Company ABC announces that it has agreed to be acquired. ABC launches a Change of Control...

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Company ABC announces that it has agreed to be acquired. ABC launches a Change of Control offer to repurchase its outstanding bonds at 101% of par. Bondholders unanimously rejected the Change of Control offer, and the bonds remained outstanding following the acquisition. Explain why bondholders might choose to reject the offer. Provide two different scenarios where this would happen. (3 marks) Suppose it's January 1, 2020 and the yield curve is currently upward sloping. If the Bank of Canada indicates that it will raise short term interest rates in its January 22, 2020 decision and pause thereafter, will the yield curve flatten, steepen or remain the same? Briefly explain and assume that all other variables remain the same. (3 marks) Company X (rated AA-), Company Y (rated BB) and Company Z (rated BBB-), each issued a new bond on January 1st, 2020 to fund a shareholder dividend. All three issued the maximum amount of bonds that the market could bear. Which of the following bonds was issued by X, Y and Z respectively? Briefly provide two reasons supporting your answer Maturity Coupon Issue Price Issue Size Bond 1 10 years 4.00% 100.00 $5 billion Bond 2 10 years 2.25% 100.00 $15 billion Bond 3 10 years 5.25% 100.00 $1 billion Company ABC announces that it has agreed to be acquired. ABC launches a Change of Control offer to repurchase its outstanding bonds at 101% of par. Bondholders unanimously rejected the Change of Control offer, and the bonds remained outstanding following the acquisition. Explain why bondholders might choose to reject the offer. Provide two different scenarios where this would happen. (3 marks) Suppose it's January 1, 2020 and the yield curve is currently upward sloping. If the Bank of Canada indicates that it will raise short term interest rates in its January 22, 2020 decision and pause thereafter, will the yield curve flatten, steepen or remain the same? Briefly explain and assume that all other variables remain the same. (3 marks) Company X (rated AA-), Company Y (rated BB) and Company Z (rated BBB-), each issued a new bond on January 1st, 2020 to fund a shareholder dividend. All three issued the maximum amount of bonds that the market could bear. Which of the following bonds was issued by X, Y and Z respectively? Briefly provide two reasons supporting your answer Maturity Coupon Issue Price Issue Size Bond 1 10 years 4.00% 100.00 $5 billion Bond 2 10 years 2.25% 100.00 $15 billion Bond 3 10 years 5.25% 100.00 $1 billion

Answer rating: 100% (QA)

1 Explanations for Bondholders Rejecting the Change of Control Offer Higher Yield Expectations Bondholders might anticipate an increase in yields due to several factors such as a robust economic outlo... View the full answer