Hotel Expansion Team Project (Finance) Harvard Case Solution & Analysis

Hotel Expansion Team Project (Finance) Case Solution

Hotel Expansion Team Project (Finance)

Goldenleaf which is basically a UK based, 250 suite luxury hotel company is seeking to raise the capital for its hotel expansion project. The management of the company can either raise the required capital through the US capital markets or the UK capital markets. The 70% of the total financing need of the company would be raised through its Based Company (60%) and through the issuance of the shares (10%) in its UK market. The remaining 30% would be equally raised through the bank loan and the bonds market of the UK or US. Each of these two is discussed below:

Raising Capital through Bonds

This is one of the greatest methods to raise the needed capital for the hotel expansion project and this would also be easy for the company to raise the capital as this would provide its investors with a lower level of the risk and a higher income as compared to the shares.
These are a secure method for financing the growth opportunity for the hotels in UK. The total financing requirements for the company are 198 million pounds and the company wants to raise 29.7 million pounds from the UK bond market. Therefore, the mini bonds are one of the best options for the company to raise the required financing without approaching a bank. Mini bonds are an attractive category of the bonds and the loyal customers of the company usually invest in these bonds.
Goldenleaf has a loyal team of the customers who would be more than ambitious to invest in the mini bonds of the company. Moreover, the crowd funded mini bonds allow the bond investors to buy into the business of the company with just a small and affordable sum which would be just 500 pounds. However, the mini bonds are also not free of risk as they are unsecured, non-transferable and also non-convertible therefore, these bonds also carry risk to a certain extent (Tomlins).
However, if the interest rate is set at about 7%-80% then the customers of the company would be hard pressed to invest in these bonds and they would be more than willing to take the risks as the banks in UK normally are paying 2% interest to such customers. The Golden leaf Company has years of experience and many established hotels around UK. The company has an established customer base, the profitability of the company is high and the company has been trading under their belt for the past years. Therefore, this is one of the most suitable options for raising the required capital in the bond market of UK. The basic characteristic of these bonds is that these are not traded on any stock exchange like the corporate bonds. So the company also has the option of issuing corporate bonds to raise the needed capital in the US market or the UK market.

Raising Capital through Bank Loan

Another 15% of the total financing for the Golden leaf hotel expansion will have to be raised by the company which is equal to 29.7 million of the total financing requirements for the growth plans of the company. However, the banking standards and the norms of the banking industry have changed significantly in the UK capital markets by the government.
The government has placed increased pressure on the banks of the UK to lend the bank loans to the businesses rather than to the properties. However, this is not the situation in the US and therefore, for that reason the financial management team associated with this hotel expansion project should seek to raise the bank loan in the US market where the expansion of the hotel is about to take place (Weber and Rolnick)..................

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