Disney
Evaluate between Japanese term loan and Goldman’s proposal
There are many alternatives which can hedge this exposure; however, Mr. Anderson decided to rule out some of them for the reasons as follows: * FX option * Ruling out due to non-exist of long-term maturities * Long-dated FX forward * Disney consider it as a part of total exposure * Currency swap * Existing Disney’s Eurodollar is short-term; attractive rates for short-term is rare in Mr. Anderson’s perspective * Issuing more long-term Eurodollar debt which then swap in to yen liabilities * This alternative will make Disney facing even higher debt ratio. * Issuing Euro-yen bonds * Disney was ineligible to issue this instrument according to Japanese regulations.
Among those alternatives mentioned above, there are only two alternatives left which are considered to be the most attractive ways and; thus, they be evaluated as follows: 1. Create YEN liability directly in Japan 2. Issue ECU bond and then swap with a French utility
In the followings, we will calculate the all-in cost and compare these alternatives.
Choice 1 - Create JPY liability Due to the company’s constraints which are an incapable of issuing Euroyen bond, long-term Eurodollar and others as mentioned above, an available choice is that the company should directly create yen liability with Japanese bank at its prime rate. This will result in long-term natural hedge of Japanese yen as the company also receives Japanese royalties.
The loan terms are as follows: Loan | 15 billion | | Fees | 0.75% | | Time | 10 years | | Rate | 7.50% semi-annual | | Bullet loan | Principle repaid at maturity |
Repayment schedule: Year | 15 billion x (1-0.75%)
15 billion x (1-0.75%) | 0 | 14.8875 | 1 | -0.5625 | 2 | -0.5625 | 3 | -0.5625 | 4 | -0.5625 | 5 | -0.5625 | 6 | -0.5625 | 7 | -0.5625 | 8 | -0.5625 | 9 | -0.5625 | 10 | -0.5625 | 11 | -0.5625 |
There are many alternatives which can hedge this exposure; however, Mr. Anderson decided to rule out some of them for the reasons as follows: * FX option * Ruling out due to non-exist of long-term maturities * Long-dated FX forward * Disney consider it as a part of total exposure * Currency swap * Existing Disney’s Eurodollar is short-term; attractive rates for short-term is rare in Mr. Anderson’s perspective * Issuing more long-term Eurodollar debt which then swap in to yen liabilities * This alternative will make Disney facing even higher debt ratio. * Issuing Euro-yen bonds * Disney was ineligible to issue this instrument according to Japanese regulations.
Among those alternatives mentioned above, there are only two alternatives left which are considered to be the most attractive ways and; thus, they be evaluated as follows: 1. Create YEN liability directly in Japan 2. Issue ECU bond and then swap with a French utility
In the followings, we will calculate the all-in cost and compare these alternatives.
Choice 1 - Create JPY liability Due to the company’s constraints which are an incapable of issuing Euroyen bond, long-term Eurodollar and others as mentioned above, an available choice is that the company should directly create yen liability with Japanese bank at its prime rate. This will result in long-term natural hedge of Japanese yen as the company also receives Japanese royalties.
The loan terms are as follows: Loan | 15 billion | | Fees | 0.75% | | Time | 10 years | | Rate | 7.50% semi-annual | | Bullet loan | Principle repaid at maturity |
Repayment schedule: Year | 15 billion x (1-0.75%)
15 billion x (1-0.75%) | 0 | 14.8875 | 1 | -0.5625 | 2 | -0.5625 | 3 | -0.5625 | 4 | -0.5625 | 5 | -0.5625 | 6 | -0.5625 | 7 | -0.5625 | 8 | -0.5625 | 9 | -0.5625 | 10 | -0.5625 | 11 | -0.5625 |