Corporate credit analysis

CFA Level I Fixed Income
#1

Could anyone please help me solve this question?

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#2

Here is my solution

  • SENIORITY RANKING: Secured bank loans > Unsecured bonds > Subordinated bonds> Equity
  • Recalculate the total value of assets after considering IMPAIRMENT ON NET CURRENT ASSETS
    Assets = 40 (Cash) + 10 (Net current assets) + 60 (Net fixed assets) = 110
  • Secured bank loans: recovery rate = 100% (backed by USD 30 CASH)
    -Remaning Assets =80 → used to repay Unsecured bonds : 90
    -Conclusion:
    +) Secured bank loans: 100% recovery rate
    +) Unsecured bonds: partially recovery rate
    +) Subordinated bonds and Equity: Zero recovery rate
    → choose A
#3

Mine too. What is the issue?

The only issue I can think of is that they are just unsecured bonds not senior unsecured bonds.

#4

Thank you very much. Actually I want to check my answer.

#5

why does the suggested answer not agree with this?

#6

I wonder if for instance, Cash collateral is not enough to clear secured bank loans, Are remaining assets used to clear secured bank loans ? And lenders of secured bank loans have to be repaid money before any other loans of that company?