Question
A leading retailer finds itself in a financial bind. It doesnt have sufficient cash flow from operations to finance its growth, and it is close
A leading retailer finds itself in a financial bind. It doesnt have sufficient cash flow from operations to finance its growth, and it is close to violating the maximum debt-to-assets ratio allowed by its covenants. The Marketing Director suggests, We can raise cash for our growth by selling the existing stores and leasing them back. This source of financing is cheap since it avoids violating either the debt-to-assets or interest coverage ratios in our covenants. Do you agree with his analysis? Why or why not? As the firms banker, how would you view this arrangement?
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