04 Fixed Income Flashcards
Fixed Income Security - Definition
A fixed income security (bond) represents the obligation of a borrower to make periodic interest payments and to pay back the borrowed amount at a specified future date
Identure
Indenture is an agreement about terms under which money is borrowed and defines obligations and restrictions on the borrower
Identure - Forms of Covenants
- Negative covenants: Things the borrower may not do, e.g. restrictions on asset sales or on additional borrowings, negative pledge of collateral
- Affirmative covenants: Things the borrower has to do, e.g. maintenance of financial ratios, timely payment of principal and interest
Components of a Bond
- Term to maturity (or simply maturity)
- Par Value (face value)
- Coupon Rate
- Repayment of Principal
- Embedded Options
Components of a Bond - Term to Maturity
The time until the loan contract expires and defines the (remaining) life of the bond
- Short-term bonds: Bonds with maturity of one to five years
- Intermediate-term bonds: Bonds with maturity of five to twelve years
- Long-term bonds: Bonds with maturity of more than twelve years
Components of a Bond - Par Value (face Value)
Amount that the borrower promises to pay on or before the maturity date of the issue
- Value of a bond is usually quoted as percent of its par value
Components of a Bond - Coupon Rate
Annual interest income
- Percentage of face value which is paid annually by the borrower -> coupon = coupon rate * face value
- In USA coupon is often paid semianually
Components of a Bond - Repayment of principal - Versions
- Bullet bonds pay principal in one lump sum at maturity
- Serial bonds pay off the principal as a series of smaller bonds, each with its own coupon and maturity
- Amortizing securities make periodic payments including both principal and interest components
Components of a Bond - Embedded Options
Options that are integral part of the bond contract
- Have to be incorporated in pricing and valuation of bonds
- Prepayment options grant the borrower (=issuer) the option to redeem the loan prematurely, wholly or in part
- Call provisions give the issuer (=borrower) the option to redeem the issue at a date prior to maturity, at a predetermined price
- Conversion rights grant the holder of the bond the right to convert the bond into common shares of the issuer at a pre-specified conversion ratio
- Put provision grants the bondholder the right to sell the bond to the issuer (=borrower) at what is known as the put price, at certain dates prior to maturity
Types of Fixed Income Securities (5)
- Zero Coupon Bond
- Accrual Bond
- Step-up coupon notes
- Deferred coupon bonds
- Floating rate bonds
Types of Fixed Income Securities - Zero Coupon Bond
- Bonds that pay no interest and do not carry coupons
- Instead, they are sold at a deep discount from their par value
- All interest is earned at maturity, when the bond is cashed in
Types of Fixed Income Securities - Accrual Bond
- Similar to zero Bonds
- Interest payments are deferred to maturity and then disbursed along with par value
- Issues are sold at (or near) their par values and interest accrues on top of that
Types of Fixed Income Securities - Step-up coupon notes
Have coupon rates that increase (once or repeatedly) over time
Types of Fixed Income Securities - Deferred Coupon Bonds
Defer the initial coupon payments for a given number of years and then pay regular coupons
Types of Fixed Income Securities - Floating Rate Bonds
Have coupons that are reset periodically according to prevailing market conditions of interest rates, in a way specified in the indenture
Features of Fixed Income Securities
- Accured Interest
- Early Retirement
Features of Fixed Income Securities - Accrued Interest
- Equals the interest earned from the previous coupon date until the date of the sale, when it is assumed that the bond trades between coupon dates
- Has to be paid by the buyer, who will receive the whole next coupon payment, to the seller of the bond
- Full or dirty price of the bond: Agreed upon price of the bond plus accrued interest
- Clean price of the bond: Price without accrued interest
Features of Fixed Income Securities - Early Retirement: Versions (4)
- Sinking fund provisions provide for the retirement of a bond through a series of predefined principal payments via cash or delivery of securities
- Call provisions (embedded option) give the issuer the right to retire all or a part of an issue prior to maturity
- Index amortizing notes have a structure that calls for accelerating the principal payments when certain conditions are met, which will typically be linked to a reference rate
- Non-refunding provision gives the issuer the right to call the bond prematurely, but only when this is done for any other reason than refunding (new issue of a bond)
Risk Factors (9)
- Interest Rate Risk
- Call/Prepayment Risk
- Reinvestment Risk
- Credit Risk
- Liquidity Risk
- Exchange rate risk
- Volatility risk
- Inflation risk
- Event risk
Interest rate risk
- Caused by differences in market interest and coupon rates
