The R. J. Reynolds International Financing Case Study
The R.J. Reynolds International (“RJR”) Financing Case Study
1. Examine the types of securities being recommended to RJR as financing alternatives in August, 1985. As RJR's treasurer, comment on which specific types of securities you would be considering as well suited to RJR's current liability structure and overall financing program.
Maximum of 2 pages, double space.
* debt or equity?
Take one position only with many reasons.
Also, make a note: whether or not your team argues with it?
* if debt what maturities?
And why?
From corporate finance perspective, thinking of some kinds of letter,
What they’ve already had? What debt they should issue?
* fixed rate or floating rate?
Should be fixed rate or floating rate on a billion dollar?
Think of the kind of business they are in.
* currency match or mismatch?
Should they be issuing the debt if they go to the debt bond?
In US dollar denomination? Or some other denominations?
* issue in domestic, foreign, or Euromarkets?
Foreign bond market : a market place other than Eurobond market. Foreign bond market is regulated market
Euro bond market( in Macau/ Bahamas …) is an unregulated market.
• Tax-saving
• Issuing costs are less
• Anonymity – no one knows who owns this. It’s not registered of your name in government. It’s hard to trace if you take money out of country.
2. What are the all-in costs after hedging of the following six alternatives given the pricing quotes shown in the case’s Exhibits 7, 8 and 9?
* Eurodollar bond (the 1st alternatives)
* Euroyen bond with yen cash flows hedged into dollars
• using foreign exchange long dated forward contracts (the 2nd alternatives)
What is your IRR? With Euro Yen bond with those Yen outflow hedge back into dollars. Think the long dated forward exchange rate quoted by Nikko security in the case.
• using a currency swap (the 3rd alternatives)
* Dual currency bond with yen cash flows hedged into dollars Duo
1. Examine the types of securities being recommended to RJR as financing alternatives in August, 1985. As RJR's treasurer, comment on which specific types of securities you would be considering as well suited to RJR's current liability structure and overall financing program.
Maximum of 2 pages, double space.
* debt or equity?
Take one position only with many reasons.
Also, make a note: whether or not your team argues with it?
* if debt what maturities?
And why?
From corporate finance perspective, thinking of some kinds of letter,
What they’ve already had? What debt they should issue?
* fixed rate or floating rate?
Should be fixed rate or floating rate on a billion dollar?
Think of the kind of business they are in.
* currency match or mismatch?
Should they be issuing the debt if they go to the debt bond?
In US dollar denomination? Or some other denominations?
* issue in domestic, foreign, or Euromarkets?
Foreign bond market : a market place other than Eurobond market. Foreign bond market is regulated market
Euro bond market( in Macau/ Bahamas …) is an unregulated market.
• Tax-saving
• Issuing costs are less
• Anonymity – no one knows who owns this. It’s not registered of your name in government. It’s hard to trace if you take money out of country.
2. What are the all-in costs after hedging of the following six alternatives given the pricing quotes shown in the case’s Exhibits 7, 8 and 9?
* Eurodollar bond (the 1st alternatives)
* Euroyen bond with yen cash flows hedged into dollars
• using foreign exchange long dated forward contracts (the 2nd alternatives)
What is your IRR? With Euro Yen bond with those Yen outflow hedge back into dollars. Think the long dated forward exchange rate quoted by Nikko security in the case.
• using a currency swap (the 3rd alternatives)
* Dual currency bond with yen cash flows hedged into dollars Duo