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Management article
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Reference no. 89112
Published by: Harvard Business Publishing
Published in: "Harvard Business Review", 1989

Abstract

In 1988 Playto Industries'' Teach-Her doll, the company''s first new product since Jim Clayton became president, was a winner in the East. Clayton planned to take Teach-Her national and to introduce another toy, Playto''s Labs. But he needed $30 million--almost as much as the company''s existing capitalization--to grow. Monument National Bank would lend no more than $20 million. The best option seemed to be subordinated bonds. Rates were high, but if Playto made the bonds convertible, rates fell from 12.5% to a more manageable 8.75%. Now Clayton has a knot in his stomach: interest coverage might drop to half of that in 1988, a competitor might imitate Teach-Her, Playto''s Labs might flop--the company could end up in serious trouble. Five finance experts discuss the case.

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Abstract

In 1988 Playto Industries'' Teach-Her doll, the company''s first new product since Jim Clayton became president, was a winner in the East. Clayton planned to take Teach-Her national and to introduce another toy, Playto''s Labs. But he needed $30 million--almost as much as the company''s existing capitalization--to grow. Monument National Bank would lend no more than $20 million. The best option seemed to be subordinated bonds. Rates were high, but if Playto made the bonds convertible, rates fell from 12.5% to a more manageable 8.75%. Now Clayton has a knot in his stomach: interest coverage might drop to half of that in 1988, a competitor might imitate Teach-Her, Playto''s Labs might flop--the company could end up in serious trouble. Five finance experts discuss the case.

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