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Equity and Debt Case: American Superconductors

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Read the article about American Superconductor and do some research. After doing your research, apply what you learned from the background materials and write a three to five page paper answering the following question:

What are the advantages and disadvantages for AMSC to forgo their debt financing and take on equity financing? Do you agree with their decision?

Explain both of your answers thoroughly. Be sure to support your opinions on these assignment questions with references to the background materials or to other articles in your paper.

Abstract (Article Summary)

"AMSC's management and board of directors believe the decision to forgo a secured debt financing and to adopt an equity financing strategy under current market conditions is in the best interests of our shareholders," said Gregory J. Yurek, chief executive officer of AMSC. The 265-employee company has operations in Westboro and Devens and in Wisconsin.

Finally, the Northeast blackout "shined a lot of light on the problems we have been talking about as a company for three to four years," Mr. Yurek said. AMSC products, such as a system installed this year in the aging Connecticut grid and high temperature superconductor power cables and other devices bought by China for its grid, are designed to improve the cost, efficiency and reliability of systems that generate, deliver and use electric power. "We are a company with products out there solving problems today," he said.

Solution

This essay aims at understanding the difference between debt financing and equity financing with a major focus on American Superconductor’s decision to go for equity financing in 2003. The solution explains the benefits and drawbacks American Superconductor Corporation - NASDAQ (AMSC) faced with their choice of financing. The various merits and demerits of debt and equity financing are analyzed and a conclusion is drawn based on this analysis and evidence, to justify this decision.

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Equity and Debt Case: American Superconductors

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