Ivey Publishing
Symantec Corporation Convertible Notes With Call Spread
Product Number:
9B10N018
Publication Date:
09/19/2012
Revised Date:
09/19/2012
Length:
7 pages (4 pages of text)
Product Type:
Case (Library)
Source:
Ivey
The board of directors of Symantec Corporation asked a consultant for an independent opinion on an important financing decision. Symantec had been working with several investment banks on a plan to raise debt to repurchase common shares. The consultant found it to be an interesting financing plan; whereas repurchasing shares immediately would increase Symantec's financial leverage, converting the notes in the future would reduce leverage at a potentially significant dilutive cost to the firm's equity. More interestingly, the company negotiated with the investment banks to buy a call spread on its own stock, covering the same number of shares as would be issued to noteholders upon conversion. After reviewing the proposal, the consultant tried to understand the motivation behind the structure of the transaction. Why would Symantec choose to issue convertible bonds, and why would it intend to buy the call spread?
Learning Objective:
This case will help students gain an understanding of how financial derivatives, in particular options, are used in corporate financing activities. Students will be exposed to option payoffs, strategies and pricing.
Issues:
Disciplines:
Finance
Industries:
Professional, Scientific, and Technical Services
Setting:
United States, Large, 2006
Intended Audience:
Undergraduate/MBA
Price:
$4.25 CAD / $4.25 USD Printed Copy
$3.75 CAD / $3.75 USD Permissions
$3.75 CAD / $3.75 USD Digital Download
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