| Course | GF584 Treasury Management II |
|---|---|
| Unit | Unit 9 |
| Paper type | Debt issuance brief |
| Length | About 890 words, 6 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MS in Finance |
| Updated | October 2026 |
Free sample paper for GF584 Unit 9
The Basket That Binds First: A Unit 9 Debt Issuance Brief on a $120 Million Private Placement
[Student Name]
Purdue University Global
GF584: Treasury Management II
Unit 9 Debt Issuance Brief
[Instructor Name]
[Date]
The dryer maker, the note terms, the covenants and every balance are composite and illustrative; the articles cited are real.
Term Sheet Summary
1. Amount: $120 million of senior unsecured notes, in two tranches of $60 million.
2. Tranche A: seven years at 5.92 percent.
3. Tranche B: ten years at 6.18 percent.
4. Blended coupon: about 6.05 percent.
5. Prepayment: permitted at any time with a make-whole payment based on the Treasury yield plus 50 basis points.
6. Covenants: total debt to EBITDA no more than 3.25 times; EBITDA to interest at least 3.5 times; priority debt no more than 15 percent of consolidated net worth.
Uses of Proceeds
1. Brazilian plant expansion: $85 million.
2. Repayment of revolver borrowings: $25 million.
3. Transaction costs and cash: $10 million.
Why a Private Placement
At $120 million the issue is small for the public bond market, where index-eligible deals usually start well above that size. A private placement with a few insurance companies offers fixed rates for seven and ten years, no public rating requirement and lenders willing to negotiate covenants directly. Research on bond markets finds that smaller and less transparent firms favor private placements because the lenders can monitor them closely and renegotiate if needed, at the price of tighter covenants (Kwan & Carleton, 2010).
The make-whole provision is the main cost of that flexibility. If the company repaid Tranche B after three years with Treasury yields 100 basis points lower, the payment would be roughly the present value of the coupon difference over the remaining seven years, several million dollars. The brief assumes the notes will be held to maturity.
Cushions, Not Ratios
Each covenant is stated as the lender would write it, computed on the post-issuance balance sheet, then expressed as how far the business could move before a breach.
Total debt to EBITDA. Total debt of $232.0 million against EBITDA of $82.0 million gives 2.83 times, under the 3.25 limit. EBITDA could fall to about $71.4 million, a decline of 12.9 percent, before a breach.
Interest coverage. EBITDA of $82.0 million against interest of $15.28 million gives 5.37 times, against a minimum of 3.5. EBITDA could fall 34.8 percent before a breach.
Priority debt. Debt that ranks ahead of the notes, such as secured loans and subsidiary borrowings, is capped at 15 percent of $205 million of consolidated net worth, $30.75 million. Existing priority debt is $22.02 million, leaving $8.73 million of room. The expansion plan assumes a 60-million-real local development loan for the Brazilian plant, about $11.01 million at 5.45 reais per dollar. That loan alone exceeds the room by $2.28 million.
Ordering the Cushions
The debt ratio binds on a 12.9 percent fall in EBITDA, coverage on a 34.8 percent fall. Both are comfortable for a business whose EBITDA fell about 10 percent in the last poor harvest year. The basket binds immediately: the plan already breaches it on day one of the Brazilian loan.
The covenant that bites first is not the one tied to earnings but the priority debt basket, which the company's own expansion plan breaches the day the Brazilian development loan is drawn, before any downturn has happened.
A Weaker Real, a Narrower Shortfall
The basket is measured in dollars, while the Brazilian loan is in reais. If the real lost 20 percent of its dollar value, to about 6.81 per dollar, two things would happen. Consolidated net worth would fall by about $11.4 million as the subsidiary's equity was restated, cutting the cap to about $29.0 million and the room to about $7.0 million. But the loan would shrink to about $8.81 million. The shortfall would narrow from $2.28 million to about $1.79 million. A weaker real eases the breach slightly rather than worsening it, which matters for the risk report in the next unit.
What Covenants Do
Covenants exist to limit actions that would shift value from lenders to shareholders, such as taking on debt that ranks ahead of existing lenders, which is exactly what a priority debt basket controls (Smith & Warner, 1979). Breaches are costly even when lenders waive them: firms that breach covenants cut investment sharply afterward as lenders gain control rights (Chava & Roberts, 2008).
What to Ask the Lenders
1. Raise the basket to 20 percent of net worth, $41.0 million, which would leave about $19.0 million of room before the Brazilian loan.
2. Carve out the Brazilian development loan up to $15 million from the priority debt definition, since it funds the plant the notes are partly financing.
3. Fund the plant through the parent instead, lending note proceeds to the subsidiary. This avoids the basket but adds a dollar intercompany loan to a real-functional subsidiary, the remeasurement exposure identified in Unit 2.
The first option is the cleanest. The second is the most likely to be accepted, because it is limited in size and purpose.
