1) What factors might have enabled JLR to raise new debt at less than half the coupon rate of interest in 2015, compared with the debt issued in 2011?
2) Compute the amount at which existing bondholders might be willing to surrender their holdings.
3) Assuming JLR purchased all existing outstanding bonds at the price worked out in Q2;work out the incremental cash flows of this bond issue vis--vis the original issue.Does this financing strategy result in cost savings for JLR?
What other benefits, if any might accrue to JLR as a result of this financing strategy?Does this strategy add value to the firm? To the existing bondholders? To JLR's equity-holders?
Page 6 9 B 15 NO 12 EXHIBIT 6 : JAGUAR LAND ROVER BALANCE SHEETS , 2012 - 2015 FY 2015 - 9 Figures in GBP millions FY 2012 FY 2013 FY 2014 months Property , plant &equipment 1, 586\ 2. 335 3 . 184 4 , 137 Intangible assets 2 , 801 3 , 522 4 . 240 035 4. 769 Other non - current assets 595 817 Total non - current assets 4 , 982 6 , 628 8, 359 9, 723 Cash &cash equivalents 2, 430 2, 072 2. 260 2.884 Short-term deposits 775 1. 19 9 . 143 Trade receivables 662 927 831) 879 Inventories 1, 497 1 , 795 2 , 174 2, 238 Other current assets 646 640 760 662 Total current assets 5, 235 6 , 209 7 , 230 7, 806 Total Assets 10 , 217\ 12 , 837 15 , 589 17 , 529 Accounts payable\ 3 , 285 4 , 227 4. 787 4 , 699 Short-term borrowings and current portion of long-term debt 490 328 167 193 Provisions &other current liabilities 1 , 266 1. 442 1 , 180 1 467 Total current liabilities 5 , 041 5 , 997 6, 134 6 , 353 Long-term debt 1. 484 ,839 1. 843 2 . 230 Provisions* 344 468 582 638 Retirement benefit obligations 327 657 674 Other non- current liabilities 97 492 Total non- current liabilities 2, 252 3 , 301\ 3, 591 1, 379 Total Liabilities 7 , 293 9 , 298 9 , 725 10 , 732 Ordinary share capital 1 , 501 1.501 1. 501 Reserves and surplus 1 , 423 1 , 501 2, 038 4, 363 5. 296\ Equity attributable to shareholders 2, 924 3, 539 5 , 864 6 , 797 Total Liability and Equity 10 , 217\ 12 , 837\ 15 , 589 17, 529 Note : GBP = British pound sterling ; FY = fiscal year\ Source :" Jaguar Land Rover plc Annual Report 2013 / 14 , P. 104 , www.jaguarlandrover . com/ media/ 2 3 7 0 0 / annual - report - 2014. pod; FY 2015, Q3 Interim ( unaudited ) accounts , P. 8 , www.jaguarlandrover . com/ media / 59285 / fy 15 - 93-ifrs-interim - accounts- final . pdf , both accessed March 13 , 2015 .\ This document is authorized for use only in Assoc . Professor Barry Williams's BF F 5300 $1 2019 at Monash University from Feb 2019 to Aug 2019 .Sample Template Key points facts and problems: 1. What are the problems and the key issues that arise? 2. Address the given discussion points or questions 3. Conclusions and recommendations if any. Do Not use a Q and A answer format : make this a business type briefing Avoid simply restating what is already in the case MONASH MONASH University BUSINESS SCHOOL https://Ims.monash.edu/pluginfile.php/8117580/mod_resource/content/2/Case%20Motivation%20Jaguar%20Rover%20LC.pptx 10/3/19, 8:34 pm Page 6 of 6Page 4 9 B 15 NO 12 EXHIBIT 3: YIELD CURVE FOR THE U.S. TREASURY - MAY 16 , 201 1 VERSUS MARCH 16 , 2015 5. 00 %) 4. 00 % 0 3. 00 %| $ 2. 00 % 1.83 96 1.00 % 1.57 %6 0. 00 % +^ I MO 3 MO GMO 1YR 2 YR 3 YR 5 YR 7YR 10YR 20 YR 30 YR Maturity ( Note : Primary axis is not to scale ) 3 / 16 /2015\ - 5 / 16 / 201 1 Source :" U. S. Department of the Treasury ,\ V . " Treasury Yield Curve , " Www . treasury . gov/ resource-center/ data-chart- center/ interest -rates / Pages / Historic - Yield - Data - Visualization . aspx , accessed April 1 , 2015 .` EXHIBIT 4 : JAGUAR LAND ROVER INCOME STATEMENTS, 2012- 2015 Figures in GBP millions FY 2012 FY 2013 FY 2014 FY 2015 - 9 months Revenue 13, 512 15 , 784 19. 