Analysts from Janney reported that in the first quarter of 2016 the number of

Analysts from janney reported that in the first

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. Analysts from Janney reported, that in the first quarter of 2016, the number of bond deals that had closed was down 37% compared with the same time in 2015 ( Ismailidou, 2016). On the other hand, the average deal size has increased by 50% to $754 million, the largest average size since 2005, which in practice it means that there is little appetite in the market for smaller bond offerings, even from corporations with good credit ratings, making it impossible for small- and midcap companies to obtain financing ( Ismailidou, 2016) . This becomes worrisome for Tuxedo Air, since they are a small to midcap company, it may become difficult for them to sell their bonds. Tuxedo Air Inc. should make their bonds as marketable to their investors as possible, offering a security bond, to provide assurance to investors. Offering the business's assets as collateral for the bonds, even if it means a chance of losing those assets if they don't pay the interest or the face value of the bonds as agreed (Thibodeaux, 2017). This will not only give a lower coupon rate, which benefits Tuxedo Air; they will not have to pay high coupon periodic payments, it also benefits investors as they have security in cases of company bankruptcy or inability to pay in full at maturity (Ross, et al., 2016).
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Mini Case Analysis #2 6 Tuxedo Air is looking to sell bonds, to help raise money for their expansion project which means, they need the funds in a relatively short term period. Long term bonds are also an option, but should also come with the call provision feature. This feature becomes advantageous for a long-term bond because Tuxedo Air will be able to choose to pay them off before the maturity date to free themselves from the ongoing payments with higher coupon rates (Ross, et al., 2016). Tuxedo Air should use an option that keeps the coupon rate low, and short periods of time. Conclusion When you issue a bond, your current shareholders keep whatever ownership equity they have in the company and keep the control of the business (Thibodeaux, 2017). When you issue a bond, you tell the bondholder exactly when he can cash in the bond, you also set the rate of interest you will pay; the repayment of the loans obtained via bonds is very predictable. This enables you to estimate what the company's financial obligations will be, which makes planning for operations easier. when you issue a bond, you are not obligated to share the profits generated by using the loaned funds, you must pay interest on any bonds you issue that have a designated interest rate. Interest payments on your company income tax return can be deducted and the bonds have a lower after-tax cost and don't cost you as much to offer (Thibodeaux, 2017). There are several advantages for company’s who use the bond market to raise capital for their operating needs, even with the disadvantages of risk, and public perception the benefits outweigh these risks. The best way for Tuxedo Air to reap these benefits if with security bonds, because they have low coupon rates and can be used in the short term.
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Mini Case Analysis #2 7 In the future, if Tuxedo Air becomes a publicly traded company they may want to consider, convertible bonds. This type of bond starts off acting just like other bonds, but offers
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