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Replacing existing borrowing with new financing arrangements.
The new financing must actually be available and meet the conditions needed to repay the old debt. Fees, early-repayment charges and collateral requirements affect the benefit. Extending maturity can lower immediate payments but leave interest accruing for longer. Changing from fixed to floating rates, or borrowing in a different currency, can introduce risks even when the initial quoted rate falls.
Imagine a company replacing J$100 million of debt carrying 12% annual interest with a new J$100 million loan at 9%. Annual interest falls from J$12 million to J$9 million before fees. If the replacement costs J$4 million to arrange, the first year's J$3 million interest saving does not fully recover that fee. Maturity and repayment terms still need separate comparison.
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