Debt for equity exchange for AMR
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QUESTIONS
1. Describe the QUICS. Are they debt, or are they equity? How do they differ from the convertible preferred stock?
2. Recalculate AMR's capitalization if holders of (i) 50% and (ii) 100% of the convertible preferred stock exchange them for QUICS.
3. Calculate the increase in net income available for common stock that would result from (i) 50% and (ii) 100% of the convertible preferred stock being exchanged for QUICS.
4. Why does this debt-for-equity exchange increase the risk of the common stock? How does the interest-deferral feature affect your interpretation of the QUICS? The risk of the common stock?
5. What trade-off did AMR have to evaluate as it considered whether to proceed with the exchange offer?
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Solution Summary
This solution provides detailed step by step explanations of how to solve the given finance problems.
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Answer:
1) QUICS are the debt securities. They carry higher yield and are ranked senior to the preferred stock. They are instruments that are based on an inter-company loan between a limited liability issuer and a parent company. They are designed in such a way as to give the parent company good treatment to the regularity, rating and the capital purposes along with the tax deductibility benefits for the coupon on this instrument. One more difference between QUICS and preferred stocks include that they are registered for public trading while preferred stocks are not.
2) After the ...
Education
- MBA, Indian Institute of Finance
- Bsc, Madras University
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