Part 2: Issuance of Securities The following announcement appeared in the May 15
ID: 2555296 • Letter: P
Question
Part 2: Issuance of Securities
The following announcement appeared in the May 15, 2017, issue of the Wall Avenue Financial Journal:
_________________________________________________________________________
This announcement is not an offer of securities for sale or an offer to buy securities.
New Issue, May 15, 2017 $950,000,00
CRUDE OIL& GAS, INC.
6.25% Debentures Due July 1, 2032
Price 103.35%
Plus accrued interest if any from the date of issuance
Copies of the prospectus and the related prospectus supplement may be obtained from such
of the undersigned as may legally offer these securities under applicable securities laws.
Kermit Jeffers & Co. Inc. / Banks Bros. & Co. William Stork & Co.
Address the following:
What is the purpose of this announcement? Identify the purpose of a securities offering announcement.
Why are the securities being priced at 103.35%? Explain why a security is priced at a value other than par.
Explanation / Answer
Question 1:
If the company without increasing its share capital and wishes to have funds for development and extension it may opt for issuance of debentures.
The main purposes and objectives of such securities (debentures) offering announcement are:
1. Issuance of debenture doesn't result in dilution of intrest of common stakeholders.
2. Interest on debentures is a tax deductible expense and hence it saves tax.
3. Cost of debentures is comparitively lower than equity and preference shares.
Question 2:
The securities are priced at 103.35%. Therefore they are said to be priced at premium.
The reasons why a debenture is issued at premium is because:
1. The company has good reputation.
2. Company has good income generating capacity.
3. People expect benefits from the debentures and they are trustworthy.
Due to these reasons the company prices its debentures at premium.