Zero Wage Rise
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- Date Submitted: 11/09/2013 03:28 PM
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Level 3 Communications, Inc.
Abstract: This case illustrates the financing decision of Level 3, a fast-growing telecom company, in the summer of 2002. There had been severe downsizing in the telecom industry and Level 3 wanted to take advantage of this opportunity by acquiring financially-distressed competitors that would complement and expand its business. To do so, it needed a source of financing. Issuing debt was a problem because the company’s bonds were junk-rated. Issuing equity was a problem because the firm’s stock price was considerably below its peak price. As a result, the company was considering a convertible bond issuance, which would preserve shareholder ownership to a greater extent than would an equity issue. It also offered a lower interest rate than straight debt. The convertible bond alternative needed to be priced and compared to the options of issuing straight debt or equity.
Susan White, University of Maryland Tim Bruning May 21, 2008
Level 3 Communications, Inc.
Abstract: This case illustrates the financing decision of Level 3, a fast-growing telecom company, in the summer of 2002. There had been severe downsizing in the telecom industry and Level 3 wanted to take advantage of this opportunity by acquiring financially-distressed competitors that would complement and expand its business. To do so, it needed a source of financing. Issuing debt was a problem because the company’s bonds were junk-rated. Issuing equity was a problem because the firm’s stock price was considerably below its peak price. As a result, the company was considering a convertible bond issuance, which would preserve shareholder ownership to a greater extent than would an equity issue. It also offered a lower interest rate than
straight debt. The convertible bond alternative needed to be priced and compared to the options of issuing straight debt or equity. Mike had never been under so much pressure in his life. It was the first week of July 2002. The board of...
Abstract: This case illustrates the financing decision of Level 3, a fast-growing telecom company, in the summer of 2002. There had been severe downsizing in the telecom industry and Level 3 wanted to take advantage of this opportunity by acquiring financially-distressed competitors that would complement and expand its business. To do so, it needed a source of financing. Issuing debt was a problem because the company’s bonds were junk-rated. Issuing equity was a problem because the firm’s stock price was considerably below its peak price. As a result, the company was considering a convertible bond issuance, which would preserve shareholder ownership to a greater extent than would an equity issue. It also offered a lower interest rate than straight debt. The convertible bond alternative needed to be priced and compared to the options of issuing straight debt or equity.
Susan White, University of Maryland Tim Bruning May 21, 2008
Level 3 Communications, Inc.
Abstract: This case illustrates the financing decision of Level 3, a fast-growing telecom company, in the summer of 2002. There had been severe downsizing in the telecom industry and Level 3 wanted to take advantage of this opportunity by acquiring financially-distressed competitors that would complement and expand its business. To do so, it needed a source of financing. Issuing debt was a problem because the company’s bonds were junk-rated. Issuing equity was a problem because the firm’s stock price was considerably below its peak price. As a result, the company was considering a convertible bond issuance, which would preserve shareholder ownership to a greater extent than would an equity issue. It also offered a lower interest rate than
straight debt. The convertible bond alternative needed to be priced and compared to the options of issuing straight debt or equity. Mike had never been under so much pressure in his life. It was the first week of July 2002. The board of...