1) Including the undrawn revolver, the $900 million loan will likely be just enough to cover Williams’ financing need over the next six months. The $711 million short-term debt can be covered with the undrawn $700 million revolver, plus some cash on hand. The $920 million of long-term debt maturing over the next 6 months can be covered by the new $900 million loan and cash on hand. That would leave roughly $740 million of cash and securities to cover losses from the operations of the business, though recent losses have mainly resulted from non-operating one-off charges, and the additional interest and fees from the new loan. Should cash and securities start to approach the $600 million covenant in the in BHLB loan, Williams will have to continue to sell assets in order to remain solvent. While Williams will likely be able to survive the next 6 months, 2003 will pose significant financing challenges, as an additional $1.15 billion of long-term debt comes due and Williams will have to pay off approximately $261 million of fees, on top of the principal, on the Berkshire/Lehman loan. 2) The minimum annual rate of return is 35.5%, which assumes that the deferred set-up fee will be equal to 15% of the principal balance of the loan. Should RMT assets be sold over the term of the loan, the deferred set-up could be significantly larger. The fee is the lesser of 15% of the principal, or 15-21% (depending on timing) of the purchase price of a majority of the assets of RMT. RMT had acquired $2.8 billion in assets in a deal less than two years ago, so a majority sale of the assets of RMT would likely be for at least $1.4 billion, meaning that even at the low end of 15%, the deferred set-up fee would be much greater than 15% of the principal balance of the loan. The IRR of the loan assuming the deferred set-up fee is 15% of the principal balance of the loan:
3) The deferred set-up fee is like a call option on the value of the assets sold by RMT. Should Williams...
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