What do you think about mathias argument

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Reference no: EM131931947

CASE STUDY - SENIOR CARE ENTERPRISES BOND REFUNDING

Answer all four questions in one or more full paragraphs.

1. Pamela Mathias is opposed to calling the bonds because she thinks this would not be well received by the major institutions that hold Senior Care's outstanding bonds. The institutions purchased them on the expectation of receiving the 8.0 percent interest rate for at least ten years, and they would be very unhappy if a call occurred after only five years. What do you think about Mathias' argument?

2. What happens if there is a downgrade in Senior Care's bond rating? Suppose the major bond rating agencies unexpectedly downgrade Senior Care's credit rating from A to triple-B before the firm could initiate the refunding, resulting in a 7.5 percent coupon rate and flotation costs of 1.5 percent on the new issue. How would these changes affect the refunding decision?

3. Do you recommend that Senior Care refund the bonds now (Catalan), one year from now (Marchiano), or not at all (Mathias)? Explain your recommendation.

4. In your opinion, what are three key learning points illustrated in the case?

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Reference no: EM131931947

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What do you think about mathias argument : CASE STUDY - SENIOR CARE ENTERPRISES BOND REFUNDING - What do you think about Mathias' argument, what are three key learning points illustrated in the case

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