1. What factors might have enabled JLR to raise new debt at less than half the coupon rate of interest in 2015 compared with the debt raised in 2011?

2. Compute the amount at which existing Bondholders might be willing to surrender their holdings.

3. Assuming JLR purchased all existing outstanding Bonds at the price worked out in Q2; work out the incremental cash flows of this bond issue vis-à-vis the original issue. Does this financing strategy result in cost savings for JLR?

4. What other benefits if any, might accrue to JLR as a result of this financing strategy? Does this strategy add value to the firm? To the existing Bondholders?

Jaguar Land Rover Automotive plc (JLR), a wholly owned subsidiary of the Indian company Tata Motors Limited, announced, on March 3, 2015, an issue of Senior Notes (bonds) worth US$500 million1 and due in 2020 at a coupon rate of 3.5 per cent per annum (p.a.), interest payable semi-annually. The net proceeds of this issue were to be primarily applied to repurchase the company's outstanding Senior Notes worth $410 million, issued on May 19, 2011, and due on May 15, 2021(see Exhibit 1). These outstanding Notes carried a coupon rate of interest of 8.125 per cent p.a., payable two times per year.2 In March 2015, the indicative pricing of these Notes in the Luxemburg Bourse signaled an 11 per cent premium over face value (see Exhibit 2). The reference treasury security for these Notes was the U.S. Treasury Notes due May 15, 2016, that carried a coupon of 0.25 per cent p.a. (see Exhibit 3). This issue was the company's second such refinancing in two months. The bond buyback was to be through a tender offer starting immediately and ending on March 30, 2015. Existing bondholders had an option to sell their holdings to the company or roll over their existing holdings to the new security.3 No company would forego such an opportunity to halve its interest expenses and improve its bottom line. But can such a simple, positive-sum game exist in an efficient market? JAGUAR LAND ROVER PLC The 2008 financial meltdown in the United States proved especially cruel to the auto sector companies. As part of its corporate survival, revival and restructuring strategy, Ford Motor Company sold its Jaguar and Land Rover brands to Tata Motors Ltd., an Indian automobile manufacturing company on June 2, 2008, for a net consideration of $2.3 billion4 (approximately GBP1.47 billion).5 The volumes of these brands saw a 32 per cent drop in the 10 months after the takeover, and JLR posted a net loss of GBP402.4 million for the period ending March 31, 2009.6 By fiscal year (FY) 2011, however, the company had managed a turnaround and posted a post-tax profit of GBP1,035.90 million.7 In 2011/12, JLR issued both dollar-denominated and pound-denominated debt to fund investments in its U.S.