I was reading about a company's announcement of a convertible preferred offering and the intent to use proceeds to pay down outstanding borrowings on its credit facility. I'm trying to get some clarity on why companies are always in a rush to pay down these borrowings. I understand the nature of credit revolvers, but at the same time these borrowings don't really cost the firm much. Seems like a balancing act of maintaining just enough of a borrowing base; is there more to it than that?
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That interest thing that debt costs? also gives the firm greater flexibility in the future. some will have clean up provisions too.
It has do with internal projections. You ask why they want to pay down their credit facility. It can be for many reasons, their WACC could be higher than they want and they see an opportunity to lower it with a convertible offering. Or they could be overweight in credit and want to re-balance with more equity. There are lots of reasons as to why they might be doing this.
I'm on a smartphone and can't figure out how to start a new thread, so ... Can someone point me to or explain the pros and cons of term debt vs a facility?
I get the flexibility of a line of credit, but you would think that the tradeoff would be a higher interest rate (as with a credit card), but that is not necessarily the case in real-life corporate examples ...
Term debt gives you certainty, and some just don't need the RCF.
Thanks for the explanation
One more: How about secured vs unsecured? Who gets to access the unsecured market? I'm guessing that the obvious preference by a borrower would be to take out unsecured debt. I was told that the biggest thing is size; you have to be big if you want to borrow at that level. Is this the general idea?
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