Corporate Debt Flashcards
when the stated rate is higher than the current yield what is the bond trading at?
Premium
When the stated rate is lower than the current yield what is the bond trading at?
Discount
Conversion Ratio
Par/Conversion ratio
Corporations are obligated to make interest payments on all the following EXCEPT?
Adjustment Bonds: these ONLY pay interest if the corporation hits a predetermined level of earnings
What are the best features of ETC’s Equipment Trust Certs?
ETC’s issued in serial maturities.
Secured by specified Corporate Assets
Commonly issued by Transportation Companies
Are Guaranteed Bonds secured?
NO! They are only guaranteed by a second party who has a better credit rating than the issuer so it can be sold at a lower interest rate.
What is Funded Debt?
Long Term Corporate Obligations: Corporate Bonds,
Short term debt is “Unfunded” debt
How can Corporations redeem their debt security prior to the maturity dates?
Purchase outstanding debt securities in the open market
Tender for outstanding debt securities at a price determined by the issuer
Calling outstanding securities at pre-established dates and prices
What types of corporate debt are unsecured?
Subordinated Debentures, Debentures, Commercial paper
When do Mortgage Bonds pay interest?
Semi-annually, and are a secured debt
Do corporations have an obligation to pay adjustment bonds?
NO! They only have to pay debentures, subordinated debentures and ETC’s.
Adjustment Bonds (Income Bonds)
Any interest payment made is predictable in amount, timing of interest payments is unpredictable -BECAUSE the corporation is NOT obligated to make the payments if the can’t “afford” it
Who is a trust indenture an agreement between?
Issuer and the trustee where the trustee acts for the benefit of the bondholders
