Delos Debt Renegotiations (B). Delos is continuing to renegotiate its prior loan agreement

(80

million for six years at

8.626%

per annum

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), two years into the agreement. Delos is now facing serious tax revenue shortfalls, and fears for its ability to service its debt obligations. So it has decided to get more aggressive, and has gone back to its lenders with a request for a

haircut,

a reduction in the remaining loan amount. The banks have, so far, only agreed to restructure the loan agreement for another two years (new loan of six years on the remaining principal balance) but at an interest rate a full

200

basis points higher,

10.626%.

a. If Delos accepts the current bank proposal of the remaining principal for six years (extending the loan an additional two years since two of the original six years have already passed), but at the new interest rate, what are its annual payments going to be? How much relief does this provide Delos on annual debt service?

b. Delos's demands for a haircut are based on getting the new annual debt service payments down. If Delos does agree to the new loan terms, what size of haircut should it try to get from its lenders to get its payments down to

10

million per year?

Question content area bottom

Part 1

a. If Delos accepts the current bank proposal of the remaining principal for six years (extending the loan an additional two years since two of the original six years have already passed), but at the new interest rate, what are its annual payments going to be?

Delos's annual payment under the original loan agreement is

enter your response here.

(Round to two decimal places.)

Part 2

After two years debt service, the outstanding principal is

enter your response here.

(Round to two decimal places.)

Part 3

Delos's annual payment under the new loan agreement is

enter your response here.

(Round to two decimal places.)

Part 4

How much relief does this provide Delos on annual debt service?

The relief provided to Delos on annual debt service is

enter your response here.

(Round to two decimal places.)

Part 5

b. Delos's demands for a haircut are based on getting the new annual debt service payments down. If Delos does agree to the new loan terms, what size of haircut should it try to get from its lenders to get its payments down to

10

million per year?In order for annual payments to be

10

million per year, the balance of the loan would need to be reduced to

enter your response here.

(Round to two decimal places.)

Part 6

The amount of the haircut needed is

enter your response here.

(Round to two decimal places.)

Data table Delos's prior loan agreement of 80 million for six years at 8.626% per annum: Current balance 80,000,00069,265,606.9857,605,265.2244,939,102.3831,180,356.3316,234,780.85