Should it refinance now until maturity of current notes

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Question - The Berlin Brewing Company was purchased three years ago in a leveraged buy-out resulting in long-term debt for the Company of $500 million. The debt is divided between $400 million of senior debt with an interest rate of 6%, and subordinated debt of $100 million with an interest rate of 12%. Interest on both notes is paid quarterly. No principal payments are required on the debt until maturity, which will occur in another two years, at which time the entire $500 million balance will need to be paid off or re-financed. The Company can refinance its total debt today (meaning it will borrow money to pay-off the two existing loans) into a single class of senior notes that mature in two years with an interest rate of 7% and no principal payments due until maturity. Interest on the new senior notes would be due quarterly. It will have to pay a $7.5 million transaction fee in order to refinance. Should it refinance now or wait until maturity of the current notes, and why?

Reference no: EM132211822

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