Tirstrup BioMechanics (Denmark):

Raising Dollar Debt

Although it was still August, Julie Harbjerg bent over
against the first chill of autumn and hurried up
Copenhagen'sStr/get-the historic cobblestonedpedes-
trian street that begins at the City Ha[l and extends
through the heart of the old city. She tried to keep her
mind clear so that shecould properly evaluatethe various
financing proposalsthat had been discussedin previous
weeks with the many bankers who had visited
Copenhagen.As assistant treasurer (international) for
Tirstrup BioMechanicsof Denmark, Julie wasresponsible
for the initial assessmentof financing proposals fol
Tirstrup's international investments.
In2003,the Tirstrup Group's products encompasseda
full anay of electromechanicalmedical devices.The prodl
uct line included cardiac rhythm deviceg pacing systems,
and implantable defibrillators. A major corporate objec-
tive was to reduceTirstrup's dependencyon cardiacprod-
ucts. In 2003,600/oof its estimated US$2.1 billion sales
(kr6.60aal$)were outside Denmark, although 85% of the
Group,s$2.4billioninassetsremainedinthecountry.
..

Tirstrup wasconsideringan acquisitionof $4L0million
in the United States,and Julie Harbjerg was responsible
for constructinga financingpackage.Tirstrup had roughly
$30million in cashon hand, and the seller had offered to
carry a note for $75million of the total.The note would be
for five years at 7.50"/oper annum. Julie's boss, Knut
Wicksell, director of finance, felt that funding should be
suchthat repaymentwas deferred for at least sevenyears.
Since Tirstrup had been burned during the last rise in
short-term rates, it was generally understood that man-
agement'sgoal was to increasethe proportion of fixed-
rate debt.Julie had alreadybeen told byWicksell that any
equity issuancewas out of the question.
Back in the office, Julie looked at the three U.S.dollar
choices that she had previously considered and double-
checked her all-in-cost (AIC) calculations again (see
Exhibit 1).
w Private Placement in the United States. Several
bankers.had recommendeda private placement of
debt with an institutional investor in the United
States.Nordeabank felt that their New York spe-
cialists could place as much as $200 million of
Tirstrup's paper in this manner.The immediate cost
would be about 5.3o/o,alittle bit higher than a pub-
lic issuein the United States(a Yankeebond),but
the fees were significantlylower-about 7187"of
the principal.
!ffi Yankee Bond. As noted, Tirstrup could issue a
bond in the United States.Theproblem wasthat the
company currently had no real operations in the
United Statesand had very little name recognition
as a borrower. Bankers expected the company to
pay about 5.75Yofor a seven-yearissuance, with an
additionalL5% in up-front fees.

W Eurodollar Bond. Probablythe most obviouschoice
to finance a U.S.acquisitionwas a Eurodollar bond.
The bankersfelt thatTirstrup's namewassufficiently
well known in Europe that it could float a $100mil-
lion Eurobond at a fixed rate of 5.60Y" (L2-year
maturity). Feeswould probably total2Yo.
In addition to giving consideration to the dollar-
denominated issuances,Julie was also considering two
nondollar-denominatedissuances.one euro and one
Danish kroner.
M €-Denominated Eurobond. Dresdner Bank
(Germany) had recommendeda euro-denominated

PrivatePlacement U$$Eurobond YankeeBond Euro-Eurobond Danishl0oner

Principal(millions) $200.000 $1oo,ooo $100.000 € 100.000 kr 650.000
Maturity(yeard 10 12 7 7 7
FixedFlate(per annum) 6.500% 5.600% 5.7500/o 4.gooo/o 4.6500/o
Fees(of principal) 0.875% 2.OOOo/o 1.500% 2.OOOo/o 1.500%
Year CashFlows CashFlows GashFlows GashFlows GashFlows
0 $198.250 $98.000 $ga.soo € 98.00d kr 640.250
1 ($11.ooo) ($5.ooo; ($5.750) - € 4.800 (kr 30.225)
2 ($1t.ooo1 ($s.ooo1 ($s.zso1 - € 4.800 (kr30.225)
J ($tt.ooo; $5.600) ($5.zso1 - € 4.800 (kr30.225)
4 ($tt.ooo; ($5.600) ($s.zso; - € 4.800 (kr30.225)
5 ($11.ooo) ($s.ooo1 ($5.750) - € 4.800 (kr30.225)
6 ($1t,ooo1 ($5.600) ($5.zso1 - € 4.800 (kr30.225)
7 ($11.ooo) ($s.ooo; ($105.750) - € 104.800 (kr680.225)
I ($tl.ooo; ($5.600)
Y ($11 .ooo) ($5.600)
10 ($211.000) ($s.ooo1
11 $5.600)
12 ($105.600)
(AlC)
All-in-cost 5.617o/o 5.836% 6.019% 5.147o/o 4.908o/o

Nofe: All-in-costis calculatedas the internalrate of return of the complete seriesof cash flows associatedwith the issuance,includingproceedsnet of fees
and complete repaymentof principaland interest.