I'm not sure what you are refering to when you say "This may not be the case".
I think what you are describing ("FMG has the right to pay back the principal at par at their election"). is in fact the case with FMG's 2022 debt tranches (ie, the 6.875% tranch, repayable from April 2017, value of 478 million), and the 2022, 9.75% note, repayable from March 2018, value of 2160 million), but only from those dates.
The point I'm trying to make to kara is that it is not necessarily a no brainer to just go ahead and pay off a big chunk of the 2019 debt (which I'm assuming can be paid off anytime now, and has roughly around a 4.5% interest rate) simply because to do so would reduce the US$3.1 per ton interest rate payments (at 28.3 breakeven) somewhat by doing so.
The point I'm trying to make is that, chosing to put cash aside until the higher rates tranches become repayable might actually give a better overall result on total interest rate reductions across the whole debt portfolio.
Sure, putting aside 478 million USD into a 90 day yeilding future to earn 1.7 pc, doesn't beat reducing 478 million dollars of the 2019 (4.5pc) debt immediately. But the interest on the 90 day loan does reduce the carrying cost, IF, FMG wants to keep the 478 million specifically to be certain it can immediately knock off the entire 6.875% debt in one hit come April 2017.
The point is simply, it make sense for FMG to model out various scenarios, including potentially setting side some chunks (like 500 million USD, to take big hits off the 2022, 9.75% in March 2018) because that might reduce their $3.1 per ton interest rate more than enough in two or three years to be better than a small amount immeditely.
AND, having more cash on hand (or nearly on hand) still counts towards debt reduction as a total percentage against assets, AND having it gives them the option of going into refinancing negotiations (perhaps with the Chinese) for a better rate on even the 2019, stuff potentially. AND if the io price falls away, before say April 2018, they will still have cash already earmarked to knock chucks off the 2022 debt tranches.
Now I am not suggesting that it is likely FMG will not be able to pay its debts. I am suggesting though that if io price falls to around 55 per ton, FMG might go through a period when it can't accumulate cash quite as quickly as it can now. I'm suggesting its worth looking at all options rather than assuming paying off 4.5% debt sooner is necessarily better.
(20min delay)