Explanation:
The debenture bondholders have the claim over the issuer's assets after the claim of secured bondholders is satisfied. Though debenture bonds do not have pledged assets or collaterals, the residual funds after satisfying the secured debt (and before satisfying the claims of creditors) are distributed among debenture bondholders.
Since the total value of the firm's asset is $670 million:
$400 million;$180 million;$40 million; and$50 million.The order of payment in default is: secured bondholders first ($400 million), then debenture bondholders, then unsecured loans, and finally subordinate bondholders. After paying $400 million to secured bondholders, $270 million remains ($670 - $400). Debenture bondholders are next in line and receive their full $180 million claim.
Q.917 McMillan Electronics Company issued four types of debt to raise the capital of $730 million. The debt includes $400 million raised through secured bonds, $110 million through subordinate bonds, $40 million through unsecured loans, and $180 million through debenture bonds. If the company defaults, the total value of the assets to be distributed is $670 million. Determine the total claim that the debenture bondholders will receive.
A
$180 million
B
$160 million
C
$120 million
D
$0
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