Reading #52: Defining F/I Elements Flashcards
define corporation as bond issuer
issued by either financial or non financial companies
define soverign national governments as bond issuer
many countries issue soverign bonds, ex is US Treasury
define nonsoverign governments as bond issuer
issued by gov’t entities that are not antional gov’t, ex state of cali
define quasi-gov’t entities as bond issuer
not direct obligation of country’s government or central bank, ex is Fannie MAe
define supranational entity as bond issuer
issued by organizations that operate globally like IMF
define perpetual bonds
bonds with no maturity date
define money market securities
bonds with maturity less than 1 year
define capital market securities
bonds with original maturities of over 1 year
define “plain vanilla” or conventional bond
bond with fixed coupon rate
define zero-coupon bonds or “pure discount” bonds
bonds that pay no interest prior to maturity
define dual currency bond
coupon int. pymts in one currency and principal repayment at maturity in another currency
define currency option bond
investor has choice which two currencies they want to receive pymts in
define trust deed or “bond indenture”
legal contract btwn bond issuer and bondholder
define negative covenants
provisions in indenture including restrictions on asset sales, negative pldge of collateral, additional borrowing (protects the bondholder)
define affirmative covenants
provisions in indenture are to make timely int/primnicpal pymts to bond holders, to insure&maintain assets and to comply with applicable laws/regulations
define domestic bonds verus national bond market versus foreign bonds
domestic- issued by country and trade in country’s currency. foreign bonds - issued by foreign country that trade in other country’s currency on the national bond market
define eurobonds
issued outside jurisdiction of any one country and denominated in currency differnt from currency of countries they are sold
define global bonds
eurobonds that trade in national ond market of cuountry other than country that issues the currency the bond is deonominated in
bearer bonds versus registered bonds
bearer bonds is just evidenced by possessing bonds while registered bonds is recorded ownership
Define SPE (special purpose entities), SPV or SPC (vehicle or company)
entities created for sole purposes of owning specific assets and issuing bond sto provide funds to purchase the assets
define bankruptcy remote vehicles
another name for SPV because they can issue bonds at lower int. rate becuase they assets supporting the bonds are owned by the SPV
define unsecured bonds
represent claim to overall assets and cash flows of the issuer
define secured bonds
backed by a claim to specific assets of corp, reducing risk of default.
define fixed income collateral
assets pledged to support a bond issue
define equipment trust certificates
debt securites backed by equipment such as rilroad cars and oil drilling rigs
define collateral trust bonds
backed by financial assets, such as sotcks and bonds
define debentures and the trick for other countries
refers to unsecured debt in US and elsewhere, but GB and some other countries means bonds collateralized by specific assets
define covered bonds
have obligation but firm and also added protection of pool of assets segregated into an SPV
define credit enhancement
can be internal or external. overcollateralization - collagereal pledge is greater than par value, or excess spread, where yield on supporting asset greater than yield promised, or divide bond into tranches with different seniority claim
define OID (original issue discount)
pure-discount bonds sold at significatn discounts to par. these bonds can generate large tax consequences
define bullet structure of cash flows in bonds
periodict int. paymenets made over life of bond
define a coupon
interest payments from bond
define balloon payment
final payment including lump sum in additional to final interest
amortizing, fully amortizing, partially amortizing
when periodic pament include boht interest and some principal. fully amortizing is when principal fully paid off when last periodic payment is made. partial is a mix between the two (but last pmt will reflect fully amortizing schedule)
define sinking fund provision
pepayment of principal throuhg series of payments over life of the issue
define advantages of sinking fund bonds
porivisions make it so there is less credit risk
define disadvantages of sinking fund bonds
if int. rates fall, bonds trade at price above fund redemption price and bondholder can suffer loss is their bonds are chosen to be redeemed.
define FRN (floating rate notes)
bonds that pay periodic interest depending on current market rate of interest
define reference rate
market rate of interest. FRN promises to pay this plus some interset margin
define varibale-rate note
note for which margin of reference rate is not fixed
cap v. floor and who does it benefit?
cap places how high limit, benefits issuer and floor places how low limit, benefits the bondholder
define invesrse floater
coupond rate increases when reference rate decreases and vice versa
define step-up coupon bonds
coupon rates increase over time