Recommendation
Proceed with the placement, but make the basket change a condition of signing. Agreeing to the notes first and seeking a waiver later would hand the lenders bargaining power over the expansion.
References
Chava, S., & Roberts, M. R. (2008). How does financing impact investment? The role of debt covenants. The Journal of Finance, 63(5), 2085-2121. https://doi.org/10.1111/j.1540-6261.2008.01391.x
Kwan, S. H., & Carleton, W. T. (2010). Financial contracting and the choice between private placement and publicly offered bonds. Journal of Money, Credit and Banking, 42(5), 907-929. https://doi.org/10.1111/j.1538-4616.2010.00312.x
Smith, C. W., & Warner, J. B. (1979). On financial contracting: An analysis of bond covenants. Journal of Financial Economics, 7(2), 117-161. https://doi.org/10.1016/0304-405X(79)90011-4
Reading the GF 584 Unit 9 instructions
The ninth GF584 unit asks for a brief on a proposed debt issue. Summarize the term sheet and uses of proceeds. Explain the market choice, such as why a private placement suits the issuer's size, and what prepayment terms like a make-whole cost. Test each covenant as the lender would write it, computed on the post-issuance balance sheet, and express each as a cushion: how far earnings, interest or net worth could move before a breach. Order the cushions to show which binds first, including any basket that existing plans already use. Consider how currency moves affect covenants measured in dollars when debt is in another currency. Close with negotiating options for the lender meeting and a recommendation. Cite research on bond covenants and private placements in APA 7.
Inside the GF584 Unit 9 example
A term sheet summary and uses table open the brief. A section explains why a private placement suits a $120 million issue, citing Kwan and Carleton, and what the make-whole provision would cost. The covenant section computes the debt ratio cushion of 12.9 percent, the coverage cushion of 34.8 percent and the priority debt room of $8.73 million against the $11.01 million Brazilian loan. Ordering the cushions shows the basket binds immediately, and the highlighted sentence states that finding. A currency section shows a weaker real narrowing the shortfall from $2.28 million to about $1.79 million. Smith and Warner and Chava and Roberts explain what covenants do. Three negotiating options follow, and the brief recommends making the basket change a condition of signing.
Where the points sit in the GF584 Unit 9 rubric
Credit on a GF584 debt brief begins with an accurate term sheet, uses table and blended cost. Most of the marks sit in the covenant analysis: each test computed correctly on the post-issuance figures, expressed as a cushion and ordered to show which binds first. Graders reward finding a covenant that existing plans already breach, which is the point of the exercise. Analyzing currency effects on dollar-measured covenants shows depth. Instructors in the MS in Finance program value negotiating options that are specific and a recommendation on timing. Research on covenants and private placements cited in APA 7 completes the rubric.
GF584 Unit 9 help: mistakes that cost points
Many GF584 Unit 9 briefs report covenant ratios without converting them to cushions, so readers cannot compare one test with another. Others assume the debt ratio binds first because it usually does, missing a basket that the company's own plans exhaust. Covenants are computed on pre-issuance figures. Currency effects on dollar-measured tests are ignored. Recommendations suggest seeking a waiver later instead of negotiating terms before signing. For any issue your case presents, keep the order: term sheet, uses, market choice, covenants as cushions, the binding test, currency effects, negotiating options and a recommendation.
Get a GF584 Unit 9 example written to your instructions
Share the issue size, the covenant package and the financial statements provided for Unit 9, plus whatever instructions and rubric came with them. Every covenant is computed as a cushion, the one that binds first is identified and a negotiating position is set out in the custom brief; expect it in 24-48h, the first at no cost. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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GF584 Unit 9 questions, answered
What is a priority debt covenant?
A limit on debt that would rank ahead of the noteholders, typically secured debt and borrowing by subsidiaries, since subsidiary creditors are paid from subsidiary assets first. It is often set as a percentage of consolidated net worth or assets. In multinational cases it can bind before the debt ratio does, because local borrowing by foreign subsidiaries counts against it.
What is a make-whole provision?
A clause requiring the issuer, if it repays fixed-rate notes early, to compensate investors for the interest they would lose, usually by discounting remaining payments at a Treasury rate plus a small spread. It makes early repayment expensive when rates have fallen. A brief should note it because it limits the firm's flexibility to refinance later.
Where can I find a free GF584 Unit 9 sample paper?
This page holds a complete GF584 Unit 9 debt issuance brief for a $120 million private placement, with covenant cushions, a binding priority debt basket, currency effects and APA 7 references.
Why does a weaker real narrow the basket shortfall?
The basket is a share of dollar net worth, which falls by about $11.4 million if the real loses 20 percent, but the Brazilian loan shrinks from $11.01 million to about $8.81 million, so the shortfall narrows to about $1.79 million.
What negotiating options does the brief propose?
Raising the basket to 20 percent of net worth, carving out the development loan up to $15 million, or funding the plant through the parent, which adds an intercompany currency exposure.