- When interest rates change, the price of a fixed-coupon bond changes in the opposite direction (inverse relationship of market yields and bond prices)
- Bondholder loses when interest rates rise -> The probability of such an occurance is known as interest rate risk
- Having two identical bonds except their maturities, the bond with longer maturity is more sensitive to interest rate changes
- High market yield level implies low bond prices volatility
- Low market yield level implies high bong prices volatility -> Interest rate risk is higher in low market yield level
Duration of a bond as a measure for interest rate risk
- Is the weighted average maturity of a bond’s cash flows
- Gives the sensitivity of a bond’s price to changes in yield
- Is therefore used to measure interest rate risk
Call/Prepayment Risk
- Call/Prepayment risk equals the chance that the bond will be retired before its original maturity (by the issuer)
- Callable bond: A bond endowed with a call option where the issuer has the option to redeem the issue at a date prior to maturity at a predetermined price (call price)
- If interest rates fall and the market price of a bond exceeds the call price, the issuer has an incentive to call the bond and to issue new bonds at a lower coupon rate
Call risk: Resulting conditions for the bondholder
- Unpredictable cash flow due to possibility of taking call option by the issuer Results in modeling risk when pricing the callable bond
- Reinvestment risk: Risk of investing the proceeds of the called bond at a lower interest rate
- Price compression reflects the fact that the possibility of a call limits or caps the price of the bond near the call price if interest rates fall
Reinvestment Risk
- Risk that the cash flows from a bond (being periodic principal repayment, coupon payment or early total repayment of a callable bond) have to be reinvested to conditions worse than before
- Increases with high coupons and longer maturities
Types of Credit Risk (3)
- Risk of Default
- Credit Spread Risk
- Downgrade Risk
Credit Risk - Risk of Default
- Possibility that the issuer defaults or fails to meet his obligations as specified in the indenture
- Recovery rate: The percentage amount of money the lender is able to recover due to legal action or negotiations
Credit Risk - Credit Spread Risk
- Measured by the amount of yield differential above the return on a default-free security (e.g. Treasury securities) and is referred to as risk premium or credit spread
- Credit spread is demanded by investors to compensate for the risk of buying the security, which is at risk of default -> The riskier the security, the higher the yield differential
Credit Risk - Downgrade Risk
- Risk that a bond will be reclassified riskier by a credit rating agency
- Lowering the rating (downgrade) causes the spread to rise
Liquidity Risk
- Represents the likelihood that an investor will be unable to sell the security quickly and at a fair price
- Can be estimated quantitively through the bid-ask spread, which is the difference between the price for which a dealer is willing to sell the security (ask price) and the price for which a dealer is willing to buy the security (bid price)
- The higher the bid-ask spread, the more illiquid the security and the greater the exposure to liquidity risk
- Bid-ask spread and therewith liquidity risk can change over time as investors interest in a given class of securities changes
Exchange Rate Risk
- Present when bond payments (coupon and/or principal) are denominated in a currency other than home currency of the bondholder
- When home currency appreciates (depreciates), each foreign currency unit will be worth less (more) in terms of the home currency
- Resulting exchange risk is also referred to as currency risk
Volatility Risk
- Refers to variability in the price of the instrument
- Value of embedded options are affected by bond price variability, i.e. the greater the volatility of the underlying price, the greater the value of an embedded option
Inflation Risk
- Refers to the possibility that prices of goods and services in general will increase
- Increasing prices erode the buying power associated with bond payments
Event Risk
- Occurs when something significant happens to a company that has sudden and substantial impact on its financial location and on the underlying value of an investment
- Examples for items that can cause event risk: Disasters, corporate restructurings, regulatory issues and political events
Fixed Income Sectors (7)
- Treasury Securities
- Stripped Securities (treasury strips)
- Securities issued by Federal Agencies
- Securities issued by State and Local Government (Municipal Bonds)
- Corporate Bonds
- Asset backed securities
- International Securities
Treasury Securities
- Issued by the U.S. Treasury Department
- Considered to be free of credit risk as being backed by full credit of U.S. government
Types of Treasury Securities
T-Bills
- Maturity < 1 year
- No coupon
- Sold for a price less than par, paid back to par
T-Notes
- Maturity of 2-10 years
- Explicit coupon rates
- Non-callable
T-Bonds
- Maturity > 10 years
- Explicit coupon rates
