They had been harmed by the massive issue of new debt

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Reference no: EM131060037

In 1987 RJR Nabisco had $5 billion of A-rated debt outstanding. In that year the company was taken over, and $19 billion of debt was issued and used to buy back equity. The debt ratio skyrocketed, and the debt was downgraded to a BB rating. The holders of the previously issued debt were furious, and one filed a lawsuit claiming that RJR had violated an implicit obligation not to undertake major financing changes at the expense of existing bondholders. Why did these bondholders believe they had been harmed by the massive issue of new debt? What type of explicit restriction would you have wanted if you had been one of the original bondholders of RJR Nabisco?

Reference no: EM131060037

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They had been harmed by the massive issue of new debt : In 1987 RJR Nabisco had $5 billion of A-rated debt outstanding. In that year the company was taken over, and $19 billion of debt was issued and used to buy back equity. The debt ratio skyrocketed, and the debt was downgraded to a BB rating. Why did t..

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