Homework SourseAnalyzing Debt Terms Yields Prices and Credit Ratings Assume
Analyzing Debt Terms, Yields, Prices, and Credit Ratings
Assume Reproduced below is the long-term debt footnote from the 10-K report of Southwest Airlines.
* The carrying value of these debentures is 103 while the face value is 100. The company marks these debentures to market each period because the debentures are hedged with interest-rate swaps. The swap and the debentures are both marked to market, where any gains and losses offset each other.
As of December 31, 2012, aggregate annual principal maturities of debt and capital leases (not including amounts associated with interest rate swap agreements and interest on capital leases) for the five-year period ending December 31, 2017, were $38 million in 2013, $45 million in 2014, $49 million in 2015, $44 million in 2016, $418 million in 2017, and $1.5 billion thereafter.
Assume below is a summary of the market values of the Southwest Airlines\' bonds maturing from 2017 to 2032 (from Capital IQ).
($ million)
Help with this question please
| Long-Term Debt (in millions) | 2012 | 2011 |
|---|---|---|
| 7 7/8% Notes due 2012 | $ -- | $ 100 |
| French Credit Agreements due 2017 | 55 | 37 |
| 6 1/2% Notes due 2017 | 365 | 369 |
| 5 1/4% Notes due 2019 | 350 | 336 |
| 5 3/4% Notes due 2021 | 300 | 300 |
| 5 1/8% Notes due 2022 | 311 | 300 |
| French Credit Agreements due 2022 | 94 | 100 |
| Pass Through Certificates | 480 | -- |
| 7 3/8% Debentures due 2032 | 103* | 100 |
| Capital leases | 52 | 63 |
| 2,110 | 1,705 | |
| Less current maturities | 38 | 122 |
| Less debt discount and issuant costs | 19 | 16 |
| $ 2,053 | $ 1,567 |
Solution
Market Value of Bonds = No. of Bonds * Trading Price
No. of Bonds = Total Bond Value / Face Value
No. of Bonds = $365 Million / 100(Assumed)
=3.65 Million
Market Value of Bonds = 3.65 Million * $97.290
=$355.1085 Million
