SM Corp. has recentlybeen acquired through LBO for $1,300(financed with $1,150 debt). The debt mix includestwo tranches: a tranche of senior notes of $650 (coupon of 12%) and a tranche of juniornoteswith face value of$500 (coupon of 15%). The senior noteshave a minimum amortization of $150 per year and must be amortized over 4 years. At the end of the first year, the CFO realizesthat initial projections weretoo optimistic and growth forecasts have to be adjusted downwards. Moreover, SMcannotmeet the amortization requirement on senior debtand interest payment to juniorcreditors.The present situation(as of time-point 1)is shown in Table 1 below.

At this point, the CFO decidesto contactthe creditors with a recapitalization proposal. Under the revised projections (determined as part of the proposal), EBIT will grow at an annual rate of 5% per year, capital expenditures will equal depreciation, and working capital will be self-financed. In terms of recapitalization, the proposal statesthat the senior tranche will be exchanged for new 9-year senior noteswitha notional amount equal to the outstanding balance onthe existing senior note, 8% coupon rate, and required annual amortization of $65. The junior tranche will be exchanged for new 9-year juniornoteswitha notional amount equal to 34% of the original par value, 10% coupon rate,and no amortization requirements.The principal must be repaid at maturity. In addition to that, the juniordebt holders will receive 45% equity ownership in the restructured firm. Existing equity holders will receive new shares representing 55% equityownership. Assume that any COD gains exactly offset asset write-offs(so there is no tax implication of the exchange).

Unfortunately, the creditors are skeptical. Yourtask is to demonstratethatthe proposed recapitalization is feasible:Complete Table 1 for the maturity of the new debt instruments and confirmthat the conditions imposed by allcreditors are satisfied.