Debenhams has applied for a £50 million long term loan payable in a period of 3 years. The current interest rates of the company on long term loans and borrowings fall between 6.30 and 6.50 percent and the total amount of long term loans of the company in various forms amounts to approximately £1,036 million (Debenhams). Considering the deteriorating financial conditions throughout the world and lower availability of credit has pushed interest rates on long term loans much higher than previous levels.
The recommendation for interest rate to be implemented on the loan facility to Debenhams is 7 percent which is higher than the company’s current interest rates due to increased risks and declining sales and inflows of the company. The clauses of the loan agreement will include the description of assets or securities being provided by the company in case of default of payments and Debenhams will be required to improve its liquidity management issues in the earlier years of the loan. The loan of £50 million is scheduled to be returned in 3 years and the repayment schedule is provided in the loan amortisation schedule below.
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