Should additional debt be issued? Phillip Mader is president and majority stockholder of Knightly Corporation. Phillip owns 54% of the stock in the corporation. The corporation is in dire need of...

Should additional debt be issued?

Phillip Mader is president and majority stockholder of Knightly Corporation. Phillip owns 54% of the stock in the corporation. The corporation is in dire need of additional cash inflow in order to maintain operations. Phillip is urging the board of directors to issue additional debt even though he knows that the corporation already has a substantial amount of debt. Phillip is well aware that by issuing additional debt, the corporation’s debt to equity ratio will increase significantly. He believes this will negatively affect the corporation’s credit rating and will further limit the company’s ability to borrow at low interest rates in the future. Phillip, however, believes all of this is offset by his desire to retain control of the corporation. If the corporation doesn’t issue additional debt, it will be forced to issue stock in order to obtain the necessary funds. Phillip does not have the ability to purchase any of the additional shares of stock, and he knows that he will lose his majority stockholder status. What should Phillip do? What would you do?