- Non-callable
Treasury inflation protected securities (TIPS)
- Applied to notes and bonds
- Fixed coupon rate
- Principal is adjusted by inflation semiannually
Stripped Securities (treasury strips)
- Creation of synthetic zero coupon bonds out of T-Notes and T-Bonds
- Not issued by the U.S. Treasury
- Stripped and offered by investment bankers
Securities issued by federal agencies
Almost no risk of default
Mortgage-Backed Securities (MBS)/Mortgage pass-through securities
- Backed (or secured) by pool of mortgage loans (loans with physical asset as collateral), which not only provide collateral but also cash flow to service the debt
- Sold as participation certificates
- Interest, principal payments and prepayments (-> prepayment risk present) from the underlying mortgages are passed through to investors (after deducting fees)
Collateralized Mortgage Obligations (CMO)
- MBS that redistributes the (pre-)payment risk among investors
- Different tranches are created, which reprioritize principal and interest payment
Securities issued by State and Local Government (Municipal bonds)
- Issues of states, counties, cities or other political subdivisions
Two common specifications
- General Obligations (GO) Bonds are bonds that are backed by full faith, credit and taxing power of the issuer (-> tax-backed debt)
- Revenue Bonds are only serviced by the income generated from specific income-producing projects (e.g. toll roads). -> Payment only occurs if a sufficient level of revenue is generated (-> higher risk)
Corporate Bonds
- Debt is secured by pledge or assets (collateral)
- Unsecured debt (debentures) is a bond raised without any collateral and represents a claim on the assets of the issuer, which have not been pledged to other securities
- Debt with credit enhancement offers third party financial guarantees (i.e. by parent corporation); letters of credit (usually issued by a bank)
- Commercial paper is a type of short-term debt instrument (maturity of less than 270 days)
Asset Backed Securities (ABS)
- Similar to MBS, cash flows are linked to a pool of underlying loans/financial instruments
- ABS is structured into different tranches, which are entitled to different cash flows
- To isolate the securitized assets from the corporation’s other activities and to shield them from other lenders, the securitized assets are sold to a so called special purpose vehicle (SPV)
International Securities
- Foreign bonds are issued in a country’s bond market by an issuer who is not resident there and can be denominated in any currency and may be privately or publicly issued
- Eurobonds are unsecured, issued in any currency and outside the legal system of any one country and therefore usually not registered through a regulatory agency
Valuation of Fixed Income Securities - Steps of pricing a bond
All bonds are priced in 3 steps according to the present value of their future cash flows
- Estimate the cash flows (coupon payment and recovery of principal at maturity)
- Determine the appropriate discount rate
- Calculate the present value
Assumptions when valuing a bond and conditions that make the valuation more difficult
Assumptions
Cash flows are assumed to be fix and predictable with a high degree of certainty, what implies a high-quality option-free bond
However, there could be some conditions that make the estimation more difficult
- Credit risk (risk of default)
- Presence of embedded options (such as call/put features, convertible bonds)
- Presence of a variable coupon rate
Valuation of Fixed Income Securities - Finding the discount rate
- Constant (yield to maturity, required rate of return) or variable (spot rates)
- Risk-free rate plus risk premium (credit risk, call risk, liquidity risk, etc.)
Valuation of Fixed Income Securities - Price-Yield Relationship
- As coupon payment, par value and maturity date are fixed (i.e. cash flows will not change), any changes that do occur in market yield will be reflected in the price of the bond
- Price of a bond will move inversely with interest rates until its yield is compatible with the (new) prevailing market yield
- Price-yield curve is not a straight line but positive convex -> Higher prices are associated with lower yields
Valuation of Fixed Income Securities - Maturity and price Convergence
As maturity approaches the price of a bond converges toward its par value
Valuation of Fixed Income Securities - Spot Rates
- Using a constant single discount rate (yield to maturity) assumes a flat term structure
- A flat term structure is very rare in reality and therefore in many cases yields an approximation or weighted average of a set of spot rates only
- Using a series of spot rates reflects better the current term structure
- This will result in more accurate bond pricing and eliminate arbitrage opportunities (-> arbitrage free valuation)
Yield Measures
- Nominal yield represents the coupon rate the bond carries
- Current yield represents the annual cash coupon payment divided by current bond price
- Yield to maturity (YTM) is the promised yield
What assumptions must be satisfied so that the YTM can be realized?
