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sir in moonstar co. the return for investors should still be L+1.5%, the swap that has been taken out at 11% fixed return becomes the effective cost for the company, but that doesn’t mean the investors in tranche A get 11% fixed return???
can you please help me understand this!
The investors in tranche A will still be getting LIBOR plus 1.5%.
In order to reduce the interest rate risk to Moonstar, the swap will mean that Moonstar ends up paying a fixed 11% (paying L + 1.5% to the investors, receiving L and paying 9.5% from/to the party to the swap).