The split between debt with fixed and floating interest rates - determining decision criteria for the development of a fixed-floating mix for Heineken
The split between debt with fixed and floating interest rates - determining decision criteria for the development of a fixed-floating mix for Heineken
- This thesis deals with the determination of decision criteria for the development of a fixed-floating mix for non-financial firms and applies them to the example of Heineken. Existing literature fails to offer a clear guidance on how to approach the fixed-floating decision. Managerial incentives, leverage, the availability of natural hedges, firm liquidity and the shape of the yield curve are frequently mentioned as factors influencing the fixed-floating mix of non-financial firms. I analyse a theoretical approach to constructing the fixed-floating mix and depict the difficulties that such a model based on historical data has in the current interest rate environment. Conducting a peer group analysis, I study the trends in interest rate risk management in the brewery and alcoholic beverages industry. A clear tendency of the firms in the sample to maintain a high percentage of debt with fixed interest rates is visible. Furthermore, I analyse the risk-return trade-off and conclude that the importance of the fixed-floating split decision for the individual firm depends mainly on leverage and the firm’s capability to absorb volatility in interest expenses, measured by interest coverage. Additionally, I determine leverage, the level of interest rates, the shape of the yield curve and the comparison to a core peer group as decision criteria Heineken should apply when reconsidering its fixed-floating mix in place. The analysis of these criteria leads to the conclusion that the current interest rate environment, financial metrics of Heineken and the comparison to a core peer group justify having a high percentage of debt with fixed interest rates and can even trigger Heineken to further increase the fixed portion of its debt.
Author: | Markus Brütsch |
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Advisor: | Markus Hoch |
Document Type: | Bachelor Thesis |
Language: | English |
Year of Completion: | 2020 |
Granting Institution: | Hochschule Furtwangen |
Date of final exam: | 2020/03/02 |
Release Date: | 2020/03/03 |
Tag: | Finance; Interest rate |
Degree Program: | IBW - Internationale Betriebswirtschaft |
Functional area: | Finance & Accounting |
Licence (German): | Urheberrechtlich geschützt |