Financing Expansion Plans of Tuxedo Air with Bond Issue

Running Head: CORPORATE FINANCE
CORPORATE FINANCE
Name of the Student
Name of the University
Author Note

1CORPORATE FINANCE
Table of Contents
Memorandum.............................................................................................................................2
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2CORPORATE FINANCE
Memorandum
To- Board of Directors
From-
Cc-
Date- February 17, 2019
Subject- Financing Expansion Plans of Tuxedo Air with Bond Issue
This memo is prepared with the intention of analyzing the different possible expansion plans
for financing Tuxedo Air with the help of issuing bond. The presentation of this memo would
be beneficial for owners of Tuxedo Air for understanding costs and benefit associated with
different financing options.
The bond is considered to be debt security, in which issuer owes debt holders as well as is
obliged for paying interest or repaying principal at the later date that is known as date of
maturity. In case of secured bond, the issuer needs to pledge specific assets as collateral, if
required, for paying to bondholders.
The seniority of bond implies that in case, when there is default then preference is given to
senior bond over the other bonds. For the bondholders, bond with the seniority is
advantageous, as it helps in mitigating risk. Hence, bond’s coupon rate would be lower.
The sinking fund presence is advantageous because money is set aside for redeeming debt.
The bonds funded by the sinking funds have very little chance to get default on payments of
the interest and principal repayments. It helps in making it safer investments as well as more
attractive towards investors, who are risk-averse (Downes and Goodman 2014).