- Bond is held to maturity (not called or redeemed and not sold before maturity)
- All principal and interest payments are received promptly and timely (-> no credit risk)
- Coupon payments are reinvested at a rate of return equal to the YTM (-> no reinvestment risk)
Bond Equivalent Yield (BEY)
Bond Equivalent Yield (BEY) requires the conversion of YTM of a semiannual paying bond to YTM of an annual paying bond or vice versa to compare two bonds with different coupon paying structure
Yield To Call (YTC)
- Considers the impact of a bond being called (callable bond)
- Measures expected yield on a deferred-call bond (call possible after a certain period of time has expired) assuming that the issue is retired at the end of the call deferment period
Yield To Put (YTP)
- Considers the impact of a bond being put (i.e. back to the issuer prior to maturity)
- Assumed that the bond will be sold according to a fixed schedule
Yield to Worst (YTW)
Yield to worst (YTW) involves calculation of YTC and YTP for every possible call or put date and determining which of the results is the lowest expected return
Spot Rates
- Spot rate is the interest rate used to discount a single cash flow to be received at some specific date in the future
- For determining spot rates for a n-year bond at least n bonds with maturities from 1 until n from the same issuer as the n-year bond are needed
- Assuming that the spot rates are purely a function of expectations (-> expectation theory), spot rates can be used to estimate the market’s consensus on future interest rates
Forward Rates
- Future interest rates are referred to as forward rates
- Forward rate nfm is the interest rate we expect in period m, for a n-year horizon
Measurement of Interest Rate Risk - Relationship between price and yield
Inverse relationship between price and yield for option-free bonds
- When yield goes up, the future cash flows are discounted with a higher rate and hence the present value (price) goes down -> Negative correlation between bond price and yield
- The magnitude of the percentage change on a bond for a given change in interest rate depends on its coupon rate, its maturity and its initial yield
Yield Spreads
- Yield spread is the differential in yields between different bond issues
- Every market segment (e.g. industrial or utility) has its own unique level of interest rates
- Non-Treasury bond must offer risk premium above treasury yield (riskfree benchmark), which is also referred to as yield spread
- Absolute yield spread = yield bond 1 with maturity t – yield bond 2 with maturity t
- Relative yield spread = absolute yield spread / yield bond 2 with maturity t
Treasury Yield Curve
Shows yields on different treasuries plotted against their maturities
- Upward sloping
- Downward sloping (inverted)
- Flat
Yield Spreads - Intermarket yield spread
Spread between two sectors of the bond market (e.g. treasury and corporate)
- Important: Use comparable bonds (maturity, coupon, call features, credit risk etc.) so as to isolate the spread between the sectors
Yield Spreads - Intramarket Sector Spread
e.g. corporate AA-bonds versus corporate BBB-bonds or long vs. short treasuries
Yield Spreads - Credit (or quality) spread
Yield spread that exhibits that the two issues are identical in all respects but credit rating, showing the pure effect of credit quality
Effects of Embedded Options on Yields
- Effect the yield of a bond
- Effect is often filtered out and the consecutively obtained spreads, the so called option-adjusted spreads (OAS), serve as a better measure of the credit risk of an issue
- Unadjusted spreads are known as nominal spreads
Yield Spreads - Liquidity Effect
- Liquidity effect says that greater liquidity corresponds to lower yield spreads and vice versa
- Large issues tend to have greater liquidity, hence lower yield spreads
Measurement of Interest Rate Risk - Full Valuation Approach
Provides and exact estimate of the effect a given change in interest rate will have on a bond (portfolio)
It is the most straightforward method for measuring interest rate risk and comprises the following steps
- Begin with current market yield and price
- Estimate hypothetical change in required yields
- Re-compute bond prices using new required yields
- Compare the resulting price changes
-> Consists of computing a series of hypothetical bond prices given a series of unexpected future market yields
Duration
