Using a Word document, complete the requirements of the Mini-case “Financing S & S Air’s Expansion Plans with a Bond Issue”, located at the very end of Chapter 7 in your course textbook.
Your response should take the form of a memo, as explained in the case.
For each of the ten bond features listed, briefly describe the likely impact of each of the features on the coupon rate demanded by potential bond investors when this new bond is issued. Will it cause the required coupon rate to be higher or lower?
In addition, for each of the ten bond features listed, briefly describe the advantages or disadvantages, from S&S Air’s perspective, of implementing that feature with the newly-issued bond.
QUESTIONS
The security of the bond—that is, whether the bond has collateral.
The seniority of the bond.
The presence of a sinking fund.
A call provision with specified call dates and call prices.
A deferred call accompanying the preceding call provision.
A make-whole call provision.
Any positive covenants. Also, discuss several possible positive covenants S&S Air might consider.
Any negative covenants. Also, discuss several possible negative covenants S&S Air might consider.
A conversion feature (note that S&S Air is not a publicly traded company).
A floating rate coupon.
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