RJR NABISCO CASE STUDY SOLUTION PPT

Figures do not take into account capital gains taxes. KKR had more or less free reign over how the funds could be invested. In March, , there were 31 product liability cases pending against RJR; compared to 97, 69, and 48 such cases at the end of , , and , respectively. Subordinated Floating Rate Notes due In recent times, many companies had been repurchasing their “junk” securities: If they did not recover and the reset proved infeasible, KKR could then try to negotiate with the bondholders and banks, or seek Chapter 11 protection, or both. However, in December, , Moody’s failed to give the issue an investment-grade rating.

Registered, but not listed on an exchange. Partnership Debt Securities due These projections are in the mid-range of those of Wall Street analysts who were closely following the RJR situation. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. Exhibit 1 summarizes this structure and describes the various securities issued by each of these entities.

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Kohlberg had done his first LBO in Indentures required that on or before April 28,RJR reset the rate so that the bonds would trade at par see Sooution 1. Exhibit 1 summarizes this structure and describes the various securities issued by each of these entities. For example, without the banks’ permission, funds raised through an equity issue by Holdings could not be used to buy back junior debt.

rjr nabisco case study solution ppt

First maturity inbut can be extended each sloution for one year up to final maturity in The indentures of the Increasing Rate Notes and the Subordinated Debentures allowed considerably sudy leeway regarding the issuance of additional debt and the uses of cash. Under pressure from their constituencies, university endowments and public pension funds were beginning to divest themselves of tobacco securities. Tobacco-related Litigation During the s, investors were concerned that the tobacco companies would be hit with large product liability damage awards.

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Figures do not take into account capital gains taxes.

If they did not recover and the reset proved infeasible, KKR could then try to negotiate with the bondholders and banks, or seek Chapter 11 protection, or both.

Casd many went along with the proposal, there were a number of holdouts, including Fidelity Investments, which turned a deaf ear to the personal pleas of Henry Kravis.

Rjr nabisco case study solution ppt presentation

As a third possibility, KKR could try to renegotiate the terms of the reset bonds or give holders the opportunity to exchange their bonds for equity and other securities. Estimates by Salomon Brothers, May 16, Failing such a reset, the bonds would become due and payable almost immediately. Callable at par at any time. Subordinated Extendible Reset Debentures due The Relative Pricing o An often mentioned source of money was KKR’s LBO fund, which still had several billion dollars available for investments described more fully below.

The case, still undecided as of March,rested on certain “negative pledge” covenants in the bond indentures that required that the bonds to be secured “equally and ratably” with other lenders, including the banks.

The RJR Nabisco Case Study Solution

Cash Flow Net Income Add back: The majority of the existing debt was secured “equally and ratably” with the bank debt, while some existing debt was actually junior to the banks’ claims. As the pre smoking population aged, the number of failure-to-warn cases declined over time.

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rjr nabisco case study solution ppt

Cash interest payable quarterly. Roberts, then 50, 32, and 33 years old, respectively. Registered, but not listed on an exchange. A second alternative was to raise internal funds for a bond buyback through the sale of additional assets—the most marketable of which were believed to be RJR’s U. Any of the above approaches would have the effect of reducing or eliminating the number of reset bonds outstanding.

Exhibit 5 gives projections of RJR Nabisco’s operating results for the years — The reset provision is substantially identical to that of the Senior Converting Debentures described above. Fees charged on other large deals as a percentage of the total transaction in parentheses were: In other words, conditions of oversupply and not necessarily poor fundamentals could have been causing the depressed prices of the reset bonds.

rjr nabisco case study solution ppt

The December 31, balance sheet, revised in the April 5, KKR proxy statement to stockholders to show the projected result of the leveraged buyout. Subordinated Floating Rate Notes due Bondholder Litigation When news broke of F.

At the time, the company was embroiled in numerous asbestos-related product liability lawsuits stemming from the manufacture of asbestos building materials by the company’s Celotex Corporation subsidiary. Plaintiffs’ arguments, by and large, fell into two general camps: