Cae Finance Case
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Answer to question # 2
Types of liability CAE uses:
From the consolidated balance sheets as at 31 March, 2011 we find that CAE basically uses both the short term and long term liabilities. The characteristics of each type of liabilities as used by CAE are discussed below:
SHORT TERM LIABILITIES:
Short term debt comprises of mainly the below:
Accounts payable and accrued liabilities
Deposits on contracts
Current portion of long term debt
Future income taxes
Accounts payable and accrued liabilities represent 69% of the total short term debt and it comprise of the below headings:
Accounts payable trade
Contract liabilities
Derivative liabilities
Income tax payable
Other accrued liabilities
The company has an unsecured and uncommitted bank line of credit available in Euros totaling $2.8 million of which $1.3 million is used as of March 31, 2011 (2010 – nil). The line of credit bears interest at a euro base rate.
LONG TERM DEBT:
As at 31 March, 2011 the long term debt of the company comprises of both recourse debt and non-recourse debt. Recourse debt comprises 78% of the total debt and the rest 22% is non-recourse debt. Non-recourse debt is a debt in a subsidiary for which recourse is limited to the assets, equity, interest and undertaking of such subsidiary and not CAE Inc.
Of the total long term debt, 74% bears fixed interest rate and the balance 26% bears floating interest rate. The recourse debt of the company comprises of notes, revolving term credits, bonds, capital lease, term loan etc. having different maturity dates and coupon rates as mentioned below:
Senior notes (US$33.0 maturing in June 2012), fixed interest rate of 7.76% payable semi-annually in June and December
Senior notes ($15.0 and US$45.0 maturing in June 2016 and US$60.0 maturing in June 2019), average blended rate of 7.14% payable semi-annually in June and December
Revolving unsecured term credit facilities maturing in April 2013 (US$450.0),
(2010 – US$400 and €100)
Term loans, maturing in May and June 2011 (outstanding as at March 31, 2011 – €1.6 and €0.3, as at March 31, 2010 – €7.4 and €1.5), implicit interest rate of 4.60%
Grapevine Industrial Development Corporation bonds maturing in April 2013 (US$19.0), interest rate of 0.55% (2010 – 1.35%)
Miami Dade County Bonds maturing in March 2024 (US$11.0), interest rate of 0.34% (2010 – 0.47%)
Obligations under capital lease commitments, with various maturities from July 2010 to October 2022, interest rates from 1.65% to 6.09%
Term loan maturing in June 2014 (outstanding as at March 31, 2011 – US$17.5 and ÂŁ7.3, as at March 31, 2010 – US$22.1 and ÂŁ8.7)
Term loan maturing in June 2018 (outstanding as at March 31, 2011 – US$43.2 and ÂŁ8.5, as at March 31, 2010 – US$43.2 and ÂŁ8.5)
Combined coupon rate of post-swap debt of 7.9%
R&D obligation from a government agency maturing in July 2029
Term loan, maturing in December 2017 (outstanding as at March 31, 2011 – €9.2, as at March 31, 2010 – €9.7), floating interest rate with a floor of 2.5%
Term loans maturing in January 2020 and January 2022 (outstanding as at March 31, 2011 – €6.3, as at March 31, 2010 – €6.0), floating interest rate of EURIBOR plus a spread
Credit facility maturing in January 2015 (outstanding as at March 31, 2011 – $1.5 and INR 458.4, as at March 31, 2010 – INR 362.7), floating interest rate
Other debt, with various maturities from April 2010 to September 2016, average interest rate of approximately 5.22%
The relationships between different types of debts are as below:
(i) Pursuant to a private placement, the Company borrowed US$33.0 million. These unsecured senior notes rank equally with term bank financings. The Company has entered into an interest rate swap agreement converting the fixed interest rate into the equivalent of a three-month LIBOR borrowing rate plus 3.6%.
(ii) Represents unsecured senior notes for $15.0 million and US$105.0 million by way of a private placement for an average term at inception of 8.5 years. The Company has designated the senior note totaling US$105.0 million as a hedge of self sustaining foreign operations and it is being used to hedge the Companys exposure to foreign exchange risk on these investments.
(iii) Represents a committed three-year revolving credit facility of US$450.0 million with an option to increase to a total amount of up to US$650.0 million. The facility has covenants requiring a minimum fixed charge coverage and a maximum debt coverage. The applicable interest rate on this revolving term credit facility is at the option of the Company, based on the banks prime rate, bankers acceptance rates or LIBOR plus a spread which depends on the credit rating assigned by Standard & Poors Rating Services. Effective April 1, 2011, the Company amended the agreement to extend the maturity date by two years from April 2013
to April 2015. As well, the spread over LIBOR has been reduced to reflect current market pricing.
(iv) The Company, in association with Iberia Lineas de España, combined their aviation training operations in Spain. Quarterly capital repayments are made for the term of the financing. The net book value of the simulators being financed, as at March 31, 2011, is approximately $63.8 million (€46.3 million) [2010 – $67.7 million (€49.3 million)].
(v) The rates are set annually by the remarketing agent based on market conditions. A letter of credit has been issued to support the bonds for the outstanding amount of the loans. Combined interest rate is 3.05% (2010 – 2.35%).
(vi) The rate is a floating rate and reset weekly. A letter of credit has been issued to support the bonds for the outstanding amount of the loan. Combined interest rate is 2.84% (2010 – 1.47%).
(vii)