Corporate Debt Flashcards
The very first bonds issued were
Bearer Bonds
A principal only bond is
A bond registered to the principal only. Face amount of bond is now registered but bond still has bearer coupons attached.
Both bearer bonds and principle only bonds haven’t been issued since
1983
A fully registered bond is
A bond that is registered to principal and interest.
Present day bonds are issued how
Book Entry
Describe a Trust Indenture
Bond contract. Spells out the interest rate, maturity, collateral, call or put provisions and all other relevant feature of the bond.
What does the Trust Indenture Act of 1939 say
Corporate issues of $50,000,000 or more must have a trust indenture.
Long-Term corporate debt is also referred to as
Funded Debt
What is SECURED corporate debt
A bond that has specific collateral pledged to back it.
What are the three main types of secured corporate debt
Mortgage bonds, collateral trust bonds (CTB), and Equipment trust certificates (ETCs)
Describe secured mortgage bonds
Bonds that are backed by real estate owned by the corporation.
Describe secured collateral trust bonds
Backed by another companies (stock or bond) held in trust by the corporation.
Common for a parent company to use subsidiary stock as collateral.
Describe secured equipment trust certificates (ETCs)
Backed by equipment used by the corporation.
Serial maturity is used to counteract the depreciation in collateral value over time.
What is an unsecured bond
Debt backed by the issuer’s promise to pay. NO collateral backing.
A short-term unsecured bond would be
Commercial Paper
A long-term unsecured bond would be
Debenture (Long term Bond), subordinated debenture, guaranteed bond, and income (adjustment) bond.
Describe unsecured commercial paper
Debt that matures in 270 days or less. But typically ranges between 14 to 90 days with 30 days being the most common.
$100,000 minimum denomination
Primarily sold to institutional investors.
Sold at a discount. No interest payments.
Describe unsecured debentures
Long Term Bond backed solely by the full faith and credit of the issuer. Issued by “Blue Chip” corporations.
Describe unsecured subordinated debentures
Lowest debt status in corporate liquidation. Usually includes a feature to induce customers to buy (Conversion or warrant).
Describe unsecured guaranteed bonds
Bond that is backed by a party other than the issuer (parent company for subsidiary or insurance company)
Takes on the credit rating of the guarantor.
Describe unsecured income (adjustment) bonds
Used by a corporation reorganizing after bankruptcy. Relives the obligation on any existing bonds. Issuer will attempt to get investors to accept.
Company will pay interest and principal only if it returns profits.
May adjust principal to a higher amount to entice investors.
Trade flat due to uncertainty of future payments.
