第二十章长期负债.pptx

第二十章长期负债.pptx

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Chapter20Long-TermDebt,20.1LongTermDebt:

AReview20.2ThePublicIssueofBonds20.3BondRefunding20.4BondRatings20.5SomeDifferentTypesofBonds20.6DirectPlacementComparedtoPublicIssues20.7Long-TermSyndicatedBankLoans20.8SummaryandConclusions,20.1LongTermDebt:

AReview,Corporatedebtcanbeshort-term（maturitylessthanoneyear）orlong-term.Differentfromcommonstock:

CreditorsclaimoncorporationisspecifiedPromisedcashflowsMostarecallableOverhalfofoutstandingbondsareownedbylifeinsurancecompanies&pensionfundsPlainvanillabondsto“kitchensink”bonds,FeaturesofaTypicalBond,TheindentureusuallylistsAmountofIssue,DateofIssue,MaturityDenomination（Parvalue）AnnualCoupon,DatesofCouponPaymentsSecuritySinkingFundsCallProvisionsCovenantsFeaturesthatmaychangeovertimeRatingYield-to-MaturityMarketprice,FeaturesofaHypotheticalBond,20.2ThePublicIssueofBonds,Thegeneralprocedureissimilartotheissuanceofstock,asdescribedinthepreviouschapter.Indenturesandcovenantsarenotrelevanttostockissuance.Theindentureisawrittenagreementbetweentheborrowerandatrustcompany.TheindentureusuallylistsAmountofIssue,DateofIssue,MaturityDenomination（Parvalue）AnnualCoupon,DatesofCouponPaymentsSecuritySinkingFundsCallProvisionsCovenants,PrincipalRepayment,TermbondsversusserialbondsSinkingfunds-howdotheywork?

FractionalrepaymenteachyearGoodnews-securityBadnews-unfavorablecallsHowtrusteeredeems,ProtectiveCovenants,AgreementstoprotectbondholdersNegativecovenant:

Thoushaltnot:

paydividendsbeyondspecifiedamountsellmoreseniordebt&amountofnewdebtislimitedrefundexistingbondissuewithnewbondspayinglowerinterestratebuyanothercompanysbondsPositivecovenant:

Thoushalt:

useproceedsfromsaleofassetsforotherassetsallowredemptionineventofmergerorspinoffmaintaingoodconditionofassetsprovideauditedfinancialinformation,TheSinkingFund,Therearemanydifferentkindsofsinking-fundarrangements:

Moststartbetween5and10yearsafterinitialissuance.Someestablishequalpaymentsoverthelifeofthebond.Mosthigh-qualitybondissuesestablishpaymentstothesinkingfundthatarenotsufficienttoredeemtheentireissue.Sinkingfunsprovideextraprotectiontobondholders.Sinkingfunsprovidethefirmwithanoption.,20.3BondRefunding,Replacingallorpartofabondissueiscalledrefunding.Bondrefundingraisestwoquestions:

Shouldfirmsissuecallablebonds?

Giventhatcallablebondshavebeenissued,whenshouldthebondsbecalled?

CallableBondsversusNoncallableBonds,Mostbondsarecallable;somesensiblereasonsforcallprovisionsinclude:

taxes,managerialflexibilityandthefactthatcallablebondshavelessinterestraterisk.,20.4BondRatings,Whatisrated:

Thelikelihoodthatthefirmwilldefault.Theprotectionaffordedbytheloancontractintheeventofdefault.Whopaysforratings:

Firmspaytohavetheirbondsrated.Theratingsareconstructedfromthefinancialstatementssuppliedbythefirm.Ratingscanchange.Raterscandisagree.,BondRatings:

InvestmentGrade,BondRatings:

BelowInvestmentGrade,Junkbonds,AnythinglessthananS&P“BB”oraMoodys“Ba”isajunkbond.Apoliteeuphemismforjunkishigh-yieldbond.Therearetwotypesofjunkbonds:

OriginalissuejunkpossiblynotratedFallenangelsratedCurrentstatusofjunkbondmarketPrivateplacementYieldpremiumsversusdefaultrisk,20.5DifferentTypesofBonds,CallableBondsPuttableBondsConvertibleBondsDeepDiscountBondsIncomeBondsFloating-RateBonds,Puttablebonds,PutprovisionsPutpricePutdatePutdefermentExtendiblebondsValueoftheputfeatureCostoftheputfeature,ConvertibleBonds,Whyaretheyissued?

Whyaretheypurchased?

Conversionratio:

NumberofsharesofstockacquiredbyconversionConversionprice:

Bondparvalue/ConversionratioConversionvalue:

PricepershareofstockxConversionratioIn-the-moneyversusout-the-money,ConvertibleBondPrices,ExampleofaConvertibleBond,MoreonConvertibles,ExchangeablebondsConvertibleintoasetnumberofsharesofathirdcompanyscommonstock.Minimum（floor）valueofconvertibleisthegreaterof:

Straightor“intrinsic”bondvalueConversionvalueConversionoptionvalueBondholderspayfortheconversionoptionbyacceptingalowercouponrateonconvertiblebondsversusotherwise-identicalnonconvertiblebonds.,ExampleofanExchangeableBond,20.6DirectPlacementComparedtoPublicIssues,Adirectlong-termloanavoidsthecostofregistrationwiththeSEC.Directplacementislikelytohavemorerestrictivecovenants.Intheeventofdefault,itiseasierto“workout”aprivateplacement.,20.7Long-TermSyndicatedBankLoans,20.8SummaryandConclusions,Thedetailsofthelong-termdebtcontractarecontainedintheindenture.Themainprovisionsare:

security,repayment,protectivecovenantsandcallprovisions.Protectivecovenantsaredesignedtoprotectbondholdersfrommanagementdecisionsthatfavorstockholdersatbondholdersexpense.Mostpublicindustrialbondsareunsecuredtheyaregeneralclaimsonthecompanysvalue.Mostutilitybondsaresecured.Ifthefirmdefaultsonsecuredbonds,thetrusteecanrepossesstheasset.,20.8SummaryandConclusions（cont.）,Long-termbondsusuallyprovideforrepaymentofprincipalbeforematurity.Thisisusuallyaccomplishedwithasinkingfundwherebyafirmretiresacertainnumberofbondseachyear.Mostpubliclyissuedbondsarecallable.Thereisnosinglereasonforcallprovisions.Somesensiblereasonsincludetaxes,greaterflexibility,andthefactthatcallablebondsarelesssensitivetointerest-ratechanges.Therearemanydifferenttypesofbonds,includingfloating-ratebonds,deep-discountbonds,andincomebonds.,