【正文】 e rt i bl e i fc a s h fl ow s l ow now but hi g he xp. g r ow t hS p e c i a l F e a t u r e so n D e b t O p t i o n s t o m a k e c a s h f l o w s o n d e b t m a t c h c a s h f l o w s o n a s s e t sS t a r t w i t h t h e C a s h F l o w so n A s s e t s /P r o j e c t sCo m m o d i t y B o n d sCa t a s t ro p h e N o t e sD e s i g n d e b t t o h a v e c a s h f l o ws t h a t m a t c h u p t o c a s h f l o w s o n t h e a s s e t s f i n a n c e dAswath Damodaran 15 Ensuring that you have not crossed the line drawn by the tax code ? All of this design work is lost, however, if the security that you have designed does not deliver the tax benefits. ? In addition, there may be a trade off between mismatching debt and getting greater tax benefits. O v e r l a y t axpr e f e r e nc e sD e duc t i bi l i t y of c a s h fl ow sfor t a x purpos e sD i ff e re nc e s i n t a x ra t e sa c ros s di ff e re nt l oc a l e sIf t ax a dv ant age s ar e l ar ge e nou gh, y o u m i ght ov e r r i de r e s ul t s o f pr e v i ous s t e pZ e ro Coupon sAswath Damodaran 16 While keeping equity research analysts, ratings agencies and regulators applauding ? Ratings agencies want panies to issue equity, since it makes them safer. Equity research analysts want them not to issue equity because it dilutes earnings per share. Regulatory authorities want to ensure that you meet their requirements in terms of capital ratios (usually book value). Financing that leaves all three groups happy is nirvana. Con s i d e r r at i ng s ag e nc yamp。 buy shares. Aswath Damodaran 5 Disney: Applying the Framework Is the actual debt ratio greater than or lesser than the optimal debt ratio? Actual Optimal Overlevered Actual Optimal Actual (26%) Optimal (40%) Is the firm under bankruptcy threat? Is the firm a takeover target? Yes No Reduce Debt quickly 1. Equity for Debt swap 2. Sell Assets。 use cash to pay off debt 3. Renegotiate with lenders Does the firm have good projects? ROE Cost of Equity ROC Cost of Capital Yes Take good projects with new equity or with retained earnings. No 1. Pay off debt with retained earnings. 2. Reduce or eliminate dividends. 3. Issue new equity and pay off debt. Yes No Does the firm have good projects? ROE Cost of Equity ROC Cost of Capital Yes Take good projects with debt. No Do your stockholders like dividends? Yes Pay Dividends No Buy back stock Increase leverage quickly 1. Debt/Equity swaps 2. Borrow moneyamp。 buy shares. Aswath Damodaran 6 6 Application Test: Getting to the Optimal ? Based upon your analysis of both the firm’s capital structure and investment record, what path would you map out for the firm? ? Immediate change in leverage ? Gradual change in leverage ? No change in leverage ? Would you remend that the firm change its financing mix by ? Paying off debt/Buying back equity ? Take projects with equity/debt Aswath Damodaran 7 The Mechanics of Changing Debt Ratio over time… quickly… A s s e t s L i ab i l i t i e sO pe a ri ng A s s e t s i n pl a c eD e b tE q u i t yG row t h A s s e t sC a shT o d e c r a s e t h e d e b t r a t i oT o i n c r e a s e t h e d e b t r a t i oBo rr o w mo n e y a n d b u y b a ck st o ck o r p a y a l a rg e sp e ci a l d i vi d e n dSe l l o p e ra t i n g a sse t s a n d u se ca sh t o b u y b a ck st o ck o r p a y o r sp e ci a l d i vi d e n dI s s u e n e w s t o c k t o re t i re d e b t o r g e t d e b t h o l d e rs t o a c c e p t e q u i t y i n t h e f i rm .S e l l o p e ra t i n g a s s e t s a n d u s e c a s h t o p a y d o w n d e b t .Aswath Damodaran 8 The mechanics of changing debt ratios over time… gradually… ? To change debt ratios over time, you use the same mix of tools that you used to change debt ratios gradually: ? Dividends and stock buybacks: Dividends and stock buybacks will reduce the value of equity. ? Debt repayments: will reduce the value of debt. ? The plication of changing debt ratios over time is that firm value is itself a moving target. ? If equity is fairly valued today, the equity value should change over time to reflect the expected price appreciation: Expected Price appreciation = Cost of equity – Dividend Yield ? Debt will also change over time, in conjunction as firm value changes. Aswath Damodaran 9 Changing Disney’s debt ratio over time.. With new investment and higher payout ratios.. Aswath Damodaran 10 Changing Disney’s debt ratio over time: Investments and Buybacks (% each year) Aswath Damodaran 11 Designing Debt: The Fundamental Principle ? The objective in designing debt is to make the cash flows on debt match up as closely as possible with the cash flows that the firm makes on its assets. ? By doing so, we reduce our risk of defa