Spring 2024

AD 472 – Financial Markets and Institutions

Case Study 3 – The October 2009 Petrobras Bond Issue
Due @23:59 pm Sunday, April 14th

Read the case study provided in three parts (A, B and C ) and write a brief 2-4 page (font size 12,
single space) analysis of this large company’s bond issue decision. Please turn in your individually
written and professionally formatted write-up following the instructions at the bottom.
Participate in the discussion for further credit.

Structure your discussion around the following questions. You may address any additional points
that you deem worthy within the context of our in-class discussions on fixed income securities.
Please turn in your 2–4-page write-ups by the due date per the instructions below.

1. Why is Petrobras considering raising debt?

2. Is this a good time to access the financial markets? Should Petrobras access the bond
markets at the time or delay issuing the bond?
3. Assume Petrobras wants to raise $3 billion. Should it go with a large issue or should it
pursue a series of smaller staged issues instead? Should Petrobras issue debt with long or
short maturity?
4. Estimate the expected costs (effective annual yield) that Petrobras will incur in the 10-
and 30-year bonds. What spread over US government bonds do you think Petrobras will
have to pay?
5. What coupon rate should it pay, and what would the value of the bonds be according to
your assumptions?
6. Assume Petrobras will incur legal costs and various fees of $2 million. Further, there is
an underwriter discount of 0.3%. The coupon rate of the 10-year bond is 5.5% and the
issuing yield is 5.7%. The coupon on the 30-year bond is 6% and the issuing yield is 6%,
too. The company will issue $2.5 billion in the 10-year notes and $1.5 billion in the 30-
year notes. What will the total proceeds from this operation be for Petrobras?
7. What is the all-in cost of the bond under the assumptions above?

Note that this and all case study assignments are individual assignments.

Turn in your case study assignment through Turnitin website www.turnitin.com by the due date
and time, after which the website will not accept any new submissions.

You will have to create a student account on the website and use the following information to
enroll in the class.

Class ID : 42847650

Enrollment Password: AD472Sp2024