DARDEN KINGSTON MURRAY ENTERPRISES On June 30, 199l, Bonnie Tyler, senior financial analyst for Kingston-Murray Enterprises (KME, was contemplating what funding technique she should recommend to the chief financial officer. One intriguing possibility for raising S500 million in operating cash for the company was to issue zero-coupon convertible bonds. The need for the funds had been created by two recent dispoveries of gold and sulfur reserves which KME wanted to begin developingas soon as possible As a result of the company's low credit rating and high cost of borrowing however, senior ement restricted thefinancin choices to eithercommon stockor convertible bonds. A zero. coupon convertible under consideration called a LYON (liquid-yield option note) had been roduced to the market in 19RS, and gradually gained acceptance as a viable alternative to the more frequently used coupon-bearing convertibles. Before recommending whether Kingston-Murray ses should issue LYONs, however, Tyler wanted to understand fully the details of these subordinated, zero-coupon callable, putable, and convertible notes Company History Kingston-Murray Enterprises was a Fortune 300 company involved in the exploration, discovery, development, production and processing ofnaturalresources. KME's principal products included copper, gold, sulfur, oil, natural gas, and uranium The company was also one of the largest phosphate-fertilizer producers in the United Stales. Although KME was officially formed in 1981, as the resul of a merger between Kingston Minerals Company and Mumay oil & Gas Company, its history dates backto the begi g of the century. Founded in 1912. Kingston Minerals began operations as a Texas-based sulfur-mining mi d-1930s, Kingston Minerals had expanded into neighbor states company until its merger with Murray Oil & Gas, Kingston Minerals continued to expand. bouh around the globe and intu other areas of natural resources exploration and production. part