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28 Cards in this Set
- Front
- Back
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What are corporate senior instruments?
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financial obligations of a corporation that have priority over its common stock in case of bankruptcy; include debt obligations and preferred stock
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What is securitization?
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the phenomenon of borrower preference for issuing securities over borrowing directly from banks
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What is the spread?
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on top of the yield on a T-security, it is the premium that a corporation must payout for the risk associated with their debt instrument that do not exist in the T-security; increase in credit spread results in decline in the price of the issue
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What are the 5 sectors of corporate debt obligations?
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1. commercial paper market
2. medium-term not market 3. bank loan market 4. bond market 5. corporate bond market |
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What is commercial paper?
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short-term unsecured promissory note in the open market; for large corporations with strong credit ratings; bridge financing- issue them until market is favorable for long-term debt; maturity is less than 270 days; most common 30-50 days or less; don't have to register with SEC if less than 270 days; held mostly by money market mutual funds and institutional investors; very little secondary trading
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What are the 3 types of financial companies?
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1. captive finance companies
2. bank-related finance companies 3. independent finance companies |
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What are captive finance companies?
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subsidiaries of equipment manufacturing companies; secure financing for parent company
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What is a letter of credit or LOC paper?
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allow firms with poor ratings to issue commercial paper; specifies that the bank issuing the letter guarantees that the bank will pay off the paper when it comes due, if the issuer fails to do so
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What is Yankee commercial paper?
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commercial paper issued by foreign entities
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What are the two classifications of commercial paper?
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1. direct paper
2. dealer-placed paper |
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What is direct paper?
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direct paper is sold by issuing firm directly to investors with intermediaries
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What is dealer-placed paper?
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requires the services of an agent to sell an issuer's paper; best efforts underwriting basis
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What is Samurai commercial paper?
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issuace of yen-dominated commercial paper in Japan by non-Japanese entities
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What is Eurocommercial paper?
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commercial paper issued and placed outside the jurisdiction of the currency of denomination; maturity can be longer than American paper; does not require as much credit backing as American paper; usually dealer placed; numerous dealers participate unlike US paper; more trading in secondary market than done with US paper
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What is a medium-term note (MTN)?
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corporate debt instruments that are continuously offered to investors over a period of time by an agent of the issuer; several maturity ranges; fills gap between commercial paper and long-term bonds
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What are Euro medium-term notes?
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those issued in Euromarket; started in 1987;
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What are structured notes?
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MTNs that are created when the issuer simultaneously transacts in the derivate markets
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What are Eurocurrency loans?
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loans made by offshore banks
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What is a syndicated bank loan?
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group of banks provides funds to the borrower
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What are senior bank loans?
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another name for syndicated bank loans; have a priority position over bondholders with respect to repayment of interest and principal
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What is a floating rate?
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interest rate on a syndicated bank loan floats; loan rate is based on some reference rate or reference rate plus a spread; reference rate is typically the London Interbank Offered Rate (LIBOR)
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What are bullet loans?
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structures in which no repayment of the principal is made until the maturity date
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What are performing loans?
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a loan whose borrower has fulfilled all obligations to date
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What is a leveraged lease?
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type of leasing arrangement whereby the lessor provides only a portion of the funds to finance the cost of the leased asset, and the balance is borrowed from a third party; 3 parties: the lessee, the lessor and the lender
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What is a lessee?
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potential equipment user
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What is a lessor?
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bank or finance company that buys the equipment and leases it to the lessee
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What are tax-oriented leases?
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lease in which in exchange for tax benefits, a lessor provides lower-cost financing to the lessee than the lessee could get by purchasing the equipment with borrowed funds
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What are single-investor or direct leases?
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lessor provides financing from its own funds and has 100% of the risk
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