Interest rate variable at the greater of 50 basis points over the IRN rate see above or an increasing spread over time over the rate on the 7 year treasury note. On or prior to April 28, , RJR must set a fixed rate to maturity on the debentures. Thus far, RJR and other tobacco companies had been quite successful in defending themselves in such lawsuits. For example, without the banks’ permission, funds raised through an equity issue by Holdings could not be used to buy back junior debt. A second alternative was to raise internal funds for a bond buyback through the sale of additional assets—the most marketable of which were believed to be RJR’s U.
Fees charged on other large deals as a percentage of the total transaction in parentheses were: Kohlberg had done his first LBO in Subordinated Discount Debentures due Already there was a complete ban on smoking on domestic flights, and numerous state laws were restricting smoking in the work place. Thus, the restrictive covenants of the bond and note indentures only assumed relevance upon expiration of the Credit Agreement which remained in effect as long as there was bank debt outstanding. These were the PIK reset bonds.
Kohlberg had done his first LBO in However, in Pppt,Moody’s failed to give the issue an investment-grade rating. The relatively optimistic outlook for RJR’s tobacco businesses was not without considerable uncertainty.
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Harvard Business School Rev. Tobacco revenue was projected to grow at 8. See note d, preceding page. Thus, the restrictive covenants of the bond and note indentures only assumed relevance upon expiration of the Credit Agreement which remained in effect as long as there was bank debt outstanding. In subsequent years, KKR obtained ever greater commitments from its growing stable of investors.
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Subordinated Floating Rate Notes due Bondholder Litigation When news broke of F. The raison d’etre of the Bank Credit Agreement was primarily to ensure that the banks were paid off ahead of anybody else; exceptions to this principle were few.
However, this was one of KKR’s least attractive alternatives, since its strategy was to develop rather than liquidate RJR’s major stud businesses.
Faced with an unreceptive public market, KKR withdrew the debt offering and began discussions with RJR’s lending banks. These were the PIK reset bonds.
Capital expenditures Increase in working capitalg Plus: If the conversion occurs, the bondholders forego the right to the interest accrued on the debentures.
Food sales were forecast to grow at 8. Pays at maturity. Listed on the NYSE. Reportedly, KKR did not think the plaintiffs would prevail.
Exhibit 1 summarizes this structure and describes the various securities issued by each of these entities. Ptp at par at any time. While KKR did not promise such returns in the future, investors clearly hoped such would be the case.
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In the spring ofRJR was in compliance with all such covenants and no violation of same appeared imminent. The plaintiffs maintained they were defrauded when RJR Nabisco used the proceeds of asset sales to pay down bank debt. Payment of such fees began soon after the fund closed and were intended to continue on uninvested funds for a six-year commitment period.
KKR’s strategy for servicing this debt rested on asset sales and improved internal cash flow.
KKR had more or less free reign over how the funds could be invested. Subordinated Extendible Reset Debentures due Roberts, then 50, 32, and 33 years old, respectively.
A second alternative was to raise internal funds for a bond buyback through the sale of additional assets—the most marketable of which were believed to be RJR’s U. Analysts thought RJR would be within this 1: How many of the reset bonds would have to be repurchased was not obvious.
Except for the stumbling block created by Moody’s downgrade, the plan had proceeded as forecast: Assumed interest rates are consistent with the operating projections.
On April 12,RJR discontinued its practice of buying tobacco liability insurance, becoming self-insured for all tobacco-related product liability risks. Increasing Rate Notes due