Question

After years of operating losses, OnePipe New Zealand Limited has shut down most of its operations. The company is financed partly by equity and partly by four issues of debt. There are 1,000,000 shares outstanding with a par value of s1.00 per share. The outstanding debts are: A. Convertible junior debt with a total face value of $140 million, the conversion ratio is 500 B. Senior debt with a total face value of $200 million; C. $150 million loan secured by the pipeline; D. s90 million mortgage loan secured by the building The company's remaining assets are: $4 million cash; $30 million accounts receivable . A pipeline, which has a current market value of $300 million * A building, purchased at $80 million ten years ago, which is worth $150 million now Suppose all debts will be due tomorrow, and 70% ofaccounts receivable can be recovered. QUESTIONS 1. Rank the four groups of debtholders by the order of priority, from the highest to the lowest, of each group's right to make a claim to the company's residual assets. [6 marks] 2. How much would each group of debtholders be entitled to receive if the company files for [20 marks] 3. If you were a holder of the company's convertible debt, would you be better off to [4 marks bankruptcy? How much would shareholders get? exercise your conversion option now? Explain why.

Answer 1