386 16 , 040 Material and other cost of sales 18 , 733 ) 19 , 904 ) (1 ( 1 1 , 904 ) 9, 768 ) Employee cost ( 1, 039 ) ( 1, 334 ) ( 1, 654 ) ( 1, 427 ) Other expenses ( 2.529 )| ( 3, 075 ) ( 3, 717 ) ( 2, 941 ) Development costs capitalized 751 860 1. 030 850 Other income\ 37 70 753 150 Depreciation & amortization* ( 465 ) ( 622) 1875 ) ( 743 ) Foreign exchange gain / ( loss ) 14 109 ) 236 58 Finance Income 16 34 38 Finance expenses ( net )` ( 85 ) 36 ( 18 ) ( 185 ) Share of loss from joint ventures ( 7 ) ( 13 ) ( 12 ) ( 24 ) Profit before tax\ 1, 479 1.6 / 4 2. 501 2. 218 Income tax expense ( 19 ) ( 460 ) ( 622 ) ( 482 ) Profit after Tax 1. 460 1 , 214 1 , 879 , 736 Note : GBP = British pound sterling ; FY = fiscal year\ Source :" Jaguar Land Rover plc Annual Report 2013 / 14 , P. 104 , www. jaguarlandrover . com/ media / 2 3 1 08 / annual - report - 2014 . pdf; FY 2015, Q3 Interim ( unaudited ) accounts , P. 7 , www. jaguarlandrover . com/ media / 59 285 / 1 75 - 93-itrs-interim - accounts -final . polf , both accessed March 13 , 2015 .\ This document is authorized for use only in Assoc . Professor Barry Williams 's BFF 5300 $1 2019 at Monash University from Feb 2019 to Aug 2019 .Page 3 9 B 15 NO 12 EXHIBIT 1 : JAGUAR LAND ROVER'S FINANCING ARRANGEMENTS AS AT DECEMBER 31 , 2014 Facility\ Annual Rate GBP millions amount of interest Outstanding Undrawn A. Senior Notes GBP 50 0 m due 2020 ( first call Mar 2016 ) 500 8.250% 500 GBP 400 m due 202 2 400 5. 0009 400 US$ 4 10m due 2021 ( first Call May 2016 ) 263 3. 125% 263 O US$50 0 m due 2023 ( first call Feb 2018 ) 321 2. 625 %/0 321 O US$70 0 m due 2018 450 4. 125% 450 O US$ 50 0 m due 2019 321 4 . 250 % 321 O B. Revolving 3 - and 5 - year credit 1 , 485 1, 485 C. Receivable factoring facilities 225 193 Total 3 , 965 2 , 448 1.517 Note : GBP = British pound sterling . The company has used the GBPL USS exchange rate prevailing on the balance sheet date in its annual and interim financial statements to convert the US$-denominated debt to GBP . " " Since the col like The company earns approximately 17 % of it's revenue each in the United Kingdom and North America , for the purposes of this case , we assume that the natural* hedge created mitigates any exchange-rate risk . The average GBP/ USS rate for March 2015 can be taken at 1.50 . 14\ Source : Jaguar Land Rover plc FY 2015 , Q3 Interim Accounts , P. 6 , www . jaguarlandrover . com/ media / 59285 / fy 15 - 93-ifrs - interim- accounts-final . pot , accessed March 13 , 2015 .` EXHIBIT 2 : JAGUAR LAND ROVER'S OUTSTANDING BONDS AND NOTES ON LUXEMBOURG BOURSE Coupon Rate; Security Start/ End Dates Last Traded Date Price 3. 5%; US G 50 02 FAE63 06/ 03/ 2015 - 15/ 03 / 2020 2103 / 2015 700 1 % 3.5 %; US47 0 TO BAE 48 06 /03 / 2015- 15/ 03/ 2020 12/03 / 2015 100 1 %\ 3. 875 %; X 5 1 195 50203* 24/02 /2015 - 01/03 / 2023 16 / 03/ 20 15 100 1 %\ 3. 875 %; X 5 1 195 503351 24 /02 /2015 - 01 103/2023 76/ 03/ 2015 100 1 % 8. 125%; US G 50 027 ABO 3 19105 / 201 1 - 15/ 05 / 2021 24 / 02 / 2015\ 8. 125%; US 4 70 0 9 XAB 55\ 19105 /201 1- 15/05/2021 07 /08/ 2014 1 1 1 . 276 1 % 1 1 1.583 1 %\ \8. 25%; * 507 65386 627 27 /03 / 2012 - 15 / 03 /2020 30 /01 / 2015 1 10. 94 4 1 %| 8. 25 %; X 507 65386973 27 /03 / 2012 - 15/ 03 / 2020 30 / 01 / 2015 1 1 1 . 182 1 %| Note :" The suffix " " in the last column stands for " indicative price , " also called " no-trade price . " This is used when no trades* have happened in the security the previous day .\ Source :" Bourse de Luxembourg website , www. bourse . In /instrument / searchresults ? searchtype = securities & code = & type Valeur = OBL* ORD * STR &libelle = &emetteur= jaguar+ land + roverdemetteurId = , accessed April 1 , 2015 . 13 Jaguar Land Rover 2013/ 14 Annual Report , P. 110 , www. jaguarland rover . com/ media / 23 1 0 8 / annual - report - 2014 . pdf , accessed March 13 , 2015 .` 14 Yahoo Finance ,\ http: / / finance . yahoo . com/echarts ? S = GBP USD %3 D X + Interactive# ( %/. 2 2 custom Range Start %/ 22: 1425 1 48200, % 2 2 custom Ran geEnd % 22: 1427 7 40200 , % 2 2 range %/0 2 2: %0 2 2 custom %/02 2, %2 2 allow Chart Stacking /0 2 2: true ; accessed March 17 , 2075 .` This document is authorized for use only in Assoc . Professor Barry Williams's BFF 5300 $1 2019 at Monash University from Feb 2019 to Aug 2019 .Case Synopsis Jaguar Land Rover PLC (JLR) is considering replacing existing debt with two new Senior Debt issues. The cases seeks to address the issue of value added from this strategy. MONASH MONASH University BUSINESS SCHOOL https://Ims.monash.edu/pluginfile.php/8117580/mod_resource/content/2/Case%20Motivation%20Jaguar%20Rover%20LC.pptx 10/3/19, 8:34 pm Page 3 of 6Page 2 9 B 15 NO 12 and Land Rover brands to Tata Motors Itd . , an Indian automobile manufacturing company on June 2 2008 , for a net consideration of $2.3 billion* ( approximately GBP 1 . 47 billion ) . ' The volumes of these brands saw a 32 percent drop in the 10 months after the takeover , and JLR posted a net loss of GBP 402 .4 million for the period ending March 31 , 2009 . 6\ By fiscal year ( FY ) 201 1 , however , the company had managed a turnaround and posted a post-tax profit of GBP 1 , 035 . 90 million ." In 2011/12 , JLR issued both dollar-denominated and pound - denominated debt to fund investments in its U.S. and European businesses respectively . This multi- currency funding also helped JIR to create a natural hedge for mitigating currency risk . " The next four years saw JLR turning* into the cash cow that supported the parent company in the face of a lack luster performance in the latter's domestic market . For the year ended March 31 , 2014 , JLR comprised more than 80 per cent of the consolidated automobile sales revenue for Tata Motors and was solely responsible for the consolidated company posting operating profit rotits ( see Exhibit 4 ) . "\ By September 2013, ratings agency Moody's Investors Service had upgraded J LR's bond issues from Ba3 to Ba 2 with a " stable " outlook . Besides the impressive volume and revenue growth as well as earnings before interest , tax , depreciation and amortization ( EBITDA ) margins posted by SIR , the ratings upgrade was attributable to the company's positive free cash flows in FY 2013 despite increased capital* expenditures ( capex ) and dividend payments ( see Exhibit 5 ) . Another important factor contributing to this ratings upgrade was JLR's conservative financial strategy in terms of leverage and comfortably spread - out bond repayments ( see Exhibits I and 6 ) . .` Analysts at Moody's , however , expected the next few years to see free cash flows turning negative on the back of increased capital investment and research and development . Both Standard and Poor's and Moody's rating services maintained JLR's credit rating at BB and Baz respectively , while revising their* outlooks to " positive " in late 2014 . !' With a capex of GBP 3 . 6 billion to GBP 3 . 8 billion lined up for FY 2016 , the chief financial officer of Tata Motors was quoted as saying the company was " cautiously* optimistic about cash flow in JLR next year . " 12\ It was evident that JLR wanted to benefit from the impressive turnaround in its fundamentals . But would efficient bond markets allow firms to reap such benefits ? Who gains and who pays in such deals ?* * Tata Motors Led , 2008/09 Annual Report , p. 1 1 , www. domain-b . com/financials / companies / T / Tata_ Motors / 2008 - 092 2 0 7 7 5 56483 9/ 78. pat , accessed March 13, 2075 .