- Duration is the most widely used measure of bond price volatility
- Linear approximation of the nonlinear (curvy) price yield function
- Shows how the price of a bond is likely to react to different interest rate environments
- Captures the impact of coupon, maturity and initial yield in a single measure
- Mathematically it is the first derivative of the bond’s price function with respect to yield
- Sometimes described as a present value-weighted number of years of maturity
- Measure of a bond’s sensitivity to a 1 percent change in interest rate
-> Assuming a parallel shift in the yield curve
Convexity of Price-Yield Relationship
- Relationship between bond price and yield is not linear (as assumed by duration), but rather convex
- Curvature of the actual price path is known as degree of convexity
- Amount of convexity is measured and used to supplement duration in order to get more accurate estimates of the price change
- It accounts for the amount of error in the estimated price as based on duration
- Mathematically it is the second derivative of the price function with respect to yield
Duration/Convexity Approach
Total percentage change in price and therewith a quantification of interest risk is calculated as the sum of the duration effect and the convexity effect
Yield Curve
- Description
- Shapes
Description
Graphical representation of yield plotted against time or maturity for a particular class of bonds (e.g. AAA corporate yield curve)
Yield curve shapes
- Normal: Long-term rates are greater than short-term rates -> Positively sloped yield curve
- Flat: Yield is the same for all maturities
- Inverted: Long-term rates are less than short-term rates -> Negatively sloped yield curve
- Humped: Rates in the middle of the maturity spectrum are higher or lower than those for both short and long maturity bonds
Yield Curve Changes
- Parallel shift: Change of yields on all maturities in same direction and amount -> Slope stays the same
- Twist: Yield curve becomes steeper or flatter -> Slope changes
-
Butterfly shifts: Refers to changes in the degree to which the yield curve is humped or curved
-> Positive: Afterwards less curved
-> Negative: Afterwards more curved
Term Structure Theories
- Pure (unbiased) expectations theory
- Liquidity preference theory
- Predefined habitat theory
- Market segmentation theory
Term Structure Theories - Liquidity Preference Theory
- Forward rates reflect investors’ expectations of future rates plus a liquidity premium to compensate for exposure to interest rate risk
- Theory suggests that liquidity premium is positively related to maturity (larger premiums for longer maturities)
- Hence, an upward sloping yield curve can indicate future rise in interest rates or be also the consequence of the addition of the liquidity premium, while rates are expected to remain constant
Term Structure Theories - Predefined habitat theory
- Forward rates reflect investors’ expectations of future rates plus a premium, which is not directly related to maturity (in contrast to liquidity preference theory)
- Suggests the existence of an imbalance between supply and demand for funds in a given maturity range (habitat)
- The offered risk premium shall compensate the lenders for exposure to price and/or reinvestment rate risk in the “less-than-preferred” maturity range
Term Structure Theories - Market Segmentation Theory
- As in preferred habitat theory it is proposed that lenders and borrowers have preferred maturity ranges
- The theory relies on the idea that some investors have restrictions (either legal or practical) on their maturity structure (as for example for money market funds or life insurance companies)
- Furthermore, it is assumed that both lenders and borrowers are unwilling to shift out their preferred -> The shape of the yield curve is completely determined by the supply and demand for securities within each maturity segment
- At the extreme, this implies that rates for a given maturity band will be determined independently of those for all other maturity bands
Term Structure Theories - Pure (unbiased) expectations theory
- Suggests that forward rates are solely a function of expected future spot rates
- Long-term interest rates equal the mean of future expected short-term rates
- Implication: Same return by investing in a 1-year bond or by sequentially investing in two 6-months bonds
What does the Pure (unbiased) expectations theory fail to recognize?
