medium · Debt Capital Markets
An issuer sells an asset and uses the proceeds to permanently pay down a revolving credit facility.
Why might bondholders view this as a 'reinvestment' or a valid use of proceeds?
- It decreases the issuer's interest coverage ratio
- It increases the total indebtedness of the firm
- It reduces the senior leverage ahead of the bondholders in the capital stack
- It allows the company to borrow the money back immediately for equity buybacks
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