Which of Financial Alternatives Would You Recommend in 1993? If Recommend More Than one, Which Is the Most Important and Why? Which Is the First and Which Is Later

8.Which of financial alternatives would you recommend in 1993? If recommend more than one, which is the most important and why? Which is the first and which is later.

Bank loan agreements could be renegotiated to extend their maturities and ease some of the binding covenants. But this alternative will cost the company extra $70 to $80 million. For this method, according to the pervious debt condition of the company, the company has a large amount of debt to pay off and the credit rating is lower than industry average.

Asset or subsidiaries could be sold for cash. Such sales might realistically raise $250 million to $500 million. This financing method is

Intermediate-term senior notes could be sold to the public for purpose of repaying the bank debt. The company can issue up to $300 million for 5-years and the cost of the notes is 12% to 12.5%.

Up to $300 million of convertible subordinated notes might be sold for purpose of repaying senior bank debt, bearing a coupon of 8.75% and mature in 7 years and be convertible to common stock for 20% higher than the market price of the common stock of Stone. In March 1993, the 20% premium means the conversion price could be $18. At that period, the conversion ratio was 55.56, that means that the $1000 par value bond can be converted to 55.56 shares.

Up to $500 millions of common stock can be issued to the public, after deducting the cost and other transaction expense, the company can get net proceed of 95% of the offering price. In March 1993, Stone’s stock price was $15 to $16 per share.

...