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Here in the note they say that the bondholders have agree that they will allow Bar Co to buy back the bonds at this market value.
8% bonds are currently trading at $112.50 per $100 bond, but in the answer they’re saying Barco is buying 80m the nominal value why is this?
For every $100 nominal value, they are having to pay $112.50
They are paying in total $90M, and if they are paying $112.50 for each bond it must mean that the bought bonds with a nominal value of 100/112.50 x $90M = $80M
Dear Sir,
my enquiry relates to the same question Bar Co.
if the loan notes are being bought back at their market value rather than their nominal value, why do we have to compare the amount spent redeeming them to their nominal value rather than their market value? shouldn’t we get their market value when redeemed and compare that to the cash spent redeeming them? I.e shouldn’t it be 90 X 112.5/100 instead? can you please explain?
thank youBut the question says that they are redeeming them at the market value of $112.50.
So they will pay $112.50 for every bond having a nominal value of $100.
They are paying total cash of $90M, and if they are paying $112.50 for each bond it must mean that they bought $90M / $112.50 = 8m bonds, each with a nominal value of $100.
Therefore the total nominal value of the bonds redeemed is 8M x $100 = $800MI get that thanks. but I’m still confused as to why we have to get the total nominal value of the bonds rather than the total market value of the bonds redeemed? I mean shouldn’t we get the TOTAL market value of the notes and compare that total to the cash we spent? because they’re being redeemed at the market value not nominal value.
I’m really confused about that part :/I don’t think you have got it, because we know the total market value of the bonds redeemed – it is $90M because we know that that is how much they paid in total (and they are buying them back at market value)!!!
We need to know what the nominal value was so that we can calculate the interest saved, because the interest is calculated on the nominal value always.
okay I understand now, I think I didn’t make the connection that the 90 million paid is meant to be the total market value. think I read way too much into it. thank you so much!
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