Defining elements Flashcards
What are affirmative covenants?
They are requirements placed on the issuer.
What are negative covenants?
They are restrictions placed on the issuer.
What is credit enhancement?
They are provisions that reduce the credit risk of a bond issue resulting in a lower yield.
What are eurobonds?
Bonds that are denominated in a currency other than the local currency where they are issued. They are bearer bonds.
What are bearer bonds?
They have no record of bond ownership kept by the trustee.
What are registered bonds?
The trustee maintains a record of bond ownership.
What are gloabl bonds?
They are issued in the Eurobond market and in at least one domestic bond market.
What is a bullet bond?
The bond only makes periodic interest payments, with the entire principal amount paid back at maturity. It is a lump sum.
What is a sinking fund arrangement?
It requires the issued to repay a specified potion of the principal amount every year throughout the bond’s life or after a specified date.
What are credit-linked coupon bonds?
They change when the bond’s credit rating changes.
What are (payment-in-king) PIK coupon bonds?
They allow the issued to pay interest in additional bonds instead of cash.
What are index-linked bonds?
They are bonds whose coupon payments and/or principal repayments are linked to a specifies index.
What are the different types of exercise styles of a bond? Describe them.
- American call: an be call by the issued at any time starting on the first call date.
- European calls: can only be called by the issuer on the call date.
- Bermuda-style calls: can be called by the issued on specific dates following the call protection period.
What are warrants?
They are bonds that offer the holder the right to purchase the issuer’s stock at a fixed exercise price until the expiration date.