- Price Risk: Uncertainty associated with future price of a bond that may be sold prior to its maturity
-
Reinvestment risk: Uncertainty associated with the rate at which bond cash flows can be reinvested over an investment horizon
-> Risk difference between investing in a 1-year bond and sequential investing in two 6-month bonds is not recognized
Information provided by rating agencies on credit risk
- Credit Rating
- Rating watch
- Rating outlook
Information provided by rating agencies on credit risk - Credit Rating
- Reflects probability of default (default rate) and the possible loss to the investor if default occurs (default loss rate)
- The higher the credit rating the lower the default rate and the default loss rate
Information provided by rating agencies on credit risk - Rating Watch
- The announcement of a review of the current rating and a resulting possible up- or downgrade
- Example: An upgrade watch means that the agency may issue an upgrade, usually within 3 months
Information provided by rating agencies on credit risk - Rating Outlook
- The issue of a long-term projection which looks out six months to two years
- It is projected whether an issue is likely to be upgraded, downgraded or to keep its current rating
The “Four Cs” of Corporate Credit Analysis
- Character
- Covenants
- Collateral
- Capacity to pay
The “Four Cs” of Corporate Credit Analysis - Character
- Management’s integrity and commitment to repay the loan
- Management’s business qualification
- Management’s ability to react to unexpected events
- Corporate governance structure (S&P’s corporate governance rating)
The “Four Cs” of Corporate Credit Analysis - Covenants
- Affirmative covenants: Require the debtor to take certain actions
- Negative covenants: Prohibit the borrower from taking certain actions, usually by requiring the borrower to maintain certain ratios at specified levels
The “Four Cs” of Corporate Credit Analysis - Collateral
- Includes the assets offered as security for the debt as well as other assets controlled by the issuer
- Borrowings can be secured with a pledge of assets or they may be unsecured (value of unpledged assets very important)
The “Four Cs” of Corporate Credit Analysis - Capacity to Pay
- Refers to the ability of the borrower to generate cash flows or liquidate short-term assets to repay its debt obligations
- Liquidity positions are a key determining factor as cash must be there when debt payments are due
The “Four Cs” of Corporate Credit Analysis - Capacity to Pay: Possible Sources of Liquidity (5)
- Working capital (current assets and current liabilities) -> short term solvency ratios
- Dependable, steady cash flow (cash flow analysis)
- Back-up facilities, as lending agreements or informal agreements
- Securitizing assets (MBS and ABS)
- Third party guarantees (e.g. by a parent company)
Credit Analysis with ratios
- Profitability ratios: As margins, access the ability to generate earnings
- Short-term solvency ratios: Measure the ability of liquidation of short-term assets
- Capitalization (financial leverage) ratios
- Coverage Ratios
Credit Analysis with ratios
- Interpretation of Ratios
- Limitations of Ratios
Interpretation of ratios:
- Falling short-term solvency and coverage ratios and increasing capitalization ratios are signs for a downgrade
Limitations of ratios:
- Ratios are only a snapshot at a given point in time and are not forward looking
Credit Analysis for Asset-Backed Securities (ABS) - Factors (4)
- Collateral credit quality
- Seller/servicer quality
- Cash flow stress and payment structure
- Legal Structure
Credit Analysis for Asset-Backed Securities (ABS) - Collateral credit quality
- Most important issue for analysis
- Evaluation if it provides cash flow for interest and principal payment over the life of the issue
- Concentration of loans in the collateral pool (-> diversification)
Credit Analysis for Asset-Backed Securities (ABS) - Seller/Servicer Quality
- Third-party ABS servicer collects the payments, notifies the issuer of delinquencies (= Zahlungsrückstände), recovers and liquidates the collateral and is responsible for the distribution of cash flows to the bondholders
- Servicer should therefore be assessed concerning its performance history, experience, underwriting standards, servicing capabilities, financial strength and growth
- When the servicer’s responsibility goes beyond administrative tasks (hybrid transaction), corporate credit analysis is used to evaluate the servicer’s credit quality
Credit Analysis for Asset-Backed Securities (ABS) - Cash Flow stress and payment structure
- Passthrough, i.e. one senior tranche with pro rata distribution of cash flow
- Paythrough, i.e. senior tranche divided into multiple senior tranches (ABS tranches) subject to a set of rules of distribution of cash flow
Credit Analysis for Asset-Backed Securities (ABS) - Legal Structure
- SPV (special purpose vehicles) constructions have the consequence that in the event of bankruptcy, the assets of the SPV are not included in corporate assets
-> An ABS rating must be worked out independently of corporate credit ranking
Credit Analysis for Municipal Bonds
- Tax-Backed Debt
- Revenue Bonds
Tax-backed debt
- Issuer’s debt structure (e.g. debt per capita)
- Budgetary policy
- Local tax and availability of intergovernmental financial support by a higher governmental level
- Issuer’s socioeconomic environment (e.g. employment level, economic environment etc.)
Revenue bonds
- Limits of the basic security (e.g. limitations on project revenues)
- Flow of fund structure
- Rate, or user charge, covenants
- Additional-bonds test
