Panera Debt Pros And Cons
Problem: Panera Bread wants to raise the stock price by making a stock repurchase and improve margins without raising prices.
Equity financing vs. debt financing
Type of Loan
Pros
Cons
An overdraft facility (or working capital facility)
easily accessible and usually available from a company's existing bank
Lender is not obligated to lend money to the company, and load is on demand. Limited amount mainly used for short term cash flow problems.
A term loan
Lump sum, committed facility, not usually on demand. Negotiable repayment types (amortized, balloon, or bullet). May allow the borrower to prepay all or part of the loan before the dates specified in the repayment schedule
Once repaid, an amount cannot then be re-borrowed. Monthly payments over set period
Revolving credit facility
Flexible, Available when needed. Use as much or as little credit from the line of credit as needed, amounts repaid can be re-borrowed commitment fees may be high.
Choosing
Keep expenses to a minimum. The borrower is likely to have to pay the lender's expenses as well as its own and there may be extra charges that are difficult to quantify.
Ensure that the lender's attempts to monitor the borrower's activities (for example, in the covenants and events of default) do not interfere with the borrower's ability to run its business.
Moderate its obligations with reasonableness and materiality thresholds.
Ensure certainty by including objective, not subjective, tests.
Increase flexibility with grace periods and mitigation clauses before events of default are triggered.
While equity financing is an option that is often ideal for funding new projects, there are situations where looking into debt financing is in the best interests of the company. Should the project be anticipated to yield a return in a very short period of time, the company may find that obtaining loans at competitive interest rates is a better choice. This is especially true if this option makes it
Equity financing vs. debt financing
Type of Loan
Pros
Cons
An overdraft facility (or working capital facility)
easily accessible and usually available from a company's existing bank
Lender is not obligated to lend money to the company, and load is on demand. Limited amount mainly used for short term cash flow problems.
A term loan
Lump sum, committed facility, not usually on demand. Negotiable repayment types (amortized, balloon, or bullet). May allow the borrower to prepay all or part of the loan before the dates specified in the repayment schedule
Once repaid, an amount cannot then be re-borrowed. Monthly payments over set period
Revolving credit facility
Flexible, Available when needed. Use as much or as little credit from the line of credit as needed, amounts repaid can be re-borrowed commitment fees may be high.
Choosing
Keep expenses to a minimum. The borrower is likely to have to pay the lender's expenses as well as its own and there may be extra charges that are difficult to quantify.
Ensure that the lender's attempts to monitor the borrower's activities (for example, in the covenants and events of default) do not interfere with the borrower's ability to run its business.
Moderate its obligations with reasonableness and materiality thresholds.
Ensure certainty by including objective, not subjective, tests.
Increase flexibility with grace periods and mitigation clauses before events of default are triggered.
While equity financing is an option that is often ideal for funding new projects, there are situations where looking into debt financing is in the best interests of the company. Should the project be anticipated to yield a return in a very short period of time, the company may find that obtaining loans at competitive interest rates is a better choice. This is especially true if this option makes it