasury: Challenges, Risks and Relationshipsc.ymcdn.com/.../A3.Managing_Global_Treasury.pdf · · 2015-04-26Managing Global Treasury: Challenges, Risks and Relationships

© 2014 Level 3 Communications, LLC. All Rights Reserved. Proprietary and Confidential.

May 2015

Managing Global Treasury:Challenges, Risks and Relationships


Agenda

2

• Situation Summary Page 3

• Treasury Philosophy Page 12

• Treasury Operations Page 21

• Integration Design Page 28


Situation Summary

3


Company Growth History

• During April 1998, Common Stock Began Trading on NASDAQ

• Significant Growth Through Acquisitions• From December 2005 To January 2007, Made Six Acquisitions

of Domestic Facilities-Based Telecom Providers• Since 2011, Made More Significant Acquisitions

• October 2011 Acquired Global Crossing Limited• October 2014 Acquired tw telecom inc.

• Currently, $8+ Billion Revenue Company, with Common Stock Trading on the NYSE and a Member of the S&P 500®

4


Company Metrics

5

Level 3: The Provider of Choice for Global Wireline Business Needs

Network in more than 60 countries

110,000 intercity route miles 64,000 metropolitan route miles 33,000 subsea route miles

350 metro fiber networks ~350 data centers and colocation facilities ~40,000 buildings on net


Company Overview

6


Company Overview

7


Level 3 Communications Transformation

8

Current

Total Revenue: $8.123 million Core Net Svc Rev by Geography: North America: 79%EMEA: 11%

Adjusted EBITDA: $2.271 million LatAm: 10%

Net Debt to Adj. EBITDA 4.4x

Core Net Svc Rev by Customer Enterprise: 71% Bank Metrics:Wholesale: 29% Bank Accounts, # of Banks 275+, 45+

Countries, Currencies 40+, 30+Customers: ~50,000 Entities 100+

Pre-Global Crossing Post Global CrossingTotal Revenue: $3,651 million $6,344 million

Adjusted EBITDA: $853 million $1,308 million

Net Debt to Adj. EBITDA 6.8x 5.9x

Core Net Svc Rev by Customer Enterprise: 41% Enterprise: 63%Wholesale: 59% Wholesale: 37%

Customers: ~13,000 ~25,000

Core Net Svc Rev by Geography: North America: 90% North America: 72%Europe: 10% Europe: 16%

Latin America: 12%Bank Metrics:

Bank Accounts, # of Banks 135+, 20+ 350+, 55+Countries, Currencies 25+, 15+ 40+, 25+Entities 45+ 125+


Bank Account Structure

9


Treasury Operations – Transaction Volumes

10

Transactions Processed Monthly by Corporate/NA Treasury• Approximately 100 International USD Wire Transfers

• Majority are International wire transfers denominated in USD• Also includes debt service, certain employee benefit and others where timing and tracking

are important• Does not include intercompany wire transfers

• Approximately 35 FX Denominated Wire Transfers• International wire transfers denominated in foreign currency for US entities• Oracle limitations preclude shared use of currency account across different ‘Sets of Books’

• Approximately 25 Canadian Wire Transfers• USD and CAD wire transfers for Canada entities

• Approximately 350 Domestic ACH Debits• Employee benefit and tax payments where ACH debit is required by vendor

• Approximately 8,000 US and APAC ACH Credit Transactions are Uploaded and Released by Corporate Treasury

• Approximately 15 APAC Wire Transfers• USD and JPY wire transfers for APAC entities


Level 3 Communications Transformation

11

Integration – “Big Picture” Questions

• Managing More Than 2x the Number of Bank Relationships

• Managing 3x the Number of Bank Accounts

• Exposure to New Currencies

• Decentralized Treasury Execution

• Fraud Concerns Related to Different Bank Products, Bank Platforms and Geographies

• Managing Bank Documentation


Treasury Philosophy

12


Key Themes

• Cash Transparency

• Large Transaction Visibility

• Common Set of Standards and Definitions

• Ability to Scale and Automate

• Few Key Financial Relationships

• Singular Strategy with Flexible Tactics• More Complex Strategy (Treasury), Regulatory Environment

(Legal) and Repatriation Methodology (Tax, Accounting)• Additional Geopolitical Risks (Currency, Political Regimes,

Inflation)

13


Treasury Philosophy

• Centralized Policies and Governance

• Decentralized Tactics

• Firm Controls and Emphasis on Risk Management

• Automation

• Consistent Processes and Strategy

• Have Fun

14


Treasury Philosophy

• Functions Managed by Corporate Treasury• Bank Relationship Management and Bank Selection

• Approval to Open/Close Bank Accounts• Corporate Legal Review of Bank Documentation• Most System Administration of On-Line Bank Platforms

