Question

A non-investment grade company wants to borrow money. It is considering two options: (i) issuing a...

A non-investment grade company wants to borrow money. It is considering two options: (i) issuing a 144a high-yield bond, or (ii) issuing a leveraged loan. The company is certain that interest rates will fall drastically next year. With this in mind, which form of debt would be most favorable and why? Why would the other form of debt be less favorable? (6 points)

Homework Answers

Answer #1

Here as we know the company already has high debt and not in the investment grade thus if it goes for leveraged loan the interest rate would be very high and constant. So if the company goes for the leveraged loan then it may not be able to get the benefit of falling rate.

If the Company goes for the 144a high yield bonds then they can attract buyers (QIB) and also when rate decreases they can effectively lower their cost of borrowing. Thus it would be better to issue a 144a high-yield bond rather than going for the leveraged loan.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Geralt Technologies is considering a major expansion program that has been proposed by the company’s information...
Geralt Technologies is considering a major expansion program that has been proposed by the company’s information technology group. Before proceeding with the expansion, the company need to develop an estimate of its cost of capital. Assume that you are an assistant to Henry Cavill, the financial vice-president. Your first task is to estimate Geralt’s cost of capital. Henry has provided you with the following data, which he believes may be relevant to your task: (i) The firm’s tax rate is...
Infinity Corporation, a public company, has set up a number of limited partnerships to pursue some...
Infinity Corporation, a public company, has set up a number of limited partnerships to pursue some risky development projects. The limited partnerships borrow money from various financial institutions to support the development projects, and Infinity guarantees these loans. Infinity’s interest in each limited partnership is set at a level just below the percentage that would require the partnerships, and their debts, to be included in Infinity’s consolidated financial statements. These percentages are set out specifically in the professional accounting recommendations...
SCROLL TO THE BOTTOM!!! For starters, the capital structure for the past year of operations is:...
SCROLL TO THE BOTTOM!!! For starters, the capital structure for the past year of operations is: Mortgage bonds (Debt): $2,000 Debentures (Debt): 1,500 Retained earnings (Equity): 500 1. What is the current financial mix (this was in the Cost of Capital video lecture)? Answer: 0.875 : 0.125 The president informed you that DWOTT has chosen to raise capital by issuing stocks and bonds in the ratio of 6.5:3.5. 2. What does that mean for your company (in other words, their...
Multiple Choice 11. Prepayment risk is: A. the risk you will not receive the cash flows...
Multiple Choice 11. Prepayment risk is: A. the risk you will not receive the cash flows on a mortgage-backed security B. the risk that you will receive the cash flows sooner than expected and be forced to invest at a lower rate. C. the risk that you will receive the cash flows later than expected and not be able to invest at current, higher rates. 12. Based on the video Inside the Meltdown, it appeared that the main reason Lehman...
In narrative essay format, I want you to address a business/organization case study using multiple concepts...
In narrative essay format, I want you to address a business/organization case study using multiple concepts from class. The case question and case text begin on page 5 of this document. You need to demonstrate their best understanding of management and organizational behavior theory, and the application of those ideas to improve the understanding of various issues. You need to clearly identify at least 3 distinct, substantive issues. For each issue you need to 1), identify evidence from the case...
Team 5 answer the questions What are 4 key things you learned about the topic from...
Team 5 answer the questions What are 4 key things you learned about the topic from reading their paper? How does the topic relate to you and your current or past job? Critique the paper in terms of the organization and quality. Incentive Systems             In this paper, we will focus primarily on financial rewards that companies use to attract, retain and motivate the brightest and most talented candidates in the labor market. By providing a reward system that...
Discuss ethical issues that can be identified in this case and the mode of managing ethics...
Discuss ethical issues that can be identified in this case and the mode of managing ethics Enron finds itself in this case. How would you describe the ethical culture and levels of trust at Enron? Provide reasons for your assessment. THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among...
What role could the governance of ethics have played if it had been in existence in...
What role could the governance of ethics have played if it had been in existence in the organization? Assess the leadership of Enron from an ethical perspective. THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among the top Fortune 500 companies, collapsed in 2001 under a mountain of debt...
Discuss how the respective organizations’ relations with stakeholders could have potentially been affected by the events...
Discuss how the respective organizations’ relations with stakeholders could have potentially been affected by the events that took place at Enron and how the situation could have been dealt with differently to prevent further damage? THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among the top Fortune 500 companies,...
Delta airlines case study Global strategy. Describe the current global strategy and provide evidence about how...
Delta airlines case study Global strategy. Describe the current global strategy and provide evidence about how the firms resources incompetencies support the given pressures regarding costs and local responsiveness. Describe entry modes have they usually used, and whether they are appropriate for the given strategy. Any key issues in their global strategy? casestudy: Atlanta, June 17, 2014. Sea of Delta employees and their families swarmed between food trucks, amusement park booths, and entertainment venues that were scattered throughout what would...