Bourland

In evaluating the financing opportunities of Bourland Companies, it is essential to not only analyze the quantitative factors associated with the transaction, but also the qualitative factors that may ultimately represent larger long run implications and benefits for the company. It is also essential to separate the two properties and evaluate them on an individualized basis so as to consider whether the opportunities are similar and if one method of financing is the optimal choice for both transactions.

Michael Bourland has been dealt with an opportunistic re-financing situation with a variety of options to choose from including a miniperm loan, an insurance loan, and a securitization option each representing its own benefits and disadvantages. Some key quantitative considerations to take into account are the interest rate, recourse and non-recourse attribute, the presence and amount of prepayment penalties, upfront fees and costs, and finally, the interest rate risk. From a qualitative standpoint, the key issues include the state of the economy and its potential impact on vacancies as well as established relationships like that of Bourland Companies with the Bank of Boston. Glen Bourland, Chairman of the company and arguably the most important stakeholder communicates the fact that quantitative considerations are relatively less important the strong and established relationships. Therefore, we recommend the company preliminary disregard the offer given by Goliath Insurance and only consider the options given by Bank of Boston. Furthermore, we see the benefits of the securitization option as exceeding those offered by the miniperm. These benefits include longer term, fixed rate, and the anticipation of increased support given to Bourland by Bank of Boston for using their securitization option. Therefore, when looking at the situation solely from a high level perspective, the initial intuition is to recommend two securitization financing agreements. However, we feel it is vital to take a closer look at these specific transactions before making a final decision.

We begin by valuing both properties using a capitalization approach. Applying a 9% and 9.5% capitalization rate for Southshore Retail and Bedrock Office respectively, we find the values of the properties to be valued at $7.49 million and $8.96 million. Furthermore, being that we currently have bullet loans on both properties, we must repay $3.9 million and $5 million in principal as balloon payments upon maturity of both loans. Therefore, we must at a minimum obtain a cumulative of $8.9 million in loans just to cover our current debt. If however, we look to extract equity for investment,