` ` Computed at an annual average rate of GBP0 . 6409 per USS , www. Oanda . com / currency / historical-rates , accessed April 6 , 2015 .\ " Tata Motors Led , 2008/09 Annual Report , Op. cit. ; Jaguar Land Rover , 2010/17 Annual Report , P. 39 www. jaguarlandrover . com/ media/ 27 37 / 20 10 - 2071_ annual report . pdf , both accessed March 13, 2015 .\ 'Ibid .` " Jaguar Land Rover , 2010 / 1 1 Annual Report , P. 25 , www.jaguarlandrover . com/ media / 27 37 / 20 10 - 2071_ annual report . pdf , accessed Marc March 73 , 2075 .` Tata Motors Led. 2013/ 14 Annual Report , pp. 34 - 35 , www. tatamotors . com / investors / pdf / 201 4/69 - Annual -Report . pdf .` accessed March 13 , 2015 .\ "` Moody's Investors Service , "Moody's Upgrades Jaguar Land Rover to Baz ; Outlook Stable , " September 17 , 2013 , www . moodys . com/research / Moody's-upgrades - Jaguar - Land -Rover - to- Ba 2 - outlook- stable - PR_ 282 278 , accessed March 16, 2015 .` " Tata Motors Led . , " Jaguar Land Rover Results for the Quarter Ended 30 September 2014 , " November 14 , 2014 , 1. 5. www . tatamotors . com /investors / pdf / 20 15 / JLR- Results- Presentation- Q 2 - FY 15. pdf , accessed March 16, 2015 .\ " Jaguar Land Rover ,\ March 2015 Bond Conference ." relations / downloads / other-presentations , accessed March 20 , 2015; Rebello and Mohile , Op . cit .\ www . jaguarland rover . com/ gillen / investor -\ This document is authorized for use only in Assoc . Professor Barry Williams's BFF 5300 51 2019 at Monash University from Feb 2019 to Aug 2019 .@IVEY| Publishing* OMD | Management JURGAON Development I Institute* W 15332 JAGUAR LAND ROVER PLC : BOND VALUATION S . Veena lyer wrote this case solely to provide material for class discussion . The author does not intend to illustrate either effective. protect confidentiality .\ or ineffective handling of a managerial situation . The author may have disguised certain names and other identifying information to This publication may not be transmitted , photocopied , digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder . Reproduction of this material is not covered under authorization by any reproduction rights organization . To order copies or request permission to reproduce materials , contact I vey Publishing , Ivey Business School , Western University , London , Ontario , Canada , NGG ONY ; ( 7 ) 519. 661. 3208; ( 8 ) cases @ivey . ca ; Www. iveycases . com .` Copyright @ 2015 , Management Development Institute Gurgaon and Richard I vey School of Business Foundation Version : 2015 - 07 - 31 Jaguar Land Rover Automotive plc ( J LR ) , a wholly owned subsidiary of the Indian company Tata Motors* Limited , announced , on March 3 , 2015 , an issue of Senior Notes ( bonds ) worth US$500 million" and due 1 2020 at a coupon rate of 3. 5 per cent per annum ( p.a . ) , interest payable semi-annually . The net proceeds of this issue were to be primarily applied to repurchase the company's outstanding Senior Notes worth $ 4 10 million , issued on May 19 , 2011 , and due on May 15 , 2021 ( see Exhibit 1 ) . These outstanding* Votes carried a coupon rate of interest of 8. 125 percent p.a., payable two times per year ." In March 2015 , the indicative pricing of these Notes in the Luxemburg Bourse signaled an 1 1 per cent premium over face* value ( see Exhibit 2 ) . The reference treasury security for these Notes was the U.S. Treasury Notes due May 15 , 2016 , that carried a coupon of 0.25 per cent p.a . ( see Exhibit 3 ) . This issue was the company's second such refinancing in two months ." The bond buyback was to be through a tender offer starting immediately and ending on March 30 , 2015 . Existing bondholders had an option to sell their holdings to the company or roll over their existing* holdings