CTP Chapter 6 Flashcards
An equity account that reflects the difference at the time of issue between the par value and the issuance price (less underwriting costs) of any new stock sold by a company.
additional paid-in capital (APIC)
The contract between the issuing entity of a bond and the bondholders.
bond indenture
A security with income derived from a pool of assets, such as accounts receivable or credit card receivables.
asset-backed security (ABS)
The book value of total common stockholders’ equity divided by the number of common shares outstanding.
book value per share
A bond provision that gives the issuing entity the right to call in a bond or other issue for redemption prior to the original maturity. As compensation to investors for early redemption, a call premium is generally paid when a bond is called. The call premium usually is set on a sliding scale, with larger premiums above par required the earlier an issue is called
call provision
Funds used by a business to purchase long-term, typically fixed assets, such as land, machinery, or buildings. It may also refer to investments in long-term securities that are typically used to finance the purchase of such assets. Also known as a long-term investment.
capital investment
A market in which individuals and institutions trade financial securities with maturities in excess of one year. Organizations/institutions in the public and private sectors also often sell long-term (debt and/or equity) securities on the capital markets in order to raise funds. Thus, this type of market is composed of both the primary and secondary markets.
capital market
Assets used as security for a loan or bond issue. They may include physical assets (e.g., plant, equipment, and inventory) or financial assets (e.g., receivables and marketable securities).
collateral
A type of bond backed by securities of other companies that are owned by the firm issuing the bond.
collateral trust bond
A letter from another party stating actions that it will or will not take on behalf of a borrower. This type of agreement is not technically a guarantee and is not legally enforceable.
comfort letter
A security that represents ownership in a company. The management of a company acts as an agent for shareholders to protect their interests. Equity in the form of this usually represents a significant portion of a publicly traded company’s capital base.
common stock
A measure of the cost a company would incur to raise funds to make investments in assets. This is a function of the mix of capital components used and the individual costs of each component.
cost of capital
An additional requirement that is placed on debt or bond issues and that imposes constraints on the actions of the company’s management. These may be negative (i.e., actions the company cannot take, such as the double pledging of collateral) or affirmative (i.e., actions the company must take, such as providing regular financial statements or maintaining certain financial ratios).
covenant
An addition to a borrowing arrangement or debt securities issue meant to improve the overall credit rating on the loan or issue. It generally provides either a guarantee of payment in the event of default or an agreement to provide financing to roll over the debt issue
credit enhancement
A period of time, often specified in a loan agreement, in which an event of default may be corrected before the lender may pursue default remedies.
cure period
A third party that typically takes possession of securities, receives delivery or book entry of principal and interest payments, performs record keeping, and provides maintenance services for an investment portfolio
custodian
Unsecured bonds that represent general claims against the issuer organization’s assets and/or cash flows, and may carry a higher interest cost (to the issuer) than secured bonds.
debentures
A legal document that outlines the rights and obligations of the borrower (bond issuer) and lender (bondholder). It is a contract between the issuing company and the bondholders, which includes various restrictive covenants that impose constraints on the actions of the company’s management.
debt indenture
A financial market in which participants can issue new debt, or buy and sell debt securities.
debt market
A financial management method that removes debt from an organization’s balance sheet without actually retiring the debt issue. In this arrangement, the borrower places sufficient funds in escrow, usually in government securities, to pay for interest and principal on the debt issue. Because control of both the debt and escrow funds is relinquished, and payment and retirement of the debt issue is now guaranteed, this debt and the related securities can be removed from the balance sheet and do not need to be considered in relation to any restrictive covenants the organization may have regarding debt.
defeasance of debt
A type of negotiable financial instrument (typically an equity security) that trades on a local exchange but actually represents stock ownership in a foreign, publicly listed company.
depositary receipt (DR)
A type of bond typically issued by a developing country or sponsoring organization, such as the World Bank or the International Monetary Fund, for the express purpose of fostering development of infrastructure and related projects.
economic development bond
A type of bond that is secured by movable equipment (e.g., an aircraft, a fleet of trucks, or railroad equipment). Each certificate is backed by a specific asset or group of assets (i.e., there is no blanket lien securing the issue).
equipment trust certificate
A market where shares in companies are issued and traded. Consisting of both primary and secondary markets, it is also known as the stock marke
equity market
Stock (shares) that represents the ownership of publicly owned corporations.
equity securities
An action or circumstance by which a borrower breaches or violates any term or condition under a debt agreement.
event of default
A type of bond sold simultaneously in many countries outside the country of the borrower and denominated in a currency other than that of the country in which it is issued. Usually, this is issued by an international syndicate and categorized according to the currency in which it is denominated. Sometimes called an external bond
Eurobond
An economic measure reflecting the market value of a business. It is a sum of claims by all claimants: creditors (secured and unsecured) and shareholders (preferred and common).
firm value
A type of debt issue that carries interest payments that reset periodically based on movement in a representative interest rate index. Also known as adjustable-rate debt.
floating-rate debt
A type of bond sold in a particular country by a foreign borrower, but usually denominated in the domestic currency of the country where issued. These bonds are primarily regulated by the authorities in the country of issue.
foreign bond
