Airbus A3xx
Autor: cricketindia • November 17, 2017 • Case Study • 643 Words (3 Pages) • 495 Views
Question 1: Without performing any numerical analysis, what are the qualitative issues (pros and cons) that Bourland should consider in comparing and evaluating the three financing options being considered?
Following is a list of considerations in comparing the three financing options.
• Forecast the performance of the properties and ascertain if they are worth keeping.
• Identify which financing strategy best fits the corporate strategy of the firm.
• The amount of debt that is required across the two properties.
• The risks associated with each financing strategy.
• Understand if either option helps Glen to retire in Florida.
• The importance of maintaining a long-term relationship with the Bank of Boston.
• Understand that increased capital from securitization is expected to lower barriers to entry for developers or acquirers.
• Understand the extent of asset liability matching for each option.
• In terms of fees, identify the cheapest option for Bourland.
• Understand the inherent interest rate risk in addition to the upfront cost of financing.
• Analyze the counterparty risk for each of the three options.
• Identify the option that minimizes equity injection.
• Understand if there is a need to diversify the sources of capital for the firm.
• Analyze the flexibility loss due to covenants such as debt service coverage ratio requirement.
• Prepayment optionality could be critical if business does better than expected.
• Non-recourse financing limits personal liability in case of default.
• Long maturity of financing gives the flexibility to weather an economic downturn.
• Calculate the switching cost (including opportunity cost) to switch from Bank of Boston.
Using the above parameters, we can assess pros and cons of the three options.
Miniperm
Pros:
• Lowest upfront cost assuming additional 2.2% not paid to cap interest rate at 11%
• Maintain and leverage relationship with Bank of Boston
• Only option without a prepayment penalty.
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