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Summary of Five-Year Eurobond Terms Available To R.J. Reynolds

This document summarizes various financing options available to R.J. Reynolds including Eurodollar bonds, Euroyen bonds hedged into dollars using forwards or interest rate swaps, and dual currency bonds hedged into dollars using forwards or interest rate swaps. It calculates the all-in costs for each option, finding that dual currency bonds hedged with interest rate swaps have the lowest all-in cost of 10.27% compared to a benchmark of 10.02%.

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Ryan Putera Pratama Manafe
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925 views8 pages

Summary of Five-Year Eurobond Terms Available To R.J. Reynolds

This document summarizes various financing options available to R.J. Reynolds including Eurodollar bonds, Euroyen bonds hedged into dollars using forwards or interest rate swaps, and dual currency bonds hedged into dollars using forwards or interest rate swaps. It calculates the all-in costs for each option, finding that dual currency bonds hedged with interest rate swaps have the lowest all-in cost of 10.27% compared to a benchmark of 10.02%.

Uploaded by

Ryan Putera Pratama Manafe
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as XLS, PDF, TXT or read online on Scribd
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Exhibit 7

Summary of Five-year Eurobond Terms Available to R.J. Reynolds

Dollar
yen
Eurobonds Eurobonds
Face value
100
25,000
Price
100.125% 100.250%
Fees
1.875%
1.875%
Coupon (paid annually)
10.125%
6.375%
Final Redemption
100
25,000

Yen/Dollar
Dual
Currency
Eurobonds
25,000
101.500%
1.875%
7.750%
115.956 $

Exhibit 8
Long-dated Yen/Dollar Forward Exchange Rates (Forward Arranged by Nikko Securities)

Year
0
1
2
3
4
5

Outright Rates
Bid
Offer
236.80
236.90
231.30
231.70
223.90
225.90
215.60
218.70
207.10
211.20
197.60
202.70

% spread
0.04%
0.17%
0.89%
1.42%
1.94%
2.52%

Exhibit 9
Currency and Interest Rate Swap Indications (All rates are against six-month dollar LIBOR)

5-year Dollar Rates


5-year Yen Rates

Semiannual Quotation Benchmark


Pay
Receive US Treasury
T + 60
T + 76
9.88%

Semiannual Fixed Rates


Against 6-month Dollar
LIBOR
Pay
Receive
10.48%
10.64%
6.98%
7.22%

All in cost Calculation


Alternatif 1 : Eurodollar bonds
Year
0
1
2
3
4
5
All in cost

Cash Flows
98.25
-10.125
-10.125
-10.125
-10.125
-110.125
10.59%

Alternatif 2a : Euroyen hedged into Dollar by Forward Contract


Year
0

Yen CF
24,593.75

$ CF
103.81

RJR
buy $

Annual Fixed Rates


Against 6-Month Dollar
LIBOR
Pay
10.75%
7.10%

1
2
3
4
5
All in cost

-1,593.75
-1,593.75
-1,593.75
-1,593.75
-26,593.75
6.77%

-6.89
-7.12
-7.39
-7.70
-134.58

Sell $
Sell $
Sell $
Sell $
Sell $

10.64%

Alternatif 2b : Euroyen hedged into Dollar by Currency Swap


RJR receipts
From
Swaps flows with MGL
Year
euroyen bondYen
Dollar
Yen excess $ eq.
0
24,593.75 -24,258.82
102.40
334.93
1
-1,593.75
1,593.75
-11.18
2
-1,593.75
1,593.75
-11.18
3
-1,593.75
1,593.75
-11.18
4
-1,593.75
1,593.75
-11.18
5
-26,593.75
26,593.75
-113.58
All in cost

6.77%

7.10%

1.41

10.92%
10.92%

Alternative 3a : Dual Currency bond hedged into $ by Forward Contract

Year
0
1
2
3
4
5
All in cost

Dual Currency
Yen CF
Dollar CF Effective $ CF
24906.25
105.134
-1937.5
-8.377
-1937.5
-8.653
-1937.5
-8.987
-1937.5
-9.355
-1937.5
-115.956
-125.761
10.21%

Alternative 3b : Dual Currency bond hedged into $ by Interest Rate Swap


RJR receipts
Dual Currency
swap flows with MGL
Year
Yen CF
Dollar CF
Yen
Dollar
0
24906.25
-7,922.91
33.44
1
-1937.5
1937.5
-9.031
2
-1937.5
1937.5
-9.031
3
-1937.5
1937.5
-9.031
4
-1937.5
1937.5
-9.031
5
-1937.5
-115.956
1937.5
-9.031
All in cost

7.10%

10.92%

Yen excess
16983.34

Summary of Result

Alt 1
Alt 2a
Alt 2b
Alt 3a
Alt 3b

Dollar all in cost


Spread over
Annual
Semiannual benchmark
10.59%
10.33%
45
10.64%
10.37%
49
10.55%
10.29%
41
10.21%
9.96%
8
10.27%
10.02%
14

Annual Fixed Rates


Against 6-Month Dollar
LIBOR
Receive
10.92%
7.35%

Effective
Dollar flow
103.81
-11.18
-11.18
-11.18
-11.18
-113.58

Basis point conversion


Yen
Dollar
(1.3541) (1.3541)
-0.3311
-0.3656
-0.3311
-0.3656
-0.3311
-0.3656
-0.3311
-0.3656
-0.3311
-0.3656

Calculation of effective swap rates


Yen
Quoted swap rates
7.10%
Add
Yen basis points
Dollar basis points
Effective swap rates

10.55%

$ equiv.
71.69

7.10%

Effective
$ CF
105.13
-9.031
-9.031
-9.031
-9.031
-124.987
10.27%

10.92%

-0.33

6.77%

Dollar
10.92%

-0.37
10.55%

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