Will It Be Difficult for Marvel or Other Companies in the Macandrews and Forbes Holding Company to Issue Debt in the Future?

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Will it be difficult for Marvel or other companies in the MacAndrews and Forbes holding company to issue debt in the future?

To determine Whether or not it will be difficult for Marvel or other companies in the MacAndrews and Forbes holding company to issued debt in the future, we should analyze two perspectives, one is historical and the other one is the future perspective.

Historically, Marvel Holdings issued zero-coupon senior secured notes which were all secured by Marvel’s equity rather than its assets or operating cash flows. However, this was a very attractive offer since the stock price was trading above $25 per share which had a value of $1.9 billion, well above the face value of the bonds issued. The interest payments on
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Moreover, the short-term borrowing has also appeared on liability in the year of 1996. Total long-term debt and total liabilities also increased drastically in 1995 and more significantly in 1996.

From the Consolidated statement of operations, the cost of sales increased since 1995. Moreover, the amortization of goodwill increased which is due to the decrease in revenue of trading cards and comic books. Interest expense also increased due to significant increase in debt. All these caused a loss in income and earning per share becomes negative at the end of 1995.

Based on all the above historical evidences, it will be really difficult due to the fact that the company has a debt-to-total capital ratio of 88% which is $805.4 million in total debt and $107.4 million in equity. With the downgrade of the public debts, it will make the financing situation even worse since the issueing notes or bonds will not raise as much financing as when the rating is good and will be more costly since the interest rate has to increase due to the increase in risk.

In the future perspective, a restructure plan was mentioned by Perelman. However, Marvel was facing three options:

1. if marvel was going under chapter 7 liquidation, the debtholders would get around 70% of the original value and the holding company debtholders and equityholders would get nothing.

2. If Marvel did not aquire Toy Biz, the total enterprise value would between

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