9 - Debt finance Flashcards
What is debt security?
tradeable piece of paper issued by the company in return of a loan - acknowledging the bank’s rights against the company
What is security for a debt?
borrower gives lender proprietary rights over an asset - protect lender against non-payment
What is a fixed charge?
gives the bank a right over sale proceeds of a specified asset - borrower cannot sell/deal with the asset without the bank’s consent
What is a floating charge?
gives the bank a right over sale proceeds over a fluctuating class of assets
‘Earnings per share’
Used to measure the financial performance of a company.
Shows return due to ordinary shareholders
Increase in number of shares in issue = Dilution of earnings per share figure
What is debt finance?
raising money through borrowing, taking out a loan, or issuing a debt security
What is a negative pledge?
A way in which a creditor can protect his position = an undertaking in the loan agreement where the borrower promises to not give security to any other lender
Highly geared company
high level of debts compared to equity
possessory vs non-possessory securities
Possessory = lender is owed money and has item
Non-possessory = lender does not have asset, but there are rights in the asset
What is stronger - fixed charge or floating charge?
fixed charge.
floating charges are lower in priority and do not know what will be in asset pool when charge crystallises.
who usually registers the charge at CH?
lender’s solicitors because they have the most to lose
what is the order of priority between creditors?
shareholders preferential creditors unsecured creditors fixed charge holders floating charge holders
- fixed charge holders
- preferential creditors
- floating charge holders
- unsecured creditors
- shareholders (according to the rights attached to shares)
what is an ‘event of default’?
term in loan agreement = on any late payment or non-payment, the principal amount lent + interest becomes immediately repayable
