In 1993 and early 1994, Freeport McMoRan Copper and Gold (FCX), a mining company, issued two
series of gold-denominated depositary shares to raise 430 million dollars expanding their mining capacity in
Indonesia. We price the depositary shares using a term structure model for the forward rates implied by
gold futures and we show that FCX successfully enhanced the credit quality of the issue. This credit
enhancement is achieved because the effect of linking the payoff of the depositary shares to gold reduces
default risk and is similar to conventional risk management. However, the bundling of financing and risk
management allows the firm to target hedging benefits only to the newly issued securities. The design of
the security also overcomes the asset substitution problem. The depositary shares issued by FCX illustrate
how firms can enhance credit quality through financial engineering without changing the existing priority
ordering of their capital structure.