RATCHET BONDS: MAXIMUM REFUNDING EFFICIENCY AT MINIMUM TRANSACTION COST

Callable bonds, which are widely used by corporate borrowers to manage interest rate risk, have several major drawbacks. Foremost is the transaction cost of refunding. In addition, poor execution—calling too early or too late—is common, causing a transfer of wealth from shareholders to bondholders.
The Ratchet bond captures the advantages of a callable bond—the ability to lower interest costs when rates decline—while eliminating its undesirable features. If rates fall after issuance, the coupon of a Ratchet bond automatically resets to the yield of a specified Treasury bond plus some fixed spread. The resulting "step-down" cash flow pattern resembles that of a sequence of callable bonds that are refunded to the same original maturity date.
The Tennessee Valley Authority was the first to use this innovative structure. In June 1998, they sold $575 million 6.75%"PARRS" with a 30-year maturity and annual rate resets beginning after five years. Moreover, as this article went to print, TVA announced its intent to sell another large Ratchet issue with features virtually identical to the PARRS described in this article.     

Global retailers and logalization: ‘thinking locally and acting globally’

Abstract

This research provides theoretical rationale to explain how global retailers are able to harvest multiple ideas from diverse host-markets and add relevant new ideas into a standardized retail mix that is rolled out globally. To capture this bottom-up harvesting of local information embedded in host-markets, this study adopted the term ‘logalization’ from the economics literature and applied the absorptive capacity framework. Under the activation of absorptive capacity, host-market subsidiaries play a critical role in acquiring and assimilating relevant knowledge from the host market and disseminating it to headquarters. The home-country headquarters (HQ) then transforms relevant knowledge into an innovative standardized retail mix to exploit at the global level. The concept of ‘logalization’ differs from ‘glocalization’ found in the literature; glocalization incorporates the local context to establish a strategy at the local level, while logalization uses local information as a resource to develop a standardized strategy at the global level. The development of propositions is informed by semi-structured interviews with 10 managers employed by global retailers. By illustrating the logalization orientation, this research describes how global retailers can create an innovative retail mix by exploiting heterogeneous information from various host-markets to create and sustain a competitive advantage in the global market.     

Efficient venture capital financing combining debt and equity

I present a model of venture capital contracting in which contracts that involve a mixture of both debt and equity are efficient and dominate pure-equity and pure-debt financing. The optimal contract balances the venture capitalist's incentive to intervene in the project and the entrepreneur's desire for control. Received: 9 September 1997 / Accepted: 3 April 1998     

Pesticide use among emerging farmers in South Africa: contributing factors and stakeholder perspectives

The commercial agricultural sector in South Africa has historically been dominated by large-scale operations run by white owners and managers. In redressing this imbalance, black farmers classified as ‘emerging’ are being encouraged to engage in high-input agricultural production in order to obtain ‘commercial’ status. Since existing practices in commercial agriculture rely heavily on pesticides, emerging farmers aspiring to become commercial are pressured to adopt and/or increase the use of pesticides. However, problems of access to land, finances, resources, skills and markets overshadow the health and safety of these farmers and their labour force that may be affected by exposure to pesticides. This paper presents the results of a policy study based on primary interview data with key stakeholders and secondary documentary review data, to illustrate how pesticides are used in an occupational health and safety vacuum because the focus of key institutions is rather on economic productivity.