to the new security . '` No company would forego such an opportunity to halve its interest expenses and improve its bottom line . But can such a simple , positive- sum game exist in an efficient market ?' JAGUAR LAND ROVER PLC The 2008 financial meltdown in the United States proved especially cruel to the auto sector companies . As part of its corporate survival , revival and restructuring strategy , Ford Motor Company sold its Jaguar "All currency amounts are shown in U.S. dollars unless otherwise indicated ." " Jaguar Land Rover Investor Relations , " Jaguar Land Rover Automotive PLC Pricing of $500 Million Senior Notes Offering , " March 3 , 2075 , www.jaguarlandrover . com/ gillen / investor- relations / news / 207 5 / 03/ 0 3 /jaguar-land - rover- automotive -p/c-pricing - of $500 - million- senior- notes- offering , accessed March 9 , 2015 ; Cbonds . com , " New Bond Issue : Jaguar Land Rover Se 500 . 0 m in 2020 Bonds with a 3. 5% Coupon , " March 5 , 2015 , http: / / cbonds . comews / item / 7 62013 , accessed March 9 , 2075 .\ 3 Joel Rebello and Shally Seth ly Seth Mohile , " Jaguar Land Rover to Raise $500 Million by Selling Bonds , " Livemint , March 3 2015 , www . livemint . com / Companies / 4 B / ce vuw w t J P Hy SO G X x Y j K/ Jaguar - Land - Rover - to - raise - 500 - million-by- selling- bonds . html , accessed March 9 , 2015 .` This document is authorized for use only in Assoc . Professor Barry Williams's BFF 5300 $1 2019 at Monash University from Feb 2019 to Aug 2019 .Page 5 9 B 15 NO 12 EXHIBIT 5 : JAGUAR LAND ROVER'S CASH FLOW STATEMENTS , 2012 - 2015 FY FY FY FY 2015 - 9 Figures in GBP millions 2012 2013 2014 1.879 months Profit for the year 1. 460 1 , 214 1 , 736 Adjustments for :` Depreciation & Amortization 460 622 875 143 Finance expenses / ( income) 69 ( 16 ) 700 ( 23 ) Others 96 475 577 610 Cash flows from operations before working capital adjustments 2, 097 2, 295 3 , 431 3. 066 Net cash generated from operations 2 , 50 0 2 , 429 3 , 422 2, 572 Investment in joint ventures* ( 71 ) ( 92 ) ( 124 ) Investment in property , plant and equipment* ( 596 )| (891 ) ( 1 , 201 ) ( 1 , 147 ) Cash paid for intangible assets ( 814 ) ( 958 ) ( 1 , 155 ) ( 885 ) Cash used for other investments ( 131 ) ( 609 ) ( 6VO ) 131 Net cash used for investing activities ( 1 , 542 ) ( 2 , 609 )| ( 2 , 736 ) ( 2 , 025 ) Finance expenses and fees paid ( 128 ) ( 179 ) ( 269 ) ( 97 ) Proceeds from short-term debt 105 88 Repayment of short- term debt ( 655 ) ( 250 ) ( 158 ) Proceeds from long-term debt 1. 500 317 ORg ( 6 ) 313 Repayment of long-term debt ( 37 4 ) ( 746 ) Payment of lease obligations ( 4 ) ( 4 ) ( 5 ) \( 4 ) Dividends paid\ ( 150 ) ( 150 )| ( 150 ) Net cash used/generated from financing activities 444 178 ) (498 ) Net change in cash and cash equivalents* 1, 402 358 188 GOA Cash and cash equivalents at the beginning of the year 1, 028\ 2. 430 2, 072 2. 260 Cash and cash equivalents at the end of the year 2.430 2, 072 2, 260 2. 884 Note : GBP = British pound sterling ; FY = fiscal year* Source :" Jaguar Land Rover plc Annual Report 2013/ 14 , P. 106; FY 2015, Q3 Interim ( unaudited ) accounts , P. 10 . www . jaguarlandrover . com/ media / 59 285 / fy 15 - 93-ifrs- interim- accounts- final . pdf , accessed March 13 , 2015 .` This document is authorized for use only in Assoc . Professor Barry Williams's BF F 5300 $1 2019 at Monash University from Feb 2019 to Aug 2019 .Learning Objectives MONASH University To demonstrate and apply bond valuation technique. To debate the motivations of firms pursuing debt refinancing and the implications of doing so. https://Ims.monash.edu/pluginfile.php/8117580/mod_resource/content/2/Case%20Motivation%20Jaguar%20Rover%20LC.pptx 10/3/19, 8:34 pm Page 2 of 6
