Silsbee Corporation, Bearing a BB Rating, Is Considering the Public

Silsbee Corporation, bearing a BB rating, is considering the public sale of $72 million in new corporate notes bearing 7-year maturities at an expected gross yield of 8.95 percent later this month. The company needs about $260 million in total but is hoping to raise the difference in its total financial need and the note offering by drawing upon other sources of funds. However, it does have an alternative offer of a private note sale to a small consortium of insurance companies at an expected gross yield of 9.04 percent. Silsbee's financial manager is trying to assess the potential advantages and disadvantages of each of these two approaches to raising medium-term capital funds. Using the information presented in this chapter please develop a list of possible benefits and costs of a public sale versus a private sale to help Silsbee's manager weigh the two options available to the company and reach a decision.