TN32 Rosario Acero SA 1 
Rosario Acero S.A.
Teaching Note
Synopsis and Objectives
In March 1997, the board’s chair of this small steel mill was pondering how to finance the growth of his firm: either with an initial public offering (IPO) of equity or through a private placement of eight-year senior notes with warrants. The task for the student is to sort out the comparative advantages and disadvantages of each alternative—including valuing the possible securities—and then recommend a course of action.
These are the objectives of this case:
Survey the main considerations in the basic choice between debt and equity financing. The case allows an application of the classic FRICTO (flexibility, risk, income, control, timing, and other) framework, as well as an opportunity for students to exercise their valuation skills.
Consider the impact of financing on the value of the firm. The financial models permit the firm to be valued under alternative financing strategies.
Explore issues in financing the privately owned firm regarding voting control, the decision to go public, and the role of private-placement financing.
Study Questions for Advance Assignment to Students
1. Why is Pablo Este considering obtaining long-term capital?
2. How will the two financing alternatives affect the performance of the firm? Please examine the financial forecasts contained in Exhibits 6 through 11 in the case.
3. What are the principal risks the firm faces? Under some reasonable downside scenario, could Rosario Acero continue to service its debt?
4. From Rosario’s standpoint, are the terms of the notes and warrants package competitive and/or attractive?
5. As for the possible equity issue, would an offering price of $9.00 per share be fair?
6. Which course of action should Este adopt? In preparing your recommendation, use the FRICTO framework to identify the trade-offs between the two alternatives. (FRICTO stands for flexibility, risk, income, control, timing, and other.)
Spreadsheet Files
Teaching Note
Synopsis and Objectives
In March 1997, the board’s chair of this small steel mill was pondering how to finance the growth of his firm: either with an initial public offering (IPO) of equity or through a private placement of eight-year senior notes with warrants. The task for the student is to sort out the comparative advantages and disadvantages of each alternative—including valuing the possible securities—and then recommend a course of action.
These are the objectives of this case:
Survey the main considerations in the basic choice between debt and equity financing. The case allows an application of the classic FRICTO (flexibility, risk, income, control, timing, and other) framework, as well as an opportunity for students to exercise their valuation skills.
Consider the impact of financing on the value of the firm. The financial models permit the firm to be valued under alternative financing strategies.
Explore issues in financing the privately owned firm regarding voting control, the decision to go public, and the role of private-placement financing.
Study Questions for Advance Assignment to Students
1. Why is Pablo Este considering obtaining long-term capital?
2. How will the two financing alternatives affect the performance of the firm? Please examine the financial forecasts contained in Exhibits 6 through 11 in the case.
3. What are the principal risks the firm faces? Under some reasonable downside scenario, could Rosario Acero continue to service its debt?
4. From Rosario’s standpoint, are the terms of the notes and warrants package competitive and/or attractive?
5. As for the possible equity issue, would an offering price of $9.00 per share be fair?
6. Which course of action should Este adopt? In preparing your recommendation, use the FRICTO framework to identify the trade-offs between the two alternatives. (FRICTO stands for flexibility, risk, income, control, timing, and other.)
Spreadsheet Files