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A NOTE ON BOND DEFEASANCE
Author(s) -
Pari Robert,
Caks John
Publication year - 1988
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1988.tb00789.x
Subject(s) - restructuring , maturity (psychological) , bond , free cash flow , monetary economics , cash flow , debt , business , shareholder , economics , financial economics , finance , corporate governance , psychology , developmental psychology
This paper provides an after‐tax cash flow analysis of insubstance defeasance versus open market debt repurchase under the current tax law. Depending upon interest rates, term to maturity, and the riskiness of the corporate bond issue that managers with to remove from the balance sheet, defeasance may be the cheapest restructuring alternative available. Managers must consider all these factors before reaching a decision that is consistent with the maximization of shareholder wealth.