Delos is continuing to renegotiate its prior loan agreement (€80 million for 6 years at 8.625% per annum), two years into the agreement. Delos is now facing serious tax revenue shortfalls, and fears for its ability to service its debt obligations. So it has decided to get more aggressive, and has gone back to its lenders with a request for a 'haircut', a reduction in the the remaining loan amount. The banks have, so far, only agreed to restructure the loan agreement for another two years (new loan of 6 years on the remaining principal balance) but at an interest rate a full 200 basis points higher, 10.625%.

a. If Delos accepts the current bank proposal of the remaining principal for 6 years (extending the loan an additional 2 years since 2 of the original 6 years have already passed), but at the new interest rate, what are its annual payments going to be? How much relief does this provide Delos on annual debt-service?

b. Delos's demands for a haircut are based on getting the new annual debt service payments down. If Delos does agree to the new loan terms, what size of haircut should it try and get from its lenders to get its payments down to €10 million per year?