Mark Taylor and Jack Rodwell, the owner Tuxedo Air, have decided
to expand their operation. They instructed their newly hired financial analyst. Ed Cowan, to enlist an underwriter to help sell $35 million in new 10-year bonds to finance construction. Chris has entered into discussion with Suzanne Lenglen, an underwriter from the firm of Ralnes and warren, about which bond features Tuxedo Air should consider and what coupon rate issue will likely have.
Although Ed is aware of the bond features, he is uncertain about the costs and benefits of some features so he isn't how each feature would affect the coupon rate of the bond issue. You are Suzzane's assistant, and she has asked you to prepare a memo to Ed describing the effect of each of the following bond features on the coupon rate of the bond?
-What are the advantages of the security of the bond - that is, whether the bond has collateral?
-What are the advantages of the seniority of the bond?
-What are the advantages of the presence of sinking fund?
-What are the advantages of a call provision with specified call dates and call prices?
-What are the advantages of a deferred call accompanying the call provision?
-What are the advantages of a Canada plus call provision?
-Any positive covenants? Also, discuss several possible positive covenants Tuxedo Air might consider?
-Any positive covenants? Also, discuss several possible negative covenants Tuxedo Air might consider?
-A conversion feature? (note that Tuxedo Air is not a publicly traded company)?
-What are the advantages of the a floating rate coupon?
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