Debt & Leveraged Finance Flashcards
What is the difference between investment grade and speculative grade debt?
Investment grade: (S&P/Fitch) BBB- and above. Strong credit profile, less default risk
Speculative: BB+ and below. Risker.
In a bond, what is the difference between the coupon rate, yield to maturity and current yield?
What does it mean when a bond is trading at a discount, par or premium?
What is a callable bond?
Why is prepayment unattractive to lenders?
Interest payments are foregone
Lender has to re-allocate the amount to another client, which could be on less favourable terms depending on the market
Typically include a prepayment penalty fee
What is a revolving credit facility and what purpose does it serve for the borrower?
What is an asset-based revolver?
Why do revolvers normally not have a leverage test?
What is a fixed income security and could you give a few examples?
Provides an investor with fixed, periodic interest payments and then the return of principal at the end of the term
Bonds, treasury notes and bonds
What is the money market and typical maturity?
A segment of the financial market where highly liquid and short-term debt instruments are traded.
It is primarily used by governments, financial institutions, and corporations to manage short-term liquidity needs and as a place for investors to safely park funds temporarily while earning a small return.
Maturity typically less than a year, with most overnight to six months.
Examples of instruments: Treasury Bills and commercial paper
What is the difference between coupon bonds and discount bonds?
What is the concept of duration?
What are maintenance covenants and could you provide some examples?
What are incurrence covenants and give examples?
Cannot incur additional indebtedness, grant security over / encumber assets etc.
What are the characteristics of mezzanine financing?
What is commercial paper and which types of companies issue them?
What is interest rate risk in relation to bonds a reference to?
In mezzanine financing, what is an equity kicker?
