Debt Structuring

Question 1

One of the issues that are controversial about debt structuring firms is concealing damaging financial data of companies issuing raising funds to investors. These companies are required to practice integrity of which they are not excited about. Secondly Rita’s boss does not see a problem of raising debt for a company that has huge figures of contingent liabilities.  The credit rating of the company raising debt is AAA of which is inaccurate. It has been awarded the rating simply because the ABC company is the largest shareholder and not due to its ability to finance the debt (BABSON, n.d.). Additionally Rita and her company are unwilling to tell the investor who was to invest Rs 100 million the truth about the inability of the firm raising debt to financing its liabilities. The debt structuring companies are not acting on the best interest of investors but rather preserving company to company relationships (Cdiac, 2012). For instance Rita’s company is unconcerned about an investor losing his funds but is concerned about their commission and relationship with ABC Company.

Question 2

The big question remains whether to take the investors money or leave it. Both actions have consequences to all the parties involved since if one action is taken or the other some parties are deemed to lose.

To ABC Company if Rita rejects to take the investors money and uncover the truth regarding the unreal AAA rating of the instrument presented then that would probably be the start of ABC’s decline. No more investors would be willing to invest through ABC, it would lose all the investors’’ trust.  Additionally its reputation as a reputable company would all go away (Babson, n.d.).

For Rita’s company in case she decided to uncover the unsafe instrument presented by ABC, her company would suffer a number of problems. Firstly, the huge commission resulting from investing the investor’s money into the instrument would be lost. Secondly, the clients would no longer be interested in investing with the company due to fear that it would be offering unsafe investment options (Cdiac, 2012). Ultimately its image would be damaged leading to a decline in its business.

The ABC Company in addition to Rita’s company possess an ethical responsibility in giving truthful and actual information to the investor to enable her make an informed investment decision. Both companies should ensure transparency and financial data accuracy regarding any instrument offered (Babson, n.d.).

Question 3

If Rita decides to take in the investors cash and later she loses her investment due to the unprotected and unsafe instrument presented to her by Rita’s company then this would also have detrimental effects on both ABC and Rita’s Company. Sooner or later this decision will catch up with them. Additionally, the AAA rating required by law has been abused exposing the company to legal battles. Thus the best decision is to advice ABC to withdraw the instrument. Failure to which Rita’s company should take the ethical responsibility and reject ABC’s offer.

Question 4

The inaccurate and deceiving AAA rating of the instrument offered by ABC Company shows that it is not the first time and that they are willing to continue with the same tendency in future. The company is risking monies belonging to thousands of inventors who trust the company’s instruments (Cdiac, 2012). Additionally Rita’s company shares the same deceiving and misleading conduct in providing inaccurate financial information. Both companies face both future legal action and collapse. Thus, accurate and truthful decisions made now will save the companies’ futures (Babson, n.d.).  Since once the unethical dealings come to light the companies’ will be forced to close business indefinitely since no clients will trust hem and the state will additionally pursue them legally.

References

BABSON. (n.d.). Giving voice to values to say yes or to say no.

Cdiac. (2012). Overview of a debt financing. Retrieved from http://www.treasurer.ca.gov/cdiac/debtpubs/primer/chapter1a.pdf