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CFA Level I · CFA Level I Exam · Fixed-Income Markets for Corporate Issuers

A company has a BB rating and a record of volatile earnings. It wants to raise a large amount of term debt for an acquisition, and it has a negotiating preference for covenants tailored to its situation. Which funding choice is most likely appropriate?

A syndicated term loan is most appropriate. A lower-rated borrower needing a large amount of multi-year funds with negotiated, tailored covenants fits that market. Commercial paper is short-term and typically limited to high-quality issuers, and a 3-month bond cannot finance an acquisition.

  1. AIssuing commercial paper backed by a bank line
  2. BA term loan from a syndicate of banksCorrect
  3. CA bond with maturity of 3 months

Explanation

Sub-investment-grade issuers generally cannot access commercial paper markets readily, and a 3-month bond cannot fund an acquisition. Syndicated term loans allow large amounts, negotiated covenants, and bespoke terms for lower-rated borrowers.

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