• Credit Decisions• Debt Incurrence, Bank Guarantees, Letters of Credit, Collateral Deposits• Hedging Activities• FX Trading Partners and Execution and/or Review of Large Trades

• Investment Guidelines and Decisions• Coordinate Repatriation Activities with Tax, Legal, Accounting• Review of and Consolidate Local/Regional Treasury Operations Manuals• Review and Consolidate Local/Regional Disaster Recovery Plans• Report Cash and Investment Balances to Senior Management• Produce Consolidated Bank Fees and Metrics Reporting• Produce Consolidated Global Treasury Budget

15

Centralized Policies and Governance

Clearly Defined Roles and Responsibilities, Common Standards That Lead to Clearer Communication


Treasury Philosophy

• Functions Managed by Local/Regional Treasury• Review, Approval and Execution of Vendor Payments Based Upon Corporate

Authorization Policies• Review, Approval and Execution of Local Payroll Funding• Daily Cash Positioning• Cash Forecasts by Currency• Local Counsel Review of Country Specific Bank Documentation• Local Counsel and Local Tax Review of Repatriation Activities• Cash Balance Reporting, as required• Create and Maintain Local/Regional Treasury Operations Manuals• Create and Maintain Local/Regional Disaster Recovery Plans• Timely Communication to Corporate Treasury of Changes in Personnel with

Bank Account Access• Timely Communication to Corporate Treasury of New Countries/New Bank

Accounts Required• Submit Inter-Regional Funding Requests• Preparation of Local/Regional Treasury Budgets

16

Decentralized Tactics

Allow for Local/Regional Modifications, Empower Local/Regional Execution


Treasury Philosophy

• Focus on Transparency• Cash Position by Country, Bank and Currency• Sources and Uses of Cash to Provide Clarity into Cash Flows

• Visibility by Corporate Treasury Team to Cash Balances• Real Time Access to Account Balances and Transaction History• Daily Cash Balance Reporting

• Limit Number of Bank Account Signers• Dual Written Approvals and Dual Electronic Wire Transfer Execution• Timely Changes, as required• Quarterly Review of Existing Bank Accounts and Mandates

• Segregation of Duties• Cross Training for All Daily Cash Functions• Adherence to Approval Policies and Hierarchy

17

Tight Controls and Emphasis on Risk Management

Treasury Viewed as Stewards of Corporate Liquid Assets


Treasury Philosophy

• Use of Centralized Treasury Work Station (Wall Street Systems Treasura)• Upload Prior Day Bank Balances and Transactions via BAI2 Files• Treasura to be the Central Repository for Global Bank Balances• Maximize Use of Treasura for General Ledger Cash Entries

• Use of Electronic Payment Platforms• Check Payments Generated by Oracle• Check Payment Files Sent to Bank (Positive Pay, Payee Match)• ACH Files Sent to Bank• Use of Manual Checks Should be Extremely Limited

• Use of Bank Electronic Collection Methods• Maximize Customer Utilization of ACH Payment Method

• Use of SWIFT Reporting of Bank Balances not Accessible through Treasura

18

Automation

Goal of Fewer Errors, Greater Efficiency and Smaller Teams


Treasury Philosophy

• Use of Electronic Banking Platforms• Regional Banking Strategy

• One Primary Bank Relationship per Region, Supplemented by One or More Secondary Bank Relationships, where necessary

• Maximize Repatriation Opportunities• Use of Natural Currency Hedges, where possible• Limit FX, Cash Flow and Inflations Exposure by Regularly Exchanging Excess

Cash Balances from Local Currencies to USD, where possible• Maintain Monthly/Quarterly Sweeps, where appropriate• Use of Templates for Consistent Sharing of Information

• Bank Account Opening and Closing, Signer Changes, etc.• Intercompany Funding Requests• Wire Transfer Requests• Use of Cash for Deposits, Collateral, Letters of Credit, etc.

19

Consistent Processes and Strategy

Leverage Relationships, Create Replicable and Scalable Processes


Treasury Philosophy

20

HAVE FUN!


