This workout sets a scenario and asks us to advise a business on its financing requirements.

It then tells us a little bit about the business before giving us the opportunity to advise.

So let's just read this through.

It says, optimal solutions is a fast growing company looking to further expand its operations and they've asked us to advise on financing. So therefore, here's a company that looks to, is looking to raise money for expansion, for growing the business, for investing in the business, and probably also for working capital finance as it grows.

The company's financial health is solid with cash inflows evenly distributed through the year, and a good credit rating can be expected, which would be good for a loan or for a bond.

The good credit rating will enable them to borrow at a good rate of interest and the regular cash will enable them to repay both interest and the principle.

The company is still relatively unknown in the broader market that would make it more difficult for them to raise equity, but if we can find a solution that will help them to become better known, that will help them going forward.

You are aware of the following considerations of your clients as a fast-growing company.

Optimal Solutions is looking to diversify funding sources and to increase its visibility and reputation.

So therefore we will look a little bit later at what they currently are borrowing, how they're currently financed and look for alternatives to wrap around that. The company is risk averse and wants to ensure that it's financial stability is not jeopardized. That tells me two things. The first is, it's likely that the business will have relatively regular cash generation due to its risk averse nature, and secondly, by being risk averse, they may not want to take on a loan or something with that requires collateral.

The company is looking to raise financing with a maturity between 7 and 10 years.

So again, that feels like a bond or a long-term loan.

The company does not see an urgent need for financing as the expected costs of expansion over the six months can be covered by expert overdraft. So again, this is implying longer term borrowing, but it's worth looking at what they're currently borrowing right now.

It tells us at the moment the company has the following outstanding debts and we have a schedule of all of their pieces of debt.

If we add these up, we would get to a total of just over a billion dollars.

So they've got a fair amount of financing, but we can see in terms of the maturity that that's very well spread over the next seven years.

It's interesting that if you look at the bottom of this, the majority of the repayment is in the final year, in the 7.4 years, the repayments of 460 million represents almost half of their total outstanding debt.

Also interesting. If we look at the overdraft, which is a 500 million facility, it tells us that on average they're using 180 million of that pretty much every day and we may want to wonder whether it makes sense to continue with that as an overdraft facility or perhaps roll some of that regular use of the overdraft into a short term loan based on the company's needs and the information provided.

Would you recommend bonds or loans as the primary financing method and why? And what maturity would you recommend and why? Having looked at the scenario, my recommendation would be I would suggest issuing a bond.

And why is that? Although it is perhaps a lengthier process to actually issue that bond.

It does come with certain advantages and certainly the fact that they have a good credit, they're likely to have a good credit rating will make it easier to raise that bond.

Let's think about the advantages of the bond over raising a loan.

First of all, diversification.

They currently have a range of loans over seven years.

They're all loans, all with bullet repayments and therefore by raising a bond, it's a different form of financing and that's one of their objectives.

Secondly, market visibility.

A loan is just between one party, a company and one bank, whereas issuing a bond, that bond will be traded on the markets and that will give them increased visibility going forward.

And again, this may help them raise their profile, particularly if they were looking to raise new forms of finance in the future.

Maybe even equity.

Bonds can have significant costs in terms of the issuing process.

In terms of the roadshow though getting the credit rating and so on.

But going forward in the long term, bonds can actually result in lower yields, lower overall cost compared to a loan simply because of the activity and the liquidity in the bond markets.

And finally, financial discipline.

With a bond, you are obliged to publish information regularly to give those bond holders information on how your business is progressing and that financial discipline may benefit the company in terms of its focus on its financial operations.

If we consider maturity, we consider the maturity of the bond.

We can see if we look at the existing loans that they are reasonably well spread over the next seven years.

The scenario tells us that they are looking to borrow for a maturity between seven and 10 years out, so it would make sense to choose a maturity towards the top end of that range.

So somewhere close to 10 years, this would be well beyond their existing repayment requirements of their existing loans and therefore would give them a nice range of majorities over that 10 year period.

If we look at the current loans, all of the current loans are repayable on the same two dates per year.

In terms of the interest payments 15th of June and 15th of December, it tells us that the business has relatively steady cash generation, so it would make sense if we are issuing a bond which generally have bi-annual I every six month interest payments, it would make sense for those to be outta sync with their existing interest payments.

And therefore I would suggest that they look to issue a bond with coupon payments in March and also in September.

And the final point to make is the revolving credit facility.

We've seen that their revolving credit facility, they're well within it.

They're borrowing on average 180 million per day and the revolving credit facility is up to 500 million.

However, the fact that it is a regular amount that they are borrowing, they're borrowing a perpetual amount, which is not really the purpose of a revolving credit facility, which is supposed to be for general flexibility in terms of borrowing.

So it may make sense to roll some of the revolving credit facility into some short-term debt and there may well be a saving in costs, a saving in interest in doing that.