Reference no: EM133117807

Question - How would Kohl's balance sheet be impacted by its $600 million bond issuance?

Kohl's Corporation issued $600 million of bonds with a 9.5% interest rate on April 27, 2020. The bonds issued were five-year bonds maturing in 2025. Kohl's will pay interest on the bonds on May 15 and November 15 of each year, beginning November 15, 2020. Bonds were sold at a price of 99.99. Kohl's said the proceeds from the bond offerings will be used to repay a portion of its borrowings, with the remainder for general corporate purposes.

"The impact of and actions taken in response to COVID-19 have had a significant impact on the retail industry generally and our business, starting in the first quarter of fiscal year 2020," Kohl's wrote in the prospectus. In addition to furlough of employees, reducing marketing, technology, and operation expenses, cutting capital expenditures, Kohl's also suspended its regular quarterly cash dividend beginning in the second quarter of fiscal 2020.

1. How was Kohl's balance sheet impacted by the $600 million bond issuance on the date of issuance?

2. How much in cash interest would Kohl's pay on this bond issuance on Nov. 15, 2020 (i.e., the first half-year interest)? How would the payment of cash interest impact Kohl's income statement and balance sheet?

3. As we know that retail has been hit particularly hard by the pandemic as stores are forced to closed, unemployment rises, and people are not spending. And we expect the impact to continue to have a material adverse effect on Kohl's financial condition and results of operations for the year of 2020 and beyond. Why do you think creditors were willing to purchase Kohl's bonds?