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

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    Ryan Putera Pratama Manafe
    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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    Summary of Five-Year Eurobond Terms Available To R.J. Reynolds

    Uploaded by

    Ryan Putera Pratama Manafe
    769 views8 pages
    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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    Original Title

    RJR Swap

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    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%.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    769 views8 pages

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

    Uploaded by

    Ryan Putera Pratama Manafe
    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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    The document discusses different alternatives for hedging eurobonds and calculates their all-in costs.

    The alternatives considered are: 1) Eurodollar bonds, 2) Euroyen hedged into dollars by forward contract or currency swap, 3) Dual currency bonds hedged into dollars by forward contract or interest rate swap.

    The all-in costs for each alternative range from 6.77% to 10.59%.

    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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