Hologen Inc., a diversified company in medical technological products, is planning on aggressively expanding its market share to become the largest global pure-play women's health company. Presently, it operates in three business segments (Skeletal Health, Breast Health, and GYN Surgical) and it is imperative to penetrate the diagnostic healthcare segment to attain its status as the world leader. Acquiring Cybertech, a British diagnostic firm, will be the quickest and most cost-effective option given its existing international clientele. Hologen requires approximately $200 million to make the tender offer for Cybertech and is considering three borrowing alternatives, and your task is to recommend the best option.

Your well-written draft should address the seven questions at the end of the case study and meet the following requirements:

1) Why might investors prefer floating rate notes over a fixed rate bond?

2) Why might Hologen prefer to issue fixed rate bonds rather than floating rate notes?

3) What is the anomaly in current market conditions that makes an interest rate swap a viable option for both parties involved in the swap?

4) If Hologen issues a floating rate note and engages in the interest rate swap, what is the net cost of financing for Hologen after the interest rate swap? How does this compare to the cost of financing if Hologen issues a fixed rate bond?

5) If LC Ine issues a fixed rate bonds and engages in the interest rate swap, what is the net cost of financing for LC Inc. after the interest rate swap? How does this compare to the cost of financing if LC Ine issues a floating rate note?

6) What is National Bank's role in the interest rate swap and how much will they be compensated for their involvement in this transaction?

7) How does the interest rate swap reduce the cost of borrowing for both parties and allow the intermediary to be compensated?

Answer rating: 100% (QA)

1 There are a few reasons why investors might prefer floating rate notes over a fixed rate bond First with a floating rate note the interest payments will increase along with rising interest rates whi... View the full answer