How does a company determine how much and at what rate to issue debt at? I'm looking at a company that will likely refinance and issue bonds to pay off bank debt as well as refinance other maturities.
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Look at comps and the company's current outstanding debt. "Analyze" might be an overstatement.
Comps make sense but I'm just wondering if there is a specific type of model or analysis bankers use to determine what rate a company refinances debt at. For example, a company has a 1 Billion worth of notes maturing this year. What rate will they refinance at.
No. You use comps. And that "example" doesn't tell us anything that would help us come up with a rate. What is the company's credit rating? What are the sizes, coupons, prices, yields and maturities of their existing debt issues? What are the same details for their comps?
There is a threshold for what rates you are willing to refinance at, ie they are low enough to justify the costs of doing the refinancing. But as @"mrb87" said you don't decide the rates, the underwriter/market decides what rate they are willing to give you and you can take it or leave it.
-In terms of size, in this case there is a specific purpose to the issuance, namely the refinancing of certain other debt. So the size can be guessed in that way. If you are the company's banker there'd be no need to guess, the company would be coming to you with a size in mind. -As others have said, the rate can only be pinned down knowing more about the company, the industry, the features of the issuance, and the market environment. Others have elaborated on the other aspects, but the features/specifications of the issuance will have a major effect on the rate paid. Will the new debt be secured by a particular asset or unsecured? Will it be callable and if so with what limitations and protections for the bondholders? How restrictive are the covenants? etc
Yeah didn't want to get too complicated but I'd also like to know what the issuing entity is (holdco, opco, spe?), what the security is (if any), and if there are any additional guarantors/credit support.
Can talk about building up from risk free rate with certain premia, but ultimately is comps and what the market will take.
A Telco with a large bond maturing within the next year. What would be the steps one would take to get a better picture of a refinancing rate. Suppose the company recently took on additional bank debt. How would one determine if would make more sense to pay down with a larger bond offering?
How many times are you going to ignore what people here are telling you? You need comps.
I should add that the comps should include leverage metrics as well.
I'm not ignoring them, I'm just wondering if there is a process one usually follows for fixed income. I mean with fixed income, issuers can set different maturity dates, covenants, etc.. AT&T might have issued 150M for 2 years but Verizon may have an upcoming maturity of say 1B. Never really looked into this before which is why I'm here asking for help.
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