Which analyses can help determine if refunding bonds is beneficial?

Refunding bonds refers to the issuance of new bonds to replace existing ones, often to take advantage of lower interest rates or to restructure debt. Breakeven analysis specifically helps in determining the point at which the costs of issuing new bonds will equal the savings from reduced interest payments on refunded bonds. This analysis provides a clear threshold, allowing issuers to evaluate if refunding is financially prudent by comparing the costs associated with the new bond issuance (such as underwriting fees, legal costs, and other transaction expenses) against the projected savings from lower interest rates.

Breakeven analysis is crucial in this context because it quantifies the relationship between the costs incurred in refunding and the benefits gained, enabling decision-makers to make informed judgments about the financial viability of the transaction. If the number of years to breakeven is reasonable and achievable, it indicates that refunding may be advantageous over the life of the bonds.

While financial modeling, market trend analysis, and investment portfolio reviews can provide useful insights into the wider economic context and potential impacts of interest rate changes, they do not specifically focus on the financial implications of refunding bonds in the same immediate, quantifiable way that breakeven analysis does. Thus, breakeven analysis stands out as the most direct method