Treasury Operations

21


Treasury Operations

• Treasury Organization

• Investment Policy Summary

• Recent Treasury Initiatives

22


Treasury Organization

23


Treasury Operations – Investment Policy Summary

24

Investment Parameters• Driven by Indenture Definitions and Provisions

o Cash Equivalents, Government Securities• Board Approved Investment Guidelines

Investment Guidelines Summary• Maximum of 5% exposure to any issuer of CP, taxable municipal notes or bond and

bank obligations• Maximum of 30% in CP investments (A1/P1 or better, < 1 year maturity)• Maximum of 20% in direct or tri-party repurchase agreements, other than those

collateralized by US Government Securities, for which there is no maximum• Maximum of 30% in bank obligations• Maximum of 20% in taxable municipal notes or bonds• No maximum applies to investments in money market mutual funds that invest solely in

US Government Treasury Securities and/or tri-party repurchase agreements collateralized with US Government Treasury Securities

• Final maturity no greater than 2 years

Try to Anticipate Needs 3 – 5 Years in Advance


North American Treasury Operations – Recent Treasury Initiatives

25

• Improve ACH Utilization and Controls for Corporate Vendor Payments• Since May 2013, increased ACH payments from 42% to 85% of total

vendor payments• Transfer Upload and Release of ACH Files from AP to Treasury• Provide ERP Generated E-Mail to Internal Payment Requestor

• Implement International ACH Payment Functionality• Create USD ACH Payment Files for Payments that Settle Internationally• Create USD and CAD ACH Payment Files for Payments that are Created

and Settle in Canada

• Increase Treasura Utilization• Increase Use of Transaction Tagging• Additional Royal Bank of Canada Activity Tagging• Roll-Out of Tagging for EMEA • Cash In Bank Reporting

Use Integration Focus to Execute Other Initiatives and Enable Change


Treasury Operations – Bank Metrics

26

Note: some countries, currencies and banks overlapped between Level 3 and Global Crossing before the merger

215

8030 20 45

135

45

2515

20

350

125

4025

55

0

50

100

150

200

250

300

350

400

Bank Accts Entities Countries Currencies Banks

Current

Level 3 (Pre)

Global Crossing~$3.6 Billion in Revenue

~13,000 Customers


Treasury Operations – Bank Metrics

27

Note: some countries, currencies and banks overlapped between Level 3 and Global Crossing before the merger

215

8030 20 45

135

45

2515

20

350

125

4025

55

0

50

100

150

200

250

300

350

400


Current

Level 3 (Pre)

Global Crossing

~$3.6 Billion in Revenue

~13,000 Customers

215

8030 20 45

135

45

2515

20

350

275

125100

4025

5545

0

50

100

150

200

250

300

350

400


Current

Level 3 (Pre)

Global Crossing

4230

~$8.1 Billion in Revenue

~50,000 Customers


Integration Design

28


Integration Planning – Treasury & Risk Management

29

Module/Activity Software Lead Timing

Various Policy/Procedure Alignment N/A Various At Closing

Bank Documentation Updates N/A Treasury At ClosingElectronic Bank Access Bank Dependent Treasury At ClosingCash Balance Reporting ERP System/TWS/Excel Treasury Day 1Daily Cash Positioning ERP System/TWS/Excel Treasury Post ClosingInvestment Policy Alignment N/A Treasury Day 1

Accounts Payable‐ Includes Emp Exp Pmts ERP System Accounts Payable Post Closing

Billing Billing System Billing Post Closing Accounts Receivable/Cash Apps ERP System Accounts Receivable Post Closing‐ Lockbox Treasury/AR/IT Follows AR/Billing‐ Customer Credit Cards Treasury/AR/IT Follows AR

General Ledger ERP System General Ledger Post ClosingPayroll ERP System Payroll Post Closing

Letters of Credit Excel Treasury Renewal DatesSurety Bonds Excel Risk Management Renewal DatesRisk Management Policy Integration Excel Risk Management Renewal Dates


Keys to Integration Success

• Organizational Impacts• Understand Differences Between Entities’ Organizational Structures• Understand Variations in Existing Processes and Procedures• Understand Impact on Employees• Understand and Mitigate Risks During Transition

• Team Effort• Early Buy-In from Impacted Parties• Help Others to Envision Post-Closing State

• Clear Priorities• Clearly Defined Responsible Party(ies)• Clearly Defined Roles and Responsibilities• Clearly Defined Milestone Dates and Due Dates

30

Open, Candid Communication – Early and Often


Key Take-Aways

• Try to think ahead when planning for needs ‘down the road’

• Take time to develop your ‘Treasury Philosophies’

• Don’t overlook the human component of change

• Focus on a few key relationships

• Look for efficiencies and scalability through automation

• Communicate, Communicate, Communicate!

• Have fun

31


Questions?

31


Treasury Contact Information

33

Level 3 Communications1025 Eldorado Blvd, Broomfield, CO 80021

Rafael Martinez-ChapmanSVP & Treasurer(720) [email protected]

Anne TellSenior Director – Global Treasury(720) [email protected]

Documents

Managing Global Treasury: Challenges, Risks and Relationshipsc.ymcdn.com/.../A3.Managing_Global_Treasury.pdf · · 2015-04-26Managing Global Treasury: Challenges, Risks and Relationships