Corporate Debt - CH2 Flashcards
1
Q
What is Corporate debt?
A
Debt to businesses that must be repaid.
2
Q
What forms of debt can Corporate debt take?
A
- Loans or overdrafts.
- Corporate bonds.
3
Q
What are the pros of Debt financing?
A
- Less expensive than equity financing.
- Less risky than equity financing.
4
Q
Why is Debt financing less risky than equity financing?
A
This is because if a company goes into liquidation, debt must be repaid first before any dividends to investors.
5
Q
What is meant by Default?
A
The issuer of debt is unable to pay back the interest and/or principal.
6
Q
What can be done to make Default less likely?
A
Securing the debt. This is done in two ways: Debenture and a floating charge.
7
Q
What is a Debenture?
A
Debt carries a charge over a specific company asset, e.g. a building.
8
Q
What is a Floating Charge?
A
Debt is secured against a group of company assets.
