Jaguar Land Rover Plc Bond Valuation Case Solution

If Jaguar Land Rover had been compelled to issue fresh debt in 2015, the coupon rate on the bonds issued in 2011 would probably have been much lower than the current rate. A decision is made as to whether or not investors want to return their bonds and exchange them for the newly issued bonds, as well as the amount of possible additional cash flows that would be necessary to enable the business to repurchase all of the bonds released in 2011. A discussion of the many benefits and possible value enhancements to the company, bondholders, and stockholders that may be realized as a result of the suggested technique is also included in this portion of the report. This section is broken into two sections: (1) advantages; and (2) value additions (or enhancements).

1. What factors might have enabled Jaguar Land Rover plc to raise new debt at less than half the coupon rate of interest in 2015, compared with the debt raised in 2011?

If both Moody's and Standard & Poor's increase the company's credit ratings before the end of 2015, Jaguar Land Rover may be persuaded to take on new debt with a lower coupon interest rate. Rating agencies have continuously raised their qualifying ratings for JLR bonds as a consequence of the company's constantly increasing financial performance, culminating in the company's present qualifying grade of A+. As a consequence of this improvement, the credit ratings for each of the bonds that were issued have been improved as well.

It is clear from the company's strong financial performance that it will be able to repay the bonds when they expire, therefore reducing the risk associated with these instruments. For the second time, as a consequence of the lower risk they are exposed to, investors' predicted returns on bonds are reduced, which is a negative development for them. It follows as a consequence that, to attract investors to its bonds, the coupon interest rate on the bonds issued by the company does not have as high a level of risk as it had in the past. As a consequence of lowering its bond interest rate, the corporation would be able to save substantial money since it would be required to pay bondholders much less interest on the bonds that were issued as a result of the reduced bond interest rate.