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ACCO320B > Chapter 14: Long-term Financial Liabilities > Flashcards

Chapter 14: Long-term Financial Liabilities Flashcards

1
Q

Green Bond

A

Fixed-income instrument that is used to raise money for environmental projects

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2
Q

Restrictive Covenants

A

Terms or conditions that are meant to limit activities and protect both lenders and borrowers

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3
Q

Bond indenture

A

A bond indenture is a promise (by the lender to the borrower) to pay:
a sum of money at the designated date, and
periodic interest (usually paid semi-annually) at a stipulated rate on the face value.
They are traded on public markets.

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4
Q

Firm Commitment Underwriting

A

an investment banker underwrites the whole issue by guaranteeing a certain sum to the corporation thus taking the risk of selling the bonds for whatever price the agent can get

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5
Q

Best Efforts Underwriting

A

when an investment banker will sell as possible of a bond/note payable for a commission

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6
Q

Private Placement

A

place bond privately by selling the bonds directly to a large institution.

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7
Q

Registered Bonds

A

Also called bearer or coupon bonds. issued in the owner’s name. To sell, you reissue a new certificate

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8
Q

Secured or Unsecured Debt

A

Secured is backed by a pledge:
1. mortgage bonds or notes: secured by real estate
2. Collateral trust bonds: secured by shares
Unsecured is not backed by collateral
1. debenture & junk bonds: very risky, pay high interest

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9
Q

Term Bonds

A

issues that mature in instalments, also called serial bonds or notes

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10
Q

Perpetual Bonds or notes

A

unusually long-term i.e. 100 years

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11
Q

Income bond

A

pays no interest unless the company is profitable

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12
Q

Revenue bond

A

type of income bond, but only takes a specific type of revenue

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13
Q

deep discount bonds or notes

A

also called zero-interest debentures, bonds or notes. have little to no interest each year and sold at a large discount, pays total interest payoff

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14
Q

Commodity-backed debt

A

also called asset-linked debt; redeemable in amounts of a commodity such as barrels, oils, coal, metal

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15
Q

Callable bonds and notes

A

give the issuer the right to call and retire the debt before maturity

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16
Q

convertible debt

A

allows the holder or the issuer to convert the debt into other securities such as common shares

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17
Q

investment grade rating

A

high-quality securities and therefore only certain securities qualify

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18
Q

Legal Defeasance

A

if the creditor of the original debt agrees to look to the trust for repayment and give up its claim on the company

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19
Q

Defeasance

A

set aside money in a trust to repay the debt

20
Q

Stated, coupon, or nominal rate

A

% of the bond’s face value

21
Q

Face value

A

also called par value, principal amount, maturity value

22
Q

Bond Discount

A

bond sells for less than their face value

23
Q

Premium Bond

A

bond sells for more than their face value

24
Q

effective yield or market rate or Yield Rate

A

interest rate earned by bondholders
1. discount: effective yield > stated rate
2. Premium: Effective yield<stated rate

25
Q

2 Methods to amortize a discount/premium

A

IFRS: Effective Interest Method
ASPE: Straight-line Method

26
Q

Effective Interest Method (Formula)

A

Interest Expense - Interest Paid = Amortization Amount

Interest Expense: CA of debt at the beginning of period * effective interest rate

Interest Paid: Face amount of debt * stated interest rate

27
Q

Marketable Securities

A

issued for cash, FV is cash received by issuer

28
Q

Imputed interest rate

A

rate that makes the cash that is received now equal to the present value of the amounts that will be paid in the future.

Amortization: Face - PV

29
Q

Fair Value Option

A

L-T Debt is measured at amortized cost
ASPE: Allows L-T debt to be measured at Fair-Value; changes in FV are recognized in Net Income
IFRS: only used where FV is more relevant

30
Q

Derecognition of debt

A

No gain or loss is recognized as CA=Maturity level

31
Q

Extinguishment of debt

A
  1. debtor discharges the liability by paying the creditor
  2. debtor is legally released from primary responsibility for the liability by law
32
Q

Reacquisition Price

A

amount paid on:
1. extinguishment before maturity (Call premium + Expense of reacquisition)
2. Early Repayment

33
Q

Refunding of L-T Debt

A

replacement of an existing issuance with a new one

34
Q

Troubled Debt Restructuring

A

occurs when, for an economic or legal reason that are related to the debtor’s financial difficulties. A concession is offered to the debtor

34
Q

Debt Settlement

A

when the debt is settled, meaning there is early repayment or refunding

34
Q

Loan foreclosure

A

forcing the debtor to transfer the asset if it has a legal charge on the asset

35
Q

Settlement

A

old liability is eliminated and a new liability is assumed

36
Q

Non-substantial Modification of Terms

A

ASPE: new effective interest rate is imputed by equating the CA of original debt w/ present value of the revised cash flow
IFRS: Discounting New Cash Flows at the original effective interest rate

37
Q

in-substance defeasance

A

either the lender is not notified of Defeasance OR lender refuses

38
Q

Off-balance Sheet Financing

A

structures a financing deal that results in obligations not being recorded as debt on the statement of financial position

39
Q

Types of off-balance sheet financing

A

Non-consolidated entities, Special Purpose Entities or variable interest entity, operating leases

40
Q

Non-consolidated entities

A

when a company does not own more than 50%

41
Q

Special Purpose Entity

A

A company is created to perform a special project or function

42
Q

Securization

A

the company then sells the assets to a special purpose entity in return for cash. Investors invest in a special purpose entity to benefit from the return on the assets and certain tax advantages

43
Q

Solvency

A

ability to pay interest as it comes due and to repay the face value of debt at maturity

44
Q

Debt to total assets

A

total debt / total assets

45
Q

What is a par value?

A

Par value for a L-T debt is when the effective (market) rate is the same as the stated rate

ACCO320B (2 decks)

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