17 Pages Posted: 22 Oct 2008
Date Written: September, 30 2008
This case illustrates the financing decision of Level 3, a fast-growing telecom company, in the summer of 2002. There had been severe downsizing in the telecom industry and Level 3 wanted to take advantage of this opportunity by acquiring financially-distressed competitors that would complement and expand its business. To do so, it needed a source of financing. Issuing debt was a problem because the company's bonds were junk-rated. Issuing equity was a problem because the firm's stock price was considerably below its peak price. As a result, the company was considering a convertible bond issuance, which would preserve shareholder ownership to a greater extent than would an equity issue. It also offered a lower interest rate than straight debt. The convertible bond alternative needed to be priced and compared to the options of issuing straight debt or equity.
Keywords: financing, preferred stock, convertible debt
JEL Classification: G32
Suggested Citation: Suggested Citation