Air Canada plans to refinance some of its debt, as well as to restructure the debt of its maintenance subsidiary. Specifically, the plan is to refinance the USD debt that has a current interest rate of 7.65% and to refinance $30 million at its maintenance subsidiary debt. Currently, Air Canadas relevant debt (modified) consist of the following:

Outstanding Debt Securities Air Canada &Subsidiaries Issue Name	Issue Date	Maturity Date	Currency	Origianl Issue Amount(millions)	Amount Oustanding	Annual Coupon	Market Price	Other
ACX 7.625 10/01/2023 USD 500	10/1/2013	10/2/2023	USD	500	350	7.625	122.50	No call feature
ACX 3.3 07/15/2031 USD 700	12/21/2017	7/15/2031	USD	700	700	3.30	108.00	Callable at 105 and convertible

Questions: Air Canada wants to refinance debt ACX 7.625 10/01/2023 USD 500 and replace it with debt similar to the ACX 3.3 07/15/2031 USD 700 debt. For the purpose of this assignment, assume that the current date is December 31, 2017 unless otherwise specified. a. What factors might allow Air Canada to raise new debt at less than half the interest rate of the debt issued in 2013? b. Compute the amount at which the existing bond holders might be willing to surrender their existing bonds. Note that the current bondholders can sell their bonds in the market at 122.50% of the bonds face value and they have very little reason to do so or surrender the bond to Air Canada given that the replacement bond has a coupon rate of about 3.3 to 5 percent. Start by computing the theoretical value of the old bond and adjust it in various ways so that existing bond holders might be enticed to sell the bond to Air Canada. What sweeteners might you have to offer? Please make sure you adequately motive your selection of the market rate in your calculations. Assume the new debt has a 10-year duration. c. Assume that Air Canada was able to complete the retirement and reissuance of the old and new bond, calculate the relevant cash flows. Specify the cost savings gained by the retirement and reissuance. d. Make the entry to retire the old bond issue and the issuance of the new bond. Assume no accrued interest. e. What benefits other than what you have mentioned in a through d night accrue to Air Canada? Hint: there are several non-quantitative benefits for example.