News Detail

Tepper Team Wins School's Corporate Finance Case Competition

Release Date: Feb 27, 2008

Case Involved Disruption in Market for Auction-Rate Securities

PITTSBURGH – Solving a case involving auction-rate bonds, a team from Carnegie Mellon's Tepper School of Business won the school's 16th annual Corporate Finance Case Competition, held the weekend of Feb. 23.  The winning team was comprised of students from the Tepper School's full-time MBA program: Curtis Stratman; Guy Levit; Uri Halfon; Jeff Strine; and Sheridan Hodson.

Second place went to a team from Duke's Fuqua School of Business: Rodolfo Espinosa-Casaubon; Richard Ferrance; Min Li; Shiv Pathak; Krishna Vallabhaneni. Other competitors included teams from Cornell's Johnson School, the Stern School from New York University, and the Tepper School's Flex-Time program, 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 Prof. 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 very high 15% to 20%.

The case asked teams to act as if they had been hired by UPMC, a large ($6.3 billion revenue in 2007) Pittsburgh-based not-for-profit provider of health care and health insurance.  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 Prof. Ron Kaniel from Duke University, Prof. Shimon Kogan from the Tepper School, and Tepper School alum, Mike Pisarczyk (MSIA, 1998) from the treasury group at Dow Chemical, one of the case competition’s sponsoring companies.  Dow also sent along Rob Sparling (MSIA, 1995) and Kevin Low (MBA, 1995), both Tepper School alumni.  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, and PepsiCo, Finova, Williams and Aluminum Bahrain.

Founded in 1949, the Tepper School of Business at Carnegie Mellon (www.tepper.cmu.edu) is a pioneer in the field of management science and analytical decision-making. The school’s notable contributions to the intellectual community include six Nobel laureates and a consistent presence in the top tier of business school rankings. The Wall Street Journal recently ranked the Tepper School as the fifth-best business school in the United States.