Question

1. Discuss a successful example of corporations trying to add value through innovative financing.

2. Discuss some examples of the conflicts of interest that may arise between bondholders and stockholders when a firm is in financial distress.

Answer 1

1. Citi is an example of corporations trying to add value through innovative financing. They announced their first green bond, the bond will find renewable energy, water quality, energy efficiency . They issued euro 1 billion fixed rate notes. The transaction marks the first green bond offering from Citigroup Inc.

These bonds also strengthens the relationship with clients, partner and increase investor interest in sustainable finance.

2.During times of financial distress, there is a struggle for power between the shareholders and the debt holders. The shareholders look for techniques by which they can protect the value of their securities and take measures , these measures can greatly affect the bond holders. They may try to reduce their capital invested in the firm, which might reduce the firm value. They may liquidate their assets and also try to switch the risk to the debt holders. The stakeholders would not like the wages and salaries paid to the mangers , as in times of distress this will reduce their